The market for dodgy

If a consulting firm is asked to produce a dodgy report, and delivers what the client wants, where's the harm? Bill Kaye-Blake asked that last week.

Monday's New Zealand Herald reports:

Crucial figures for the $68.5 million Claudelands Events Centre were influenced by city council staff who increased the number of events and inflated the revenue expected in the first three years of operation.

A $30,000 peer review of the original "overly optimistic" 2009 Claudelands business case has revealed Hamilton City Council staff told the original author of the business case, Campbell Consulting, to increase the already optimistic number of events in the business plan by up to 50 per cent. [Emphasis added]

Staff also used higher revenue projections than those provided in the business case in the council's 10-year budget - inflating the figures in the first three years by between 6 and 11 per cent. But at the same time they lowered the operating costs by 6 to 9 per cent, which made the budgets look more attractive.

Hamilton mayor Julie Hardaker said she was waiting for chief executive Barry Harris to complete his investigation into what happened and refused to speculate on whether the council had been deliberately deceived. Council staff had been unable to explain the variation.

So instead of turning a $1.1 million surplus, Claudelands returned a $1.5 million deficit.

You can argue that Campbell Consulting is entirely blameless. They were asked by Council to provide revenue forecasts under a few different scenarios and did so to the best of their ability. Or, you can argue that they were party to a fraud on predictably gullible Hamilton voters undertaken by the Claudelands's backers within Council; they either knew or ought to have known that the revised figures requested by the funders were hopelessly unrealistic and only really had evil applications.

Voters seem to love Councils putting up big stadiums and events centres - they want to believe the lie that the venue will either turn a profit directly or will stimulate sufficient indirect economic activity to cover its costs in the grand scheme of things. If Campbell hadn't provided the case, somebody else likely would have. There's a demand for dodgy ultimately because voters like it, at least in the short run. I still think we ought heap scorn on those supplying that demand to increase the reservation price for producing dodgy reports. But in a world in which voters have no individual incentive to sort out which firms specialize in dodgy and which ones turn down RFPs where the funders make pretty clear what kind of result they want, it probably doesn't do much to solve things.

HT: Fair Play and Forward Passes, where Sam Richardson writes:

It is a sorry state of affairs, but by no means an isolated event. Hamilton ratepayers don't have to look too far to see a similar story with the V8 supercar race a prominent example. Unfortunately the same story has been repeated all around the world - overstated measures of benefit, understated measures of cost and a projected bottom line that is much more palatable than what actually eventuates.

V8 Supercar Races, Events Centres, Stadiums, Monorails, Escalators to Nowhere...