*not the actual partner in photo
The PwC tax scandal (AFR coverage) has brought to light the government’s liberal use of outside consultants (that’s “liberal” as in “a lot” not the political leaning so spare the comments) and amplified the voices of people who believe the government should be doing a lot of this work itself. Cost is of course an issue, as is a lack of oversight. But the PwC problem, now common household news at least in Australia, has brought conflicts of interest to the forefront of the discussion.
A March report by the New South Wales Auditor-General [PDF] breaks everything down by the numbers and is mentioned here because the PwC tax scandal went down on their side of the world. Home to Sydney among other cities us Yanks probably have never heard of, NSW is Australia’s largest state economy at almost 700 billion dollars, (about the size of Maryland’s when we convert AUD to USD).
The report’s analysis of spending on consultants between 2017–18 and 2021–22 shows that Big 4 professional services firms accounted for around 27% of total spent on consultants by NSW government agencies. KPMG led the pack at $72 million, EY $70 million, PwC $57 million, and Deloitte $42 million. Total spending on consultants in this time period was around $1 billion Aussie money across more than 10,000 engagements. “Most consulting engagements we reviewed were not monitored or evaluated by agencies to ensure they were delivering value,” says the report.
It also says:
Our analysis indicates that this concentration of consulting engagements within a small number of firms is increasing, with the number of firms that accounted for 50% of total spending dropping from 11 to eight between 2017–18 and 2021–22. The remaining 50% of spending on consultants during this period was spread across more than 1,000 other firms. Frequent engagement of a small number of providers may have some benefits for agencies, such as helping them to negotiate lower rates. However, it creates a range of risks, including over-reliance on a limited number of providers for advice and potentially reducing the independence of advice.
Another concern when it comes to government reliance on outside consultants: knowledge transfer. The idea being that when you pay people to do stuff rather than have your own people do the stuff, your people don’t really figure out how to do the stuff. Teach a man to fish et al.
Our examination of a sample of consulting engagements identified only 11 engagements (13% of our sample) that included evidence that knowledge transfer or plans for retention of knowledge were built into agreements with consultants. There is no formal requirement for knowledge transfer or retention plans to be included in consulting engagements, and it is possible for staff at agencies to gain some knowledge from consulting engagements informally or indirectly. However, using a structured approach to transferring and retaining knowledge from consulting engagements would increase the likelihood that opportunities to improve staff skills are maximised. This may reduce the chance that agencies will need to re-engage consultants to do similar work in the future.
TL;DR: Most agencies did not transfer or retain knowledge and skills from consulting engagements.
That last one rated a mention in a recent Daily Telegraph article quoting former partner and public servant Jim Birch, who led the health and human services practice at EY Asia Pacific and government and public sector practice for EY Oceania. He says several factors have led to an overreliance on outside consultants, particularly knowledge gaps. “The most significant is the progressive erosion of capability in the public sector over many years,” he said. “Efficiency dividends, a reduction in executive overheads, the paucity of senior executive training and career paths, poor succession planning, has resulted in a loss of great capability.”
“It is very important that consultants are used only for very highly skilled requirements and also where it is clear that a major program of work is so large and complex that it requires some additional specialised skills,” he added. “Too often consultancies are providing employees as backfill for public sector staff gaps.”
Big 4 firms are currently being grilled by the Senate’s Finance and Public Administration References Committee to help the government answer the question “why tf did this PwC situation even happen!?” The inquiry “was established to investigate the concentrated power of the Big Four consulting firms, who seem to have been allowed to set up a shadow government alongside our public service that is far less transparent, far less accountable and in some cases far less ethical than it should be,” said Senator Barbara Pocock, who has been going HARD on consulting firms lately.
The ethical inbox appears to be a mysterious black hole where information about dodgy practices just disappears! This what happened when I asked Treasury about PwC at our Senate Inquiry on consultants today. pic.twitter.com/uGBCuWjtC6
— Barbara Pocock (@BarbaraPocock) June 7, 2023
Peter Collins opened a real Pandora’s box when he leaked confidential intel to his colleagues that’s for sure.