Why big consulting is on the nose
Amid allegations of cost overruns, conflicted advice, confidentiality breaches and advice shopping, the advisers have a brand problem with government.
It has not been a great time for professional advisers to government.
A series of reports, reviews and investigations has highlighted concerns about the high cost of consultants and lawyers, rampant duplication, cost overruns, shopping around of advice and the deskilling of the public service.
At the same time it has emerged the big consulting houses were among the biggest vendor donors to the political parties in the run-up to last year’s federal election.
Meanwhile, the value of consulting contracts to Canberra more than doubled over the last nine years from $352 million to $888 million in 2021–22, according to the national audit office.
.
This is almost certainly a major understatement. Many IT contracts are not tagged as consultancy work, though all the big firms undertake design and development work. The Australian Financial Review has estimated the big five consulting firms alone earned more than $2 billion in 2021-22 from Commonwealth agencies.
PwC, which earned an estimated $329 million in federal work last year, has come in for special attention.
The firm, which has a reputation for its hard-nosed culture, was called out for breaches of confidentiality with the Australian Tax Office, shocking the treasurer and sparking a government-wide search for any other infractions.
PwC already had a reputation for aggressive tax planning and in Parliament this week Government Services Minister Bill Shorten derided the firm’s role in the robo-debt saga.
In agonising royal commission testimony, it was revealed PwC never formally delivered a final report, after an earlier draft in powerpoint had found savings were overstated and the accuracy of the scheme flawed.
“This draft report was never sent,” Shorten told question time, amid howls of derision.
“Apparently there was never any written request for it not to be sent or to be sent. It simply disappeared. The trail went cold. A million dollars was paid, but there was no report.”
Commissioner Catherine Holmes suggested the decision to not produce the adverse final report had been based on a “nod and a wink” from the then department of Human Services. She said PwC took a “laissez-faire” approach to its contractual obligations.
The robo-debt royal commission had already heard that top-tier government litigation firm Clayton Utz had offered to “rework” “catastrophic” advice to the Social Services Department, even though it conceded there was “not a lot of room” to do so.
Similar themes of advice shopping were on display in NSW during the botched attempt to move $40 billion of transport assets to a holding company, known by the zippy name of TAHE (Transport Asset Holding Entity).
According to a January report from NSW Auditor-General Margaret Crawford, a few firms were used repeatedly to provide advice on the same topic.
Sixteen consulting firms were employed to work on 36 contracts covering the design and implementation of TAHE.
“Three consulting firms (Boston Consulting Group, Ernst and Young and KPMG) were employed multiple times over the period 2014 to 2021,” Crawford said.
Boston Consulting Group was employed five times, EY eight times and KPMG seven times.
“There is also one instance of a consulting firm being employed by more than one agency at the same time (KPMG was employed by both Transport for NSW and Treasury in 2020).”
Crawford also noted the value of the TAHE consulting contracts had jumped from the $12.9 million initial estimate to $22.6 million.
A similar complaint about scope creep was made by the National Audit Office, which found the value of contract amendments for all Commonwealth suppliers had increased from $4.0 billion in 2012–13 to $28.3 billion in 2021–22.
In a separate report, the national auditor was critical of a series of contracts to Deloitte to upgrade the myGov portal that blew out from $9.8 million to $28.1 million.
The audit office similarly criticised a contract with the Nous consulting group. That work was to develop the funding case for the myGov rebuild, and the contract was extended 10 times, taking it from $121,000 to $4.9 million.
London effort flops
Many of the reviews have exposed the naivety of government agencies and a constant theme has been the inability of agencies to effectively manage consulting agreements. The joint public accounts committee is now reviewing the cost blowouts, including in Defence and the Industry Department.
But the new government’s plan to claw back more than $3 billion in savings by in-sourcing advice and contractors hit a setback this week after it emerged the UK government closed its internal consulting hub.
The cabinet located hub, known as Crown consulting, had struggled to gain traction as agencies continued to source advice externally. It also lost its political patron, who resigned in anger over a botched COVID-19 grant scheme.
In Canberra, Labor had pledged to also set up a similar internal hub and the lessons on why the UK hub flopped are now being absorbed.
As the Department of Finance considers how to put in place controls across the Australian public service, there has been a conspicuous silence from the big consulting firms on how to rebuild the strained relationship with government.
Given the spread of government responsibilities there will always be need for surge capacity and specialist independent expert advice. There is now a proper consulting central procurement panel which is bringing pricing discipline, so the challenge is how to ensure knowledge is transferred and captured.
A “playbook” developed by the UK details how to “systematise” the generation, transfer and sharing of knowledge from consultancyengagements. This has included a so-called “Knowledge Exchange” platform.
Launched in late 2021, this is a cross-government knowledge sharing platform and the go-to place to search and share the output from consultancy engagements such as actual materials delivered to clients (scrubbed to remove sensitivities), methodologies, tools, “how-to guides” and cases.
Political donations are always closely watched in Canberra and there was surprise last week when the latest election donation data was released to see Deloitte, PwC and KPMG among the largest of the vendor donors.
By coincidence or not, each donated about $240,000, with Deloitte skewing its spending more to the Coalition ($149,021) than Labor ($91,411). PwC and KPMG split their political spend more equally between the two major parties.
EY was more modest in its political donations, donating $130,230, but skewing decisively in favour of Labor ($99,046), compared with $31,190 to the Liberals.
Together the big four donated about $860,000 for the year, marking big consultancy as among the top league of corporate donors together with the mining sector.
Donations open doors to key political decision-makers and their forums, something that will be needed as the expenditure review committee looks for the promised $3 billion in contract and consultancy outsourcing savings.
Disclosure: The author has family who work at Deloitte and KPMG.
Find out the inside scoop about Accenture, Deloitte, EY, KPMG, PwC and McKinsey. Sign up to our weekly Professional Life newsletter.
