PAUL BARRATT. Are all those consultancies really necessary?

Mar 7, 2018

The Joint Committee on Public Accounts and Audit is currently conducting an inquiry based on any items, matters or circumstances connected with Auditor-General’s Report No. 19 (2017-18). This report reveals enormous expenditure on consultancy contracts, and the matters being inquired into by JCPAA include the effects on APS capability and capacity; the extent to which consultancy contracts are being used to deliver core APS outcomes; the associated benefits and risks; and unforeseen and unintended consequences. 

The aims of outsourcing consultancy and non-consultancy services to the private sector are said to be expenditure savings, based on the belief that the work can be performed more efficiently by the private sector, and acquisition of skills not available in the Australian Public Service (APS), especially those for which there is not a continuing need.

Consideration of the amounts being spent on these services suggest, on the basis of the above, that the private sector is very much more efficient than the APS, and/or there is an extraordinary diversity of skills for which the APS does not have a continuing need. The Auditor-General’s Report showed that in the five years 2012-13 to 2016-17 Commonwealth agencies spent:

  • $39 billion on “Management and Business Professionals and Administrative Services”;
  • $36 billion on “Information Technology etc. Services”;
  • $17 billion on “Politics and Civic Affairs Services”; and
  • $37 billion on “Other”.

This is $129 billion in five years on services the content of which no doubt include a great deal that would traditionally have been regarded as core business for the Commonwealth, and for which both the Public Service Act 1999 and the Public Governance, Performance and Accountability Act 2013 would indicate agency heads have prime responsibility and accountability.

Of this amount, the big four accounting firms had 1,746 contracts with the Commonwealth, for which they received $502 million for consultancy services and $1.93 billion for services of all types.

These are stupendous sums of money. One could establish a great deal of in-house capacity with sums like these, and they no doubt sustain a great deal of capacity within the firms that sell their services to the Commonwealth. The amounts spent are the more remarkable when one considers that the largest category over the five year period is management advisory services. One would imagine that managing large organisations is core business for the APS (the two Acts cited above would indicate so) and one would expect that they ought to be pretty good at it.

If the Secretary is responsible for the organisational effectiveness of our public service departments, why do we need all these management consultancy contracts, and why is it not in the public interest for the capacity to run departments efficiently and effectively to be established in-house? The purchase of specialised services to assist in this ought to be at the margin, not the main game. And if the Secretary faithfully implements the recommendations of the consultant, who is accountable if things don’t work out as planned?

Outsourcing major consultancy packages to the private sector on this scale has an inevitable effect on the capability of Commonwealth agencies.

Under the traditional Westminster model, departments were staffed by appropriately qualified career public servants. They would be recruited to a junior office and, under supervision, undertake work of rising levels of complexity. As they demonstrated their capacity they would be promoted to positions where they dealt with rising levels of complexity, and fairly early in the piece they would begin to become responsible for the supervision of others. It is essential that officers have the opportunity to mature at each level before progressing to the next level.

As part of this process, an effective senior officer given the responsibility of undertaking a complex task appropriate to his/her level in the organisation would break the task down into a series of work packages, each of which would be assigned to an officer at the lowest level at which it could reasonably be expected that that work package could be completed. The officer performing the work would perform it under supervision, and as the completed work packages are submitted up the chain of command they are reintegrated into a seamless whole of a quality which the senior officer responsible is happy to send forward to the department Secretary or Minister.

Thus every policy development or service process design project is inherently a training opportunity for staff at every level, and an opportunity for juniors to learn from more senior and experienced officers.

In addition, matters coming before Cabinet are normally subjected to robust inter-departmental consultation processes, usually by face to face argumentation in inter-departmental committees (IDCs). The issues are often hotly contested, and by the time a policy framework arrives on the Cabinet table following this process one can expect that the key issues will have been brought to account and the Government’s most feasible options have been identified, with their pros and cons.

When a project is outsourced the opportunity to train the next generation of public servants is lost. Furthermore, when the finished product is submitted by the contractor, any effort to evaluate it will most likely be concentrated at the top of the public service, with already busy senior public servants doing their best to review it in the time available. If it is passed down the line for review, the departmental officers involved will be at a disadvantage because they will not have worked their way through the issues, and they will have access to neither the raw data nor the working papers.

Furthermore, in order for the contractor to be paid, someone, presumably the contract manager, must certify that the services have been delivered as specified. After that, it is difficult for a more junior officer to submit a finding that the analysis is dubious and/or the policy or procedure is unimplementable.

There is no doubt that there will be many occasions when an APS department needs to buy in expertise or advice. For matters that are the business of the department, however, one would expect that these requirements would be at the margin, and would constitute only one or more components of the project. Accordingly, one would expect that the department, in breaking the project up into discrete work packages, would identify the components that cannot be performed in-house, and contract out only those packages which the department is unable to perform. Responsibility for integrating these externally performed packages into the policy advice or process design should remain with the project officer within the department. This process will not only preserve the department’s skills but will ensure that accountability remains where it belongs – with the Secretary.

Failure to follow these procedures results inevitably in a loss not only of the department’s capacity to undertake the work, but to specify and manage a contract adequately. It is not possible for any individual to specify or to manage a project at a higher level of complexity than they are capable of executing.

Wholesale outsourcing on this scale exposes the Commonwealth to a variety of risks, among which I would list misalignment of objectives between the Commonwealth and the contractor; difficulties with specifying the contract, and inflexibility once the terms of the contract are locked in; difficulties with evaluating tenders and managing the successful tenderer; contractor under- or non-performance; opportunities for corruption; evasion of responsibility; diffusion of accountability; and the creation of effective monopolies.

The JCPAA inquiry is to be welcomed, and it is to be hoped that it leads to a searching re-examination of the circumstances in which the business of the Commonwealth is outsourced, and to a realisation that we need to rebuild and maintain capacity within the APS.

Paul Barratt AO is a former Secretary of the Department of Primary Industries and Energy and of the Department of Defence, and a former Executive Director of the Business Council of Australia. He is Chair of Australia21, a non-profit public interest think tank, and President of Australians for War Powers Reform. His submission to the JCPAA may be downloaded from here – it is Submission No. 29 on page 2 of the website.


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6 thoughts on “PAUL BARRATT. Are all those consultancies really necessary?

  1. To understand where this latest form of management failure, for that is what it is, one must go back to the late 1970s when the post war construction frenzy had run its course and governments were demanding both better financial management and acceptance of responsibility.
    In NSW Dr Peter Wilinski was commissioned to develop some recommendations and his report “Directions for Change” called for such reforms as pushing the levels of responsibility downward.
    Government departments had been slowly developing “fiefdom” cultures and internecine warfare was not uncommon. The prospect of actually having to accept responsibility certainly did not enthuse a lot of these people and many, like the soldier crabs at the beach, retreated behind the fiefdom walls to wait it out.
    This meant that the relevant Ministers had to step in and, as a direct result, became more and more interventionist. Now in need of help, these Ministers turned to loyal, but commonly unqualified, people, finally deciding to promote the business school products, particularly the MBA brigade.
    One of the more damaging mantras to come from this business school thinking was that “management was function related and not industry specific” or in other words, the “transferrable manager” was embraced. It is interesting that this concept was often attributed to Drucker, but he actually warned against it.
    Experienced engineers were quickly replaced as department heads by people with ‘management skills’ but unfortunately what often passed for “management” was no more than the introduction of disciplines and procedures that simply made it difficult for people to work.
    Driven by no more than ego, these people really believed that they could run the ship by simply engaging consultants rather than having their pay and promotion prospects threatened by more skilful underlings. Let there be no doubt that consultants can only replace the lower ranks as conceptual planning needs experience in the role of the service provider and success depends on the ability to communicate with the consultant and later confirm the quality of the work.

  2. In short many govt departments are not equipped to perform core functions competently. Perhaps it has something to do with their culture and the fact govts seek to impose excessive controls on public servants, as we have seen from recent legislation. This would make public service less and less attractive to the Independently capable people the service really needs.
    I guess also that department hopping still goes on which means that the ‘hopper’ never gets to grips with the more complex areas of the department as they speed their way up the hierarchy, bringing in consultants to ease their passage. Too bad about ‘service’!

  3. good analysis as always paul. thanks.
    unfortunately just another symptom/cause, albeit very important, in run down of policy skills and expertise in canberra, as reflected in long standing and continuing staff cutbacks. public policy formulation has been overtaken by ministerial staff, lobbyists, and ‘think tanks’. closely related too is the huge, growing and hardly discussed ‘revolving door’ between government/business, including in person of fat ‘consultancies’. no wonder collapse of public trust in government for the public interest. not only creates unprecedented opportunities for and perception of corruption but undermines ‘public interest’ in favour of ‘vested private interests’ (with money).
    it is important that the current inquiry into consultancies get to the bottom of all this if the integrity and trust of our political institutions is to be recovered. for a start there is too little transparency and accountability in consultant contracting, and no real sanctions for bad behaviour. this is true of course for the other elements of ‘de facto’ policy making channels that i mention above, particularly revolving doors.

    a federal icac would help but not as a ‘silver bullet’. the ‘political culture’ in canberra is too deeply embedded.
    a ‘coombs revisited’ (1976) royal commission into the aps is long overdue…(42 years ago). much has changed!

  4. I couldn’t agree more with Paul Barrett’s assessment of what should be the limited role of consultants. In particular, I think the successful pursuit of the core business of the public service depends upon developing an evaluation culture. This is what we were trying to achieve when I was Secretary of the Department of Finance and later the Prime Minister’s Department, where I was Head of the Australian Public Service.

    The evaluation of programs and policies should therefore rarely if ever be contracted out. Instead, public servants must develop a mind-set that is trained to identify the policy/program objectives and then assess performance against these objectives, its efficiency and effectiveness. Otherwise they can never be counted upon to deliver programs well nor give useful advice.

    In addition, the possible budget savings, if any, by using consultants, pale into insignificance to the savings achievable by improving program and policy effectiveness.

  5. In the past, only after rigorous examination of public service capability were we permitted to divert funds to employing consultants. The dollars being spent at present suggests two problems: the APS is deficient in properly qualified personnel across a whole gamut of departments; and those financial rules no longer apply to the appointment of private consultancies. I welcome the JCPAA inquiry for the reasons you have outlined in your essay. My own experience of private consultants happened on two occasions: the design of an IT families package which when tested allowed people without children to be paid a child care allowance; secondly when the work done by my team found its way into the analysis and recommendations of a private consultant without attribution. So, I am not supportive of the plethora of private consultancies at present.

  6. Expenditure under this item has clearly got out of hand and is not being regulated or properly supervised. $129 billion woukd go a long way on better chosen defence equipment, schools and roads – though there must be concern over the amount spent on consultancy in those areas too.
    The increase in Commonwealth expenditures over the past generation has been enormous – well out of proportion to population growth and additional public needs. Some would be due to sheer extravagance; some of the rest due to the Commonweslth involving itself in matters best left to the States or local government. Some would be due to avoidable duplication of functions. As for local government it is being squeezed mercilessly year by year – with new tasks and responsibilities being dumped on them particukarly will little if any monetary compensation. It all comes back to the Commonwealth and the arbitrary manner in which it transfers monies down the line, money it would claim it hasn’t got on account of its excessive expenditure on consultancies.

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