By Stephen Bartos*
This week Australia's Albanese government produced a detailed breakdown of the A$3 billion it plans to save over four years by cutting the use of outsourced labour and consultants.
The savings, which begin this financial year, take about $600 million each from the departments of defence and social service, followed by about $450 million from the treasury, most of it to be reportedly from the tax office.
They cover what the government describes as “savings from external labour, advertising, travel and legal expenses”. They are in line with the Labor’s election promise to cut its consulting and contractor bill by $3 billion over four years, except that the starting year is 2023-24 instead of the expected 2022-23.
Given that Labor says it’s already cut $500 million in its first year in office, they are set to take the five-year total to $3.5 billion.
But the cuts won’t come easily, a point Finance Minister Katy Gallagher conceded in an interview with the Australian Financial Review, saying it had
become very clear just how entrenched the use of consultancies and external labour became in the public service under the former Coalition government.
There’s nothing wrong with moderate use of consultants and contract labour. It’s been done by both sides of politics for decades.
More than 30 years ago, the then Labor government’s commercial support program outsourced defence functions, including cooking, cleaning, maintenance and guarding, to deliver services at a much lower cost than the military.
Outsourcing weakens accountability
The concern is the extent to which core public service functions – policy advice to ministers and delivery of welfare programs – have also been outsourced.
The public service has (or ought to have) a corporate memory of what works and what does not. Consultants hired on a one-off basis need not.
It is true that the public service does not always live up to its legislated standards, as has been found to have been the case with Robodebt. But it can be held accountable when it fails.
Accountability mechanisms for private consultants and contractors are weak by comparison, with failings often obscured by a veil of “commercial in confidence”.
Why consultants seemed so attractive
In The Conversation in June, Richard Mulgan expertly analysed the findings of the audit of employment Labor commissioned shortly after taking office.
He listed three reasons why public servants like using consultants:
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they allow governments to bury advice they don’t like
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they help persuade ministers who distrust the public service. This is especially important with Coalition ministers.
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they maintain a revolving door for public servants to leave their job, collect their super and continue working on the same issues.
There is a fourth, more venal, reason – the millions of dollars consultants spend each year entertaining public servants.
One such prized invitation is to a private marquee at the annual Prime Minister’s XI cricket match at Manuka in Canberra.
There are hundreds of other dinners, lunches, private boxes at sporting events, theatre and concert tickets with which consulting firms seek to influence public service decision-makers.
The firms wouldn’t be spending that money if it didn’t win them business.
These constitute formidable obstacles. But there are three ways they could be overcome.
1. End the free lunches
One measure would be for departments to ban their staff from accepting gifts and hospitality from consulting firms.
If that is regarded as too much of an imposition, departments could publish all such gifts on their websites, disclosing the names of recipients and the value of what was received.
That would at least make what happens more open.
2. Stop insider hiring
Another would be to prohibit public servants from obtaining employment in a consulting firm with which their former department does business.
This could be done either through “non-compete” clauses (common in the private sector) or through departments excluding firms that employ former departmental staff from tenders. A reasonable time limit – for example between three and five years – could apply.
3. Tender internally first
Commonwealth procurement rules could be amended to require departments, before calling for tenders from outside the public service, to advertise internally for public servants to do the work.
The work would then only be sent out to a consultant if no public servant could be found to do it. Who knows, that might even encourage some former public servants to return from consulting back to their old jobs.
Getting senior public servants to want to use their own staff instead of consultants might be an unintended benefit of the PwC scandal.
Until May this year – when PwC confirmed one of its partners had shared confidential government information obtained while serving on a government advisory board – many public servants considered using consultants low-risk.
It has become clear it involves a much higher risk than hiring a public servant.
*Stephen Bartos, Professor of Economics, University of Canberra. This article is republished from The Conversation under a Creative Commons license. Read the original article.
24 Comments
Years ago I was a consultant computer programmer. Usually just added to an in-house team so their project would be completed more quickly. I had to keep my mouth shut about salary because often I was earning more than the in-house team leader.
The lesson I learned was that consultants should be treated like dirt - hire and fire as needed - and never put into a management role. They should be doing the donkey work while the in-house team are retrained or up-skilled and do the exciting new work. Far too often it was the opposite with the consultant bought in because 'they were the experts' and the in-house staff left demoralised.
I have said this before. I am a consultant that works for private and public companies. I have also worked directly for public and private companies. The public organisation I work for pays x3 times what it would cost to hire me internally.
The reason I am hired as a consultant rather than internal employee is because there is always a push in the public service to keep headcount down. It is a false economy.
Under National in recent years there is generally a push to reduce the number of civil servants 'to save costs' and to keep salaries below a certain threshold. The result is generally a restructure that disrupts delivery as the changes play out, they end up losing some of the best people who cannot be bothered to hang around while the restructure plays out, those same people come back as consultants and the organisation gets charged x3 what they would have had they avoided a major restructure.
That doesn't even take into account the loss of intellectual capital.
It's what a Neo-liberal system aspires to, hollowing out and privatising the public service as much as possible so that private enterprise can profit as much as possible from what was once seen as a public good.
And no, private sector is not anymore efficient than public sector. Private sector just has a much simpler driver (profit) which makes it easier to focus, prioritise and achieve the outcome.
Success in the private sector is a lot more complex than you give it credit for. In addition to ensuring they satisfy as many customers requirements, repeatedly, as possible they also need to be better than competitors all the while meeting a myriad of legal, environmental, stakeholder & social conditions to maintaintheir "licenseto operate". Finally enterprise survival = delivering a profit.
The public sector have it much easier with no competition, captured customers whether happy or unhappy & taxpayers to fund their inefficiencies & bail out their failures - while they collect salaries illegitimately marked to the private sector "to attract talent".
Agreed. Going by multiple competitiveness studies conducted internationally, our government ranks fairly well at a global scale (#14 to #23 on all sub-metrics in 2022) though we have slid down the ranks in recent years.
By comparison, we perform worse than other developed countries on business metrics (#48 in productivity, #28 in management practices and #33 in attitudes & values). We rank #46 on technological infrastructure much of which also sits within the private domain.
Note that the true cost of an employee is often a multiple of salary. With consultants you do not pay for illness, recruitment, training, holidays, etc and specifically there is no office disruption when they are fired.
If a public body employes a 'consutant' to do the cleaning they save money and sidestep gender gap reporting issues, etc. If the same organisation employs a consultant to make decisions then they are wasting money - they ought to be spending that money on recruiting and training full time employees.
Yes. I know several people who are or have been "consultants". Really it was just another employment arrangement, better paid. As interesting1234 describes it was same desk, same team, same role.
Just a management fiasco. A civil service with no idea about cost and productivity.
As for the big firms, the EYs and Deloittes etc, it;s different but just as crappy. I know a couple of kids straight from University. Being paid $50-60K pa and charged out at $400 per hour. Good kids but really just newbies with no expertise.
And the civil service is happy to pay.
I think the Australian effort is good.
Funny how Mr Luxon is so against consultants, when he was happy to use them as head of Air NZ.
Air New Zealand turns to external consultants to chop million of dollars in costs - NZ Herald
The interesting thing about this article is that at the end of Mr Luxons leadership, costs were up, profits were down and he needed consultants to sort out the mess.
From my experience dealing with local government and consultants the first step should be
A} Really acknowledge and reward internal staff who put their hands up, take calculated risks and accept responsibility.
The current public service management structure favours those who don't take risks and duck any responsibility - hence the need for consultants. And those consultants and their findings never get challenged because why risk your job for nothing.
Numerous meetings with spouted nonsense and mute receptions.
I guess we first need to define what a consultant is otherwise we risk overkilling ourselves on this issue. The problem are business/management consultants who often bring an expensive solution in search of a problem.
For example, the entire $11b health sector rebranding exercise in the middle of the pandemic was managed by EY at a cost upwards of $2.5m led by the ex-DG of Health, Stephen McKernan then (and still) a partner at EY.
The answer is that it depends.
1) In-house staff should do the base workload and there should be enough employed to do it.
2) Consultants should be used for peak workloads or for special skills or special projects where in-house is not suitable.
3) Consultants generally cost more per hour because a) the consultancy has to make a profit and b) they have to spend money preparing tender proposals only some of which they win.
The appropriate answer is to abandon using the big four, hire a number of the current consultants and high achieving graduates to form a Crown Consultancy, which exists explicitly to provide advise across government and provide expertise.
I used to earn $140k in government only 3 years after graduating (although working full time as a developer for 4.5 years). The consultants (who knew less than I did about cloud tech) earned $150 an hour (~310k salaried equivalent), yet there was literally nothing special about either of us. The only difference is I hadn't earned the connections to score consulting gigs or served the 7 year professional time requirement to jump ship.
Government overpays enormously for the services it provides. But of my 25 man team working on an IT ERP system vital to so much of the country, there were only 2 developers. By contrast there were 3 business analysts, two data analysts, two change analysts, two testers (with nothing to test just as I had nothing to do), a solution architect, a project manager, a secondary project manager and a SME. It was the biggest waste of time and money I ever saw.
The article is bang on regarding the main problem when using consultants - the complete lack of accountability, particularly when there has been poor performance.
The use of consultants also creates the problem that public service cant employ staff needed, and so the gravy train continues with 3x the money spent for worse quality service.
The privatisation of public services has seen a reduction in standards across the board which is clear for everyone to see. Look at the state of our road repairs as an example.
I wish NZ would take the same approach and take a razor to consultant use.
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