One of Australia’s most respected infrastructure experts has exposed how rotten the culture of public service outsourcing really is. In extraordinary evidence to a NSW Legislative Council inquiry, Brendan Lyon has detailed how NSW Treasury sabotaged his work for KPMG when he refused to change it to suit their agenda. And he has the emails to back him up.
Lyon isn’t just another of the thousands of consultants who make a living from the eagerness of governments to outsource policy advice to major consulting firms. He’s a former Liberal staffer, the long-time former head of Infrastructure Partnerships Australia, and currently a board member of DFAT’s Australian Infrastructure Financing Facility for the Pacific. When Lyon talks about infrastructure, he brings a breadth of expertise that few can match.
Lyon’s problem, however, was that he insisted on telling the truth to his client about the NSW government’s rail assets.
The Berejiklian government decided to shift tens of billions of dollars in rail assets and their associated running costs off-budget into the Transport Asset Holding Entity (TAHE), but grew worried about reporting of the new entity, and leaks about its purpose, to Fairfax reporters Matt O’Sullivan and Adele Ferguson. In June 2020, the NSW Cabinet asked Transport for NSW, under Rodd Staples, and KPMG to examine the TAHE model and its operational and financial issues. PWC had already been asked, but the government didn’t like its conclusions.
Lyon led the work, for KPMG and it soon became clear that he was determined to do a proper job for his client, despite growing concerns expressed by both the senior levels of NSW Treasury, up to Secretary Mike Pratt, and the acting CEO of TAHE, Anne Hayes — reinforced by the NSW Audit Office expressing serious concerns about TAHE. By 10 September last year, Lyon was telling colleagues the “Tahenista hit squad” was coming after him. Staples warned him that Treasury officials are starting to “play the man”; Staples’ Deputy Fiona Trussell, also expressed frustration with Treasury’s behaviour and wanted to know if Lyon was OK.
Both, presciently, wanted to know if KPMG had Lyon’s back. Lyon thought so, but he was wrong.
Treasury’s attempts to prevent Lyon’s work from going to cabinet amount to a how-to list of bureaucratic strongarming. It decided it wanted its own KPMG advice outside the cabinet process, and engaged the firm’s Heather Watson to undertake a different job of modelling its own financial assumptions. It demanded KPMG resolve the “conflict” between Watson and Lyon’s work. Treasury then attempted to impose an “integrated” Treasury-Transport return to cabinet. Staples rejected the idea.
James Hunter, KPMG’s National Managing Partner, Solutions & Growth, then intervened. Hunter, whose “purpose is ‘Dream – Believe – Focus – Succeed’”, according to his KPMG page, is embedded in NSW Treasury despite being a KPMG partner, and signs his emails “Cabinet in Confidence James Hunter | Partner KPMG NSW Treasury”. Lyon told the Legislative Council committee that Hunter is a “rainmaker” in terms of government contracts for KPMG and has close ties to Pratt.
Hunter said, in a Sunday evening email, he had just gotten off the phone to Pratt and was going to sort the whole thing out: there needed to be a “change of approach”, Transport for NSW should no longer be in charge of the process; Lyon should no longer be “holding the pen” on the report and a second partner, Paul Low, would be brought in to “support” Lyon.
“Unacceptable,” Lyon replied in 10 minutes.
By November Treasury had resorted to attacking Lyon’s work directly in a series of emails from deputy secretary San Midra, demanding he remove “errors” and remove references to treasury’s work. Staples and Trussell stood by him, but Staples was sacked by the government on November 18. When Lyon rejected Midha’s efforts to make him change his report, Pratt intervened on November 19 and demanded “urgent resolution”. “I’m sick of being bullied by you,” Lyon replied.
Pratt’s response was, within 10 minutes, to write to KPMG’s senior partners complaining that Lyon “refuses to take counsel” and is “out of control”. “I expect you to take action”, Pratt said, unsubtly. Lyon says KPMG promptly agreed to remove him from all work involving the NSW government. Lyon left KPMG in June.
Lyon’s revelations confirm that literally, every fear about the reliance on consultants by governments is well-founded. Consultants are now embedded in NSW government departments at the most senior levels, acting as both senior advisers and commercial partners for private firms. Consultants are expected to “take counsel” and write what they are told rather than offer independent advice; the Big Four happily place themselves in extraordinarily conflicted positions and will readily abandon any commitment to providing rigorous advice in order to remain in the good graces of big clients — including dumping people deemed “out of control”.
The only reason we know this is that an expert consultant with years of independent experience refused to be cowed by powerful public servants and senior partners, and was backed by a departmental secretary (Staples is now at EY).
In any government that gave a damn about policy rigour, KPMG would be suspended from all government work and treasury’s leadership compelled to account for their behaviour. Remember that Lyon wasn’t merely arguing the toss with treasury over the accounting treatment of rail assets. Pratt was enraged that Lyon included extensive discussion of the safety implications of the TAHE operating model, citing previous NSW rail disasters that claimed over a dozen lives.
There’s a potentially very high price to pay for relying on yes-men and -women from the Big Four to run governments.