Paying for credibility: 'Don't you need a logo on it?'

By Stephen Easton

February 23, 2018

Why do public servants need to use consulting firms so much?

There are good reasons and bad reasons, in theory, but surely senior public servants don’t just call in Deloitte, PwC, KPMG, EY or one of the smaller firms because this gives a piece of work more authority and credibility with government?

That is one suggestion that popped up last Friday in the first hearing of the Joint Committee of Public Accounts and Audit inquiry into the transparency of procurement, which is focused on two particular categories of external human resources: labour-hire contractors and consultants.

The committee is focusing on how much the Australian Public Service spends getting private sector companies to help get its work done, and what generally drives its decisions to go to market instead of using in-house expertise, hired through the normal recruiting channels.

The committee’s deputy chair, former Victorian public servant Julian Hill, related one such anecdote he attributed to a former Commonwealth secretary.

The unnamed ex-mandarin had been given a few million dollars to do a regulatory review, according to Hill.

“He was astounded, the first question his colleagues asked him was, ‘Oh who are you going to get to do that?’”

When he said he planned to form a project team of public servants, their response was along the lines of:

“That’s a bit risky, isn’t it? Don’t you need a logo on it?”

According to the story, now recorded in Hansard, an in-house team did a good job and the unnamed former mandarin saved a lot of money. “But that was in an environment when you could employ staff,” Hill added pointedly.

How much is ‘wisdom’ worth?

The Labor MP agreed with the committee chair, Liberal MP Dean Smith, that the days when “all wisdom resides in the public service” are long gone, replaced by a “contestable policy environment and a contestable supply chain” — but this kind of general explanation for the growing role of the private sector in public sector work was not enough. He wants details.

“So how do you determine if you get value for money from a $2 million KPMG job?” Hill asked Stein Helgeby, a deputy secretary of Finance.

One of the upsides to keeping such work in house is that it builds capability, in Hill’s view. Outsourcing can erode capability over time, leading to a reliance on more outsourcing, but it can also be used to build it up.

Agencies are guided by the requirements of governance legislation, resourcing and procurement frameworks, and the “significant guidance” provided by the department, he was told.

“To the extent that people follow those things, then the system as a whole is designed to ensure that parliament, government and the public get the best value for money,” Helgeby said later, when the conversation circled back around.

It all boils down to agencies making their own decisions in the end. There is no central guidance or control over APS outsourcing.

“In many cases, also, there is a requirement for specialist skills — very highly-applied commercial skills, understanding of market capitals and other things — that really don’t exist in any kind of critical mass way in the public service,” said another Finance deputy secretary, John Edge.

How can you be a skilled buyer of consulting?

Hill accepts there are “good reasons for going external” — off the top of his head he listed independent advice, audit assurance, urgency or “enormous complexity” — as well as “bad or lazy” reasons.

He noted that over-reliance on consultants has been a regular theme of valedictory speeches from departmental secretaries — in contrast to what currently serving leaders can say.

Hill asked the Australian Public Service Commission’s representatives if it provides advice or guidance on how to be a skilled buyer of external expertise — “otherwise how do you know whether you have just bought $2 million [worth] of crap or not?”

It does not, and nor does it plan to get involved in the decisions individuals agencies make about outsourced HR.

At this point the auditor-general Grant Hehir intervened. Leaving aside the issue of whether government policies force agencies to outsource more than they would otherwise, he said the audit office worked out which of its auditing work to in-source and which to outsource based on its own decision-making framework.

“It’s risk based, and [based] on a whole pile of other things,” he said, adding he had never done an audit to see if other agencies did the same.

“It doesn’t matter whether you’re buying a large piece of infrastructure or a consultancy service, unless you’ve got a contract which clearly defines what it is you’re expecting to get so that you can manage the provider to deliver what it is and, depending on the scale of the procurement, some form of evaluation of whether it was fit for purpose, then you can’t assess value for money.

“There’s a general expectation that people involved in procurement will have contracts which clearly describe what it is that they’re purchasing so that they can assess whether they’ve achieved value out of it.”

After the competitive tender process, the next step is “holding the provider to account”, Hehir added.

“I know it’s a bit simplistic, but that’s the methodology that you would expect to see to assure value for money.”

APSC first assistant commissioner Kerryn Vine-Camp told Smith the APSC had no evidence of “inappropriate use of on-hire labour companies or consultancies” to her knowledge and essentially had no interest in the area.

Her only observation on behalf of the commission, which did not make a written submission, was that outsourcing was a normal part of public service work.

“We believe that a modern public service will be required to draw its expertise from a wide range of different areas and, in cases, that will require labour hire or consultancy services,” she said.

Contractors or consultants: two ends of a spectrum?

In Hill’s view, a cap on public service staffing drives up the use of contractors to fill the gaps. He had another anecdote on that topic from his own Victorian Public Service experience, to illustrate why he feels the staffing cap is irrational and wastes money.

Contractors from labour-hire companies doing relatively ordinary jobs like IT support are obviously in a different category to expensive consultants. However, Hill appears to view them as two ends of the same spectrum.

Consultants can provide unique expertise that can’t be developed in-house overnight, even when it is expertise that walked out the door with a redundancy payment a few years earlier.

The justification for contractors is a little different: they might cost a little more, but they provide flexibility to scale up and scale down, saving money in the long run.

“I think it would be wrong to say that the only control is an [average staffing level] control,” Helgeby said.

“People have resource allocations. They have appropriations. They also have ASL controls and they have a framework within which to work to make appropriate decisions.

“I think one of the points I made a little earlier was that the value or the strength of some of these controls is that they force the question to be asked: what do you really need in order to achieve government’s priorities?”

One of the biggest issues in the inquiry is the difficulty of finding out how much either contractors or consultants are used across the whole of government through reports from AusTender. An information report from Hehir that sparked the inquiry shows that data is unreliable — the label for consulting that agencies can apply to contracts has a very narrow definition and they can change the data at any time.

Finance officials were at pains to point out this is a “living” record, but nobody could explain exactly why about $200 million worth of contracts had the “consulting” tag removed shortly after the audit office downloaded the data.

So, what is the point of consultants?

Just as labour-hire contractors might be doing jobs that would be more sensibly done by regular public servants, it’s a fair question to ask whether consultants are sometimes doing things the more senior public servants could or should be doing themselves.

According to one EY consultant who has worked at the APSC, David Schmidtchen, his profession provides a valuable service — but also sometimes fills gaps in capability that probably shouldn’t be there.

“We store a bunch of resources that the public service can’t afford to store for itself, and we invest in them in a way that the public service could never do,” he said at last year’s Power to Persuade symposium. “The public service then buys those resources back to solve a specific problem in the end.”

But, he added, he often finds himself questioning why he has been hired to effectively coach senior staff in core aspects of their roles.

“And it’s not on tricksy or difficult things; it’s leadership, management, capability, how do you organise a task, all that sort of stuff,” Schmidtchen said frankly.

“There is something missing in that capability; I should not be filling that gap. And yet, routinely, that’s what we do. And that, for me, should already exist.”

There is always a big difference between what one hears around Canberra about how public service agencies go about their work, and what their senior executives can say officially, on the record.

“I don’t expect you to disclose what you might already know,” Hill muttered at one point to Edge, who had told him another official report to parliament, on efficiency reviews and contestability, would be tabled in a few weeks.

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