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Has outsourcing run its course, or is it the secret to the ‘ideal’ worker?

As Finance Minister Mathias Cormann again confirms the government will not contemplate a cap on external workforce spending, others find justification for concern as the line between consultants and external contractors blurs.

The difference between consultants and external contractors was once pretty clear, but according to the Centre For Policy Development, that’s not so much the case any more.

A growing “confusion” in this area is shown by the Australian National Audit Office’s examination of information it downloaded from AusTender early last July, the CPD argues in a submission to the parliamentary inquiry focused on the resulting report (technically not an audit).

It probably doesn’t help that AusTender data is not static. Clarifying a statement he made in the inquiry’s first hearing, Auditor-General Grant Hehir confirms some of the contract notices his team looked at were “changed from consultancy to non-consultancy” before the Department of Finance made its submission on January 3. A quarter of the changes were made between July and September 11.

“The ANAO Report suggests the distinction that used to exist between consultants and contractors has been lost,” according to the joint submission from former head of the APS Terry Moran, who chairs the organisation, and its chief executive Travers McLeod.

“Theoretically, consultants produce defined work for a limited period, whereas contractors perform duties over an extended period,” they write. “In practice, consultants are now being used as contractors. There is confusion about who does what, as well as what work and which duties should be publicly retained and rejuvenated.”

“Such confusion, however, does not entirely explain the near doubling in the consultancy contract value between 2012-13 and 2016-17 revealed by the ANAO Report.”

It is this apparent growth that sparked the inquiry. The CPD suggests the Australian Public Service staffing cap and increasing casualisation of the APS workforce are “relevant” to understanding it, but affect different kinds of departments and agencies in different ways.

Accountability and influence

“There are two main concerns with the extensive use of consultants,” submit researchers Martin Bortz, John Howe, Janine O’Flynn and Melissa Kennedy from the Melbourne School of Government.

“First, is the extent of their influence. The second concern is the ways in which they are held accountable.”

However, they warn the JCPAA not to “infer influence from mere use” and so assume that if consultants are used more across the government as a whole, then their total influence on public policy must be greater. While they can exert considerable influence, research indicates it is “highly variable, and very context-dependent” as well.

“Ultimately, consultants are never the decision-maker,” they argue, and they don’t seem to share the CPD’s concerns about a blurring of the lines with simpler contractor roles.

“While their advice and recommendations may be adopted, this does not automatically mean that policymakers are subservient to the consultants. In fact, some scholars would argue that just the opposite is true, or, at least, that policymakers and consultants influence each other in different ways.”

The MSOG team notes there are some concerns about reduced accountability, but also point out it is “entirely appropriate” and valuable for some core public administration work – evaluation in particular – to be done by independent experts.

They also comment on the difficulty of assessing and reporting on value for money from consulting or enforcing it by essentially offering to pay for certain policy outcomes.

The key issue – growth in the use of procurement to acquire valuable expertise on the one hand, and to fill more mundane workforce gaps on the other – raises two questions for the MSOG researchers.

“First, how much should agencies be spending on consultants? On the data available, it is not possible to make such an assessment.

“Rather, what is needed is an assessment of the appropriateness of different consulting engagements. That is, a qualitative, rather than a quantitative, assessment of this issue would be particularly beneficial.”

Secondly, they urge the JCPAA to find out more about the agencies that use the most consultants.

“Knowing this information will provide a more nuanced understanding of the extent and nature of the problem (or if there is even a problem in the first place).”

The four Melbourne School academics also point out that consultants don’t always push costs up. “One benefit of using a consulting firm is that the APS can access all the skills it needs at once (i.e. they can construct an ‘ideal’ worker),” they state.

“So rather than paying a public servant $100,000 a year to finish one project, they can give that money to a consulting firm and get the combined skill sets of three different consultants. This has the potential to get a higher quality result in less time. Thus, the use of consultancies has the potential to introduce efficiencies due to economies of scope.”

One interesting suggestion they have to improve reporting in this area of procurement is to capture information on “the extent of any budget or timeframe overruns, and the reasons for the overrun” as an aid to assessing value for money and managing future contracts.

Capability

Moran and McLeod say the APS also probably relies more on the private sector now because its capabilities have been “eroded or given up” over the years. “Once lost or forgotten, these capabilities and competencies are costly to replace.”

They consider the “need for constant renewal of the skills base of the public sector” and suggest that procuring these skills externally should also be a way to transfer knowledge to the public service, and believe this should be “a measurable condition of consultant contracts”.

The CPD authors argue the inquiry should try to clear up the confusion about contractor and consultant categories.

“It should also institute greater transparency within departments and agencies about the true expenditure of these contracts, and a framework that captures the outcomes attained, including positive and negative implications for APS capability.

“Further clarity on overall numbers of APS employees, consultants, and contractors, and segmentation by type, band, pay scale, and purpose within each department and agency would also be welcomed.”

The academic literature is limited and inconclusive on this subject, according to the Melbourne School, whose lead researchers suggest that probably means “the extent to which consultancy improves or diminishes the skills set of public servants” is variable and context-dependent.

“There are some insights into this question available from research into government outsourcing. This body of work tends to suggest a loss of capacity,” they add. “However, it must be stressed that consulting is not the same thing as outsourcing.”

Consultants aren’t supposed to replace functions that public servants once performed before a conscious decision was made to outsource them instead; that’s contractors. Research on that phenomenon is not much help in understanding the effects of consultancy use on capability.

The MSOG submission notes that effective use of consultants might involve training, as Moran and McLeod argue it should, and can often be understood as a kind of applied research.

“To better scrutinise consulting engagements, public servants should thus have a better understanding of the research process. This would include a greater understanding of methodological considerations, as well as the strengths and limitations of different approaches to data analysis. To a degree, public servants should be trained researchers themselves.

“This approach would also allow public servants to better scrutinise and oversee consultant engagements, as well as critically engage with a consultant proposal.”

Bortz, Howe, O’Flynn and Kennedy add that consultants also need a good understanding of the way government works, which is often rare if their experience is only or mainly in the private sector.

They point out that consulting is not a formal profession by any means, and suggest it is generally defined by extensive experience in running a particular type of process, or knowledge of a particular subject. Bortz believes the best-case scenario is where a consultant or team has a combination of both.

Time to rebuild?

The CPD submits that “successive governments have gutted the APS, stripping it of specialist capability and service delivery experience, and causing the overuse and misuse of consultants” – and argues this expertise needs to be urgently rebuilt to confront current and future challenges.

“Reinvesting in policy memory and capability, greater independence, and service-delivery experience is a necessary condition for the APS to be the crucible for reform and bulwark of legitimacy that it can and must be for Australia to thrive.

“This does not mean an end to the use of consultants and contractors. Consultancies which connect the APS to the latest technical advances in management at a global level and a transfer of knowledge and capability, for example, continue to have a place in the public sector especially as we prepare for a decade of major change driven by digitalisation.

“But it does mean facing up to the misplaced faith in external advice and contracting out. The recent collapse of Carillion, a leading provider of outsourced government services in the United Kingdom, offers a salutary lesson for Australia, one the ANAO is alive to.”

If this specialist capability is not rebuilt, Moran and McLeod suggest “paying benefits or paying money to others to deliver services” will soon be all the APS is good for, and the federal government would have to increasingly rely on the experise of state public servants.

They also stand up for the importance of public service values and culture in service delivery, which provide “tangible benefits” to the community but are often lost in the process of contracting out or commissioning.

“These values include an imperative to work in the public and community interest, to find the best outcome for the intended beneficiary, and a willingness to use networks to ensure individuals have the best collection of services available.

“Cultural elements include remembering what has been attempted beforehand, lesson learning systems and evaluation, retained capability, and trusted relationships with complex sets of stakeholders.

“These objectives are not highly weighted in tender documents, to the extent they appear at all. Nor are they generally available publicly or measurable against outcomes transparently given the reliance on commercial-in-confidence provisions in procurement contracts.”

Supposedly contestable processes that let public institutions bid often exclude them in practice, the claimed efficiency of outsourced service delivery is rarely proven, and fair comparisons with “effectively mananged” public sector delivery options are rare, according to the CPD.

The independent research body calls for a move away from outsourcing but not exactly a return to the past. As Moran has before, the submission proposes that “decentralised or devolved delivery” through “relatively independent” entities like schools and hospitals might achieve the best outcomes in many cases.

The CPD’s “attitude research” from last year suggests significant public support could be marshalled for such a change, although there are also powerful beneficiaries of the current state of affairs that would lobby against it.

Author Bio

Stephen Easton

Stephen Easton is a journalist at The Mandarin based in Canberra. He's previously reported for Canberra CityNews and worked on industry titles for The Intermedia Group.