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How will the upcoming Senate Inquiry impact private consultants who provide services to government agencies, and government agencies' future use of those external services?

The Australian Senate is currently holding an Inquiry into the integrity of consulting services provided to the federal government, with a final report due to be published on 26 September 2023.

What are the potential consequences of the Inquiry for consulting firms and individual consultants who provide services to government? And what impact will this have on the use of consultancy services by government?

LSJ spoke with Bill Browne, Director of the Democracy & Accountability Program Director at the Canberra-based Australia Institute, about the submission this independent think tank made to the Inquiry.

To explore the powers of regulatory bodies in this context, LSP also spoke with Dr Tim Connor, a Senior Lecturer at the University of Newcastle and a Senior Research Fellow at the University of Melbourne.

Timing of the Inquiry

The Inquiry comes at a time when the Federal Government has publicly committed to building capability within the public sector, thereby reducing its reliance on external consultants. In October 2022, federal Minister for Finance Katy Gallagher announced plans for the Government to reduce spending on external labour, advertising, travel and legal costs by $3.6 billion over four years.

The Minister also announced the development of an in-house consulting model, and $40.8 million was provided for a pilot in the 2022–23 budget.

The timing of the Inquiry is also seemingly in response to the high-profile media reports of consulting work that have resulted in media criticism and questions from the taxpaying public.

The timing of the Inquiry is … seemingly in response to the high-profile media reports of consulting work that have resulted in media criticism and questions from the taxpaying public.

More broadly, royal commissions and other inquiries are routinely exposing outsourcing that is subject to public criticism; the Victorian COVID-19 Hotel Quarantine Inquiry is a further example.

The PwC report

One of the highest profile cases has centred upon the case of Price Waterhouse Coopers (PwC) repaying $853,859 to the Department of Human Services (DHS) for its role in reviewing the Robodebt scheme. As noted in the July 2023 report by the Royal Commission into the Robodebt Scheme, PwC was contacted in 2017 by Kathryn Campbell, the then Secretary of the department, requesting an external review of its processes. While PwC did indeed produce a report, it never provided this to the Department.

In February 2023, PwC’s Shane West couldn’t recall how it was that the report on the scheme was never delivered to the government, despite PwC having been paid nearly $1 million to investigate Robodebt.  According to the Royal Commission’s report, there was a mysterious direction to PwC in June 2017 from Campbell saying it didn’t need to finalise the report, though PwC still proceeded to bill the government for the full amount.

Instead, it provided an eight-page PowerPoint presentation which Jason McNamara, who held senior DHS roles including Acting Deputy Secretary, accepted as a suitable alternative to the full report.

PwC’s CEO Kristin Stubbins provided a statement that did not identify the individual, but said that a partner who had provided evidence to the Royal Commission into Robodebt no longer worked at the firm.

The Royal Commission’s report includes its findings that:

“on or about June 6 2017, Ms Campbell communicated to [PwC partner Terry] Weber that the report was not to be finalised and provided to DHS. Despite the importance of that indication from DHS, it does not appear to have been documented at the time … the report was far more extensive and critical of the scheme’s failings than the PowerPoint presentation; it revealed that it would not deliver the projected budget savings, that it was producing a significant percentage of inaccurate debts, and, crucially, that the online process had been a failure.”

Stubbins said, “Like all Australians, we have found the contents of this report deeply distressing. For PwC’s part, we acknowledge the findings of the commission in relation to PwC’s work for the DHS in relation to Robodebt. A PwC partner who gave oral evidence to the Royal Commission was asked to exit the partnership and is no longer with the firm.”

Burying an inconvenient report

Browne tells LSJ that PwC’s report on the Robodebt scheme is “The classic example of burying an inconvenient report … Somewhere along the line, it seems that government was involved in that decision to withhold the report.”

This is one of the reasons the Australia Institute is demanding that reports – with the exception of those containing highly sensitive information – be made public.

Browne clarifies: “One of the ancient powers of parliaments we’ve inherited from the UK is that they can demand the government produce documents they have and create them if they don’t already exist so that parliament has all the information it needs. Government is required every so often to hand over documents on greenhouse gas emissions, for example.

“So the Australia Institute calls for a new standing order that consultants’ reports prepared for government be handed over as well. We think the public has paid for those reports and should be able to see them.”

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Bill Browne, Director of the Democracy & Accountability Program Director at the Australia Institute

Connor’s teaching and research focuses on corporate law and governance, including interactions between corporations and state actors. He believes that it is vital to empower independent regulators to oversee the system of procurement and delivery of private consultants within the public sector.

“We need to give greater independence, resourcing and powers to regulatory bodies,” he says. “If there’s going to be a regulatory body that is given the task of regulating consultancies to government, it would be important that it’s made up of stakeholders from various sectors of the community. I’d also like to see auditors randomly allocated from a pool of relevantly skilled professionals, rather than enabling public departments to choose their auditors.”

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'‘We need to give greater independence, resourcing and powers to regulatory bodies." Dr Tim Connor, Senior Lecturer at the University of Newcastle and Senior Research Fellow at the University of Melbourne

Connor believes the new governments in place federally and in NSW have resulted in a fresh eye on how the public service operates and on the detrimental reputation of government where it is seen to be spending recklessly.

“In my view, there’s been a negative impact from governments [past and present] preferring advice from private consultants and there’s been significant cuts and restructuring to the public service, which has drained it of a level of specialised expertise. This push to continually cut the public service in the name of efficiency has led to an overreliance on consultants and an undermining of trust in public service.”

The constraints of using consultants

Browne tells LSJ that the Australia Institute’s  submission to the Senate Inquiry recommended the barring of consulting firms who breach public trust in the wake of the recent high-profile scandal regarding PwC’s leaked government tax plans. The submission also warned of the dangers of the public sector’s overuse of private consulting firms.

Browne says a key point made by the Institute in its appearance at the Senate Inquiry on 2 May 2023  is the limiting effect of using consultants: when the public sector engages consultants to do work that could feasibly be done internally, this hinders the public service from developing skills and knowledge in-house.

Engaging consultants to do work that could feasibly be done internally … hinders the public service from developing skills and knowledge in-house.

Further, according to Browne, if the public service lacks the requisite skills and knowledge to carry out specific services under its obligations to the public, it is logical that it would also lack the skills and knowledge to write a tender for those services that is realistic in terms of accountability, deliverables and the financial value of the services.

Other recommendations made in the Australia Institute submission include banning PwC from receiving government contracts or confidential government information, abolishing public service staffing caps, establishing new guidelines on the use of consultants, and having a standing order issued by the Senate for the production of consultants’ reports.

Browne says, “At the federal level we [have seen] a doubling or tripling over the last decade or so of spending on consultants, which is likely to be due to the arbitrary limit on how many public servants can be employed at the federal level. If you cap staffing, you have to go to outside services.”

Browne adds that this doesn’t fully explain the dependency on consultants, since NSW is also currently holding a parliamentary inquiry into the approximately $1 billion spent on consultants over five years by the NSW government.

“Yes, the staff caps are not the whole picture, because we see an over-reliance on private consultants at state level where there aren’t those caps. Over time, if you hollow out the skills and capacities of the public servants, then you cultivate a reliance on consultants because of that skills and knowledge gap.”

Browne adds, “Public service departments should be conscious that they are spending public money and should be organised to work in a way that provides as much value to the public as possible. I haven’t seen evidence that consultants do any better in this regard than public servants do. Often consultants are generalists. However, if they have a very specialised knowledge then it may make sense to employ them on a limited tenure.”

‘if you hollow out the skills and capacities of the public servants, then you cultivate a reliance on consultants because of that skills and knowledge gap’

As the NSW Auditor General Margaret Crawford reported in June 2023, following a review of findings between 2018 and 2022, there is no formal requirement for knowledge transfer or retention plans to be included in consulting contracts. The report recommended applying a structured approach to transferring and retaining knowledge from consulting engagements as a means of improving staff skills and reducing the need for government agencies to rely on consultants to return to similar projects in the future.

The NSW parliamentary inquiry into the NSW Government’s use and management of consulting services heard from Crawford  that the NSW government had spent about $1bn on consultants between 2017 and 2022. This did not account for the more than $170 million spent on consultants that was not formally reported because some agencies are not required to submit annual reports.

In that report, Crawford noted that “No participating agency materially complied with procurement requirements when engaging consultancy services.”

Crawford found that the definition of ‘consultant’ varied across agencies, that “agencies do not procure and manage consultants effectively” and that “most agencies do not have a strategic approach to using consultants, or systems for managing or evaluating their performance”.

It was also revealed that more than 25 per cent of consultancy fees were concentrated with the big four firms: KPMG, Ernst & Young, PwC, and Deloitte.

Not in black and white

Browne wishes to emphasise that he does not see consultants as the “bad guys”. In fact, he notes, the outcome of both the NSW Parliamentary Inquiry (“NSW Government’s use and management of consulting services”) and the Senate Inquiry may provide greater clarity for those who work with the public sector.

“Consultants who work hard and care deeply about their work may be concerned and upset about what some of their colleagues may be responsible for,” he says.

“I think consultants stand to gain from clearer rules about what is and is not appropriate. For consultants, there’s absolutely room for a win-win situation with better work and better working conditions. It’s clear, though, that consulting firms have been overused, and the only answer is to bring more of that work in-house.”

Browne also sees the problem as systemic rather than as a problem relating to private consultants.

“It’s important not to see this in black and white terms. If you rely on consultants for advice to the government, and the government has a particular political agenda where they want someone who sounds authoritative to tell them what they want to hear implicitly saying ‘we want this’ in a report, then a consultant who relies on income from government contracts has considerable temptation to tell government what they want to hear.”

‘a consultant who relies on income from government contracts has considerable temptation to tell government what they want to hear’

Browne adds, “There’s an intrinsic, systemic influence on consultants to give advice that is likely to generate more business, rather than frank, fearless and honest advice.”

A call for transparency and accountability

Connor says, “If you look at the submissions to the Senate Inquiry, many are calling for greater transparency when governments are seeking consultants’ advice. One of the things that may well come from the Senate Inquiry is that government departments will be required to have much more transparent tendering processes when engaging consultants. Other possibilities include restrictions on former politicians or public servants advising departments they were previously employed within, and restrictions on consulting firms making donations to political parties. Another suggestion is to limit government departments’ dependency on individual consulting firms, for example by requiring that no consulting firm can be engaged for more than three years in a row.”

Connor says that, while there are rules relating to former politicians working in consulting, his understanding is that “those rules are not well monitored or enforced.”

He adds, “There should be a significant period of time in which former politicians and senior public servants should not be able to work with lobbyists or consultants to the department they’ve had a senior role in. In the private sector it is common for people’s subsequent employment to be limited by restraint of trade clauses, so there’s limits on people’s freedom to work where they want in the commercial world.

“Given the need for good governance is so high, there should justifiably be a similar approach when it comes to the public sector.”