McKinsey ducks NDIA's tender process and bags $25 million
In the past two financial years, the National Disability Insurance Agency (NDIA) has spent over $25 million on management consultants from McKinsey & Company.
Launched in 2013, the National Disability Insurance Agency is an independent agency tasked with implementing the National Disability Insurance Scheme (NDIS). This scheme comprises a range of projects and initiatives aimed at making the lives of disabled people and their family/carers more enjoyable. dodge
According to the Australian government, there are around 4.3 million Australians who have a disability. The scope of the current NDIS is to provide 460,000 Australians aged under 65 with funding for supports and services – for many of those people, it will be the first time they receive such disability support.
Following a number of years of preparation, the National Disability Insurance Agency launched in 2015, with 2015 and 2016 considered a trial phase in order to capture learnings and streamline processes.
Three years into the full roll-out of the scheme, data shows that NDIA has become a money eating monster. The agency is highly reliant on external skills and labour, with data on the first 16 months of full operation showing that $180 million was splashed out on external consultants. When the news broke, it caused a major stir in media and politics, however, a change of direction was nowhere to be seen. Total spending for the first two fiscal years (FY17 and FY18) reached a massive $316 million.
Leading but expensive advice
One of the largest contractors to the National Disability Insurance Agency in that period was McKinsey & Company. In financial year 2018, the American-origin consulting firm – one of the most prestigious in the world in its segment – was paid more than $10 million for its services. Engagements included a corporate planning study ($1.1 million), a pricing review ($3.9 million) and an operations project aimed at streamlining the organisation and operating model.
Financial year 2017 was even more of a frenzy for McKinsey & Company and lead partner Charles Taylor. The consultancy was engaged to deliver NDIA’s corporate plan ($4.3 million), design a payment program ($1.7 million) and review the scheme’s pricing ($5.2 million). In total, fees amounted to over $15 million.
Interestingly, none of this work was won following a competitive tender, leaving many to question why McKinsey was commissioned without having to fend off its competitors in a proposal process. Other consulting firms that have done much work for the NDIA include arch-rival Boston Consulting Group, and Big Four firm Deloitte, EY and KPMG.
Why a ‘special status’?
The revelation of the case has sparked speculation. Why did McKinsey enjoy a ‘special status’ in the insourcing process? Typically, firms are omitted from such processes if the contract value falls below a relatively low threshold, or if it is irrefutable that it holds specialist expertise that makes it the only logical choice to deliver the work. In NDIA's case, both routes are in the eyes of industry experts not very plausible.
This has led some to point fingers at Helen Nugent, a former McKinsey partner who has been the Chairman of the National Disability Insurance Agency since January 1, 2017, when she succeeded Bruce Bonyhady. Nugent however left McKinsey over 20 years ago, and has little connection with the firm’s current partner team in Australia.
She joined the strategic consulting firm after completing her MBA, and ascended to partner level, specialised in the financial services and the energy and resources sectors. After McKinsey, she held executive roles in the banking industry.
Asked about Nugent’s role in NDIA’s work with McKinsey, a spokesperson of the agency said it was nonsense to link the two, stating: “Helen has had no ongoing involvement with McKinsey since leaving the firm. As chairman of the NDIA, Nugent upholds the highest standards of corporate governance.”
