NSW Government fails to comply with procurement requirements for consultancy services

05 September 2018 Consultancy.com.au 4 min. read

The NSW Auditor-General’s office has released a ‘special report’ questioning the use of consultants for public service work titled ‘Procurement and Reporting of Consulting Services’. The report analyses 12 NSW government agencies and found that none comply with all requirements. Eight agencies also under-reported their consulting spend leading for the auditors to call NSW Procurement Board “ineffective”.

Between 2013 and 2018, $1.4 billion has been spent on consulting services by the NSW government. This figure was split between 20 of the top players in the professional services industry including the Big Four, Accenture – who received the largest yearly sum of $96 million in 2012-13 – and The Boston Consulting Group – who alongside McKinsey & Company came under fire for not complying with the government’s standard commercial terms.

Transport for NSW was the largest buyer of consulting services, spending over $450 million on contracts between 2013 and 2017. Following transport, the Department of Education and the Crown Entity were the second and third largest consultancy buyers with bills totalling $224 million and $100 million respectively.

Government spend on top 20 business advisory services suppliers in the last five years

The other agencies reviewed were Premier and Cabinet, Finance, Family and Community Services, Industry, Justice, Planing and Environment, Health, Treasury, and Roads and Maritime Services.

The report raises questions about the Standard Commercial Framework which was introduced by the NSW Procurement Board in January. Set up to “drive value for money, reduce administrative costs and simplify the procurement process”, agencies found that the framework was “challenging to use”.

“The Framework provides agencies with agreed commercial terms to use in their negotiations with business advisory services suppliers. These terms include a fixed discount structure, capped rates and expenses for standard engagements and consultants' role types,” states the Audit Office report. 

The report states that agencies were not fully complying with the framework due to the fact consultancies were not providing the necessary information prescribed to comply. Agencies also stated that the framework was “hard to understand, time consuming to apply and difficult to comply with.” As part of the audit, the Office tested three agencies’ compliance with the revised Direction this year and found none complied with all mandatory requirements.

NSW Government consultancy operating expenditure and as a percentage of total operating expenditure from 2012–13 to 2016–17

The two most prestigious consulting firms McKinsey and BCG were highlighted as being non-compliant. The report states the reason for this being that nether firm was prepared to cap rates or give the government discounts. Both firms are considered to be in the top segment of the industry and charge higher rates globally than other firms who are prepared to slash prices to be competitive.

A spokesperson for McKinsey & Company said that the firm has “an unrivalled set of skills, knowledge and expertise that make us leaders in the field and ensure we deliver value in our public and social sector work”.

Their reluctance to cut their hourly rate is in character with their fee structures which reflect the premium nature of their services. It also explains why the majority of the funds – $1.18 billion –went to just 5 major consultancies; the Big Four and Accenture. 

"BCG supports the Auditor-General's focus on the government ensuring value for money for NSW in the engagement of consultants, and on fair, ethical and transparent procurement,” said a Boston Consulting Group spokeswoman. "BCG also provides fixed fees and discounts to the NSW government, and is subject to a far more rigorous process than is applied to other advisory services.”

The report will undoubtably feed into the national debate and soon to be election issue surrounding the use of consultants in public services. On one hand of the argument, using consultants is an effective way to keep government costs low and on the flip side, the argument goes that public servants should administrate public policy.