Analysis: Australia’s federal government spending on consultants

12 February 2023 Consultancy.com.au 8 min. read

The national auditor has released a detailed report on government procurement over the past decade, with the consulting industry currently under the pump. But beyond the headline figures, can it provide a truly accurate picture?

As the Labor government continues to investigate where it can make good on its pre-election pledge to slash $3 billion from the federal consulting and contracting bill, the Australian National Audit Office (ANAO) has released a detailed report on the past decade of procurement spending and trends, revealing the Big Four alone pocketed more than $1.2 billion in federal government consultancy-flagged contracts in the ten years to July 2022 – a period governed almost entirely by the Coalition.

According to the report, KPMG was out ahead of its rivals in both the number and overall value of tenders won, pulling in almost $300 million from 1,360 contracts over the period.

Top suppliers by number of government consultancy-related contracts

However, PwC, which on the surface appears to have had the lowest number of contracts (419 in total at a worth of around $200 million) features twice on the top-ten list of suppliers, with ‘PwC Legal’ winning a further 786 contracts to take the combined tally of both entities to over $420 million.

Data caveats

As only the top ten suppliers are listed in any given ANAO assessment category, parsing the data then for a clearer picture becomes tricky, especially as it’s also difficult to determine the legal structures of the various separate businesses which sit under the Big Four’s branding. For example, EY and Deloitte made $320 million and $190 million each, but it’s unclear if their respective legal practices also brought in separately-assessed sums of money which sat below the top-ten threshold.

It’s also worth noting here that despite serving as Australia’s national independent auditor, the data from the ANAO report has been gleaned from procurement platform AusTender and features no privileged insights – and so is susceptible to the same pitfalls in trying to gain an accurate overview of consultancy spending as any ordinary review conducted by the public.

What should be taken into account: the past government was frequently accused of manipulating lax tender reporting requirements.

Here, the ANAO notes that it “did not test the integrity nor gain any assurances over the underlying data” used for its report, and makes several caveats as to the limitations of its source – among them, the common amendments that can occur at any point of time following the publishing of a contract, and that key contract details are self-reported by the relevant entities. The figures then, which cover only those purposely listed under the ‘consultancy’ banner, are almost certainly understated.

Reason cited for government consulting contracts

Bigger picture

Also, a further point of clarification; partially obscured or not, the $1.2 billion consulting take among the Big Four is only a small fraction of what these firms have earned from the government over the past decade, with the quartet additionally cashing jumbo-sized cheques in government work outside the federal government, as well as through other services such as contracting gigs and fees for solutions.

Still, the ANAO report does provide some insight: the $330 million brought in by KPMG for example is tabled as representing just 15 percent of the value of all contracts paid to the company.

Some quick maths suggests that KPMG, while most likely excluding its legal practice (KPMG Law has a separate ABN), earned a massive $2.2 billion from the federal government over the ten-year study time-frame. The consulting earnings ratios of KPMG’s three Big Four peers ranged from around 15 percent to 25 percent, such that some back-of-the-envelope calculations put their total (law and possibly other entity excluding) take at more than $5.5 billion combined over the past decade.

Contract size/numbers

Taking the report at face value, there are still some interesting insights to be gained. Despite perhaps perceptions to the contrary, the recent LNP dynasty in one sense didn’t steadily increase its use of consultants over its time in office, with the average number of contracts awarded per year (~4,000) since 2013–14 remaining highly consistent. It’s the annual worth of the contracts which has ballooned, jumping by over half a billion from $352 million in 2012–13 to $888 million last financial year.

“The supplier that experienced the largest increase in consultancy-related contract value was McKinsey & Company, with $294,000 committed in 2015–16 to $12 million committed in 2021–22.”
- Australian National Audit Office report

Naturally, it’s here where the other big names come into the frame, US strategy kings McKinsey and Boston Consulting Group, both which feature in the top ten in terms of the overall worth of tenders won. Taking a value-over-volume approach, McKinsey & Company took in $90 million from just 56 contracts, while Boston Consulting Group made a neat $106 million from 106 gigs. Curiously, ‘consulting’ accounted for only 40 or so percent of their contracts and just half of the earnings.

If you take the roughly $400 million in McKinsey and BCG’s total combined earnings and the approximate $5.5 billion spent on the Big Four over the decade, and then compare it against the reported $1 billion-plus being spent on average on those firms together with Accenture in the years from 2019 through to 2022 (so around half of the $6 billion in just three of the lastest ten years), then its clear to see how these handful of firms have capitalised on the most recent past government’s largesse.

Top 10 procurement categories by number of contracts

Digging a little deeper, of the almost 825,000 contracts that were reported on AusTender over the past decade, well over one quarter were categorised under ‘Management and Business Professionals and Administrative Services’, accounting for $105 billion of the $565 billion total bill. While consistently among one of the government’s biggest costs, the number of contracts in that category has exploded from 21,000 to 38,000 over the period, while all other categories have remained steady.

Spending critics

When looking at the various statistics together, public and opposition criticism of the past government, specifically of the Morrison government, appears to be warranted as to the massive consulting outlay beyond just a simple conflict of ideologies. The boom in outsourcing work and increase in spend is concentrated in just a couple of areas, temporary personnel services and management advisory, the latter which grew from around $700 million in the first year of the study to $3.1 billion in its last.

Value of various government services spending, including management consulting

The deliberate erosion of the public service and preference towards a temporary workforce was not a hidden LNP agenda, but the huge uptick in management advisory spend raises questions ast what exactly has changed over the years (noting here, IT consulting spend has remained steady over the past decade). Still, it’s almost impossible to draw any real conclusions without also factoring in the scale and complexity of the contracts awarded – data which the ANAO report doesn’t cover or provide.

One figure worth keeping in mind however; a third of all contract value over the study period was derived from amendments, the extra cost rising from $4 billion in 2012–13 to $28 billion per annum ten years on. Astonishingly, half of all contracts amended at least doubled in size. This could be an indication of complexity as to contemporary needs, or it could be indicative of poor procurement or oversight practices – possibly then combined with a competitive landscape somehow lacking, be it in available skills or due to potential partiality.