Fri May 19

Consultants like PwC are loyal to profit, not the public. Governments should cut back on using them

Written by Andrew Podger, Honorary Professor of Public Policy, Australian National University

The PwC scandal ^[1] reveals appalling behaviour by an individual consultant and his company that provided consulting services to the federal government.

PwC reportedly used its insider knowledge to advise multinational firms on how to continue to avoid tax when the legislation it advised on came into operation.

Confidentiality agreements were broken and the central objective of the contracted advice – to address tax avoidance by multinational companies – was directly subverted.

In light of this case, a Senate committee is investigating ^[2] the use of consultancy firms by the federal government.

While the terms of reference focus on conflicts of interest, committee members are also interested in the growth in the use of consultants and contractors in recent years, how they are managed by government, and the impact this is having on the public service. As a former Australian Public Service Commissioner, I appeared before the committee to discuss these wider issues on May 2 this year.

So far, no evidence has been provided that the PwC case is representative of widespread abuse among consulting firms of their contracted obligations, or of extensive and systematic failure to properly manage conflicts of interest.

But the scale of the use of consultants raises questions about how well conflicts are managed and, indeed, about value for money in the use of such external advice by federal government agencies.

Differing values and blurred boundaries

In managing consultants, it’s essential the public service appreciates that the motives and values of the consultants are quite different from those of public servants. Their loyalty is to their employers and, while delivering what the contract for services requires, their interest is in their company’s profits.

What they deliver may be in the public interest, but the public interest isn’t their primary motivation.

The extensive use of consultants and contractors in recent years has sometimes blurred the boundaries between them and the public servants with whom they work.

The benefits of close working relationships can obscure the boundaries, leading to perceptions of working seamlessly together. But seamlessness is inappropriate and risks mismanagement of the different interests and values involved.

I was asked a few years ago to investigate a case in the defence department, in which a contractor was so embedded in the organisation, having high-level security clearances, that managers failed to see he was exploiting the relationship to gain further work without competitive processes.

He was also stealing intellectual property from a former employer to win new contracts. It was only after a court case, and my investigation, that the department accepted its mismanagement of the contractor.

The seamlessness of the relationship blinded them to the reality.

Public servants need to recognise the commercial interests of the consultants and contractors, which might motivate these contractors to engage in activities such as:

limiting the transfer of expertise to the public service so as to retain demand for that expertise externally into the future
tailoring advice to maximise the chances of new business, including by not providing advice that might not be welcome
further tailoring advice to recommend supplementary work, particularly where that might not be subject to competitive tender.

When contracting consultants, governments should:

have clarity about what is to be delivered
have a sound competitive process
carefully manage the consultancy to maximise the quality of the product and address any conflicts of interest
conduct a proper assessment of the product against the description in the requirement
and, where possible, publish the material delivered to expose it to external scrutiny.

Gone too far

The use of consultants and contractors grew initially in the 1980s and ‘90s in the context of new public management reforms. The mantra of “management for results” increasingly incorporated the use of competitive markets to pursue greater efficiency whether in service delivery, corporate services or government business enterprises (or, later, policy advice).

Central to this use of competition was a focus on value for money and having an even playing field, testing whether outsourcing was warranted. There’s little doubt that, despite some mistakes, significant efficiency gains were delivered during this period.

Subsequently, the focus on demonstrating value for money has shifted. An ideological view emerged that the private sector was necessarily more efficient or that public service advice was more self-interested than private sector advice.

The imposition of staff ceilings, in addition to budgetary ceilings, also led to the use of external labour even when departments knew it didn’t represent value for money. In addition, the scale of the shift to external providers undermined capabilities within the public service, including to be “informed purchasers” of externally sourced services.

There’s little doubt the extent of the use of consultants and contractors has gone too far in recent years. Not only beyond what could be fairly assessed as value-for-money, but also undermining critical capabilities in the public service.

This includes aspects of the core role of the public service, such as the provision of expert, disinterested policy advice drawing on its extensive administrative experience and its understanding of connections across the breadth of government policies.

There are welcome signs of attempts to wind back the use of consultants and contractors and to repair the damage to public service capability. This will take time.

This is not to deny the case for external assistance where expertise is required that the public service has no reason to maintain or where an external perspective is needed.