Expensive reliance on outside advice

James Riley
Editorial Director

The government’s use of external consultants to design Services Australia is “deeply concerning” and risks the new department having an “expensive, debilitating dependency” on outsourcing, according to the deputy chair of the Parliament’s Joint Committee of Public Accounts and Audit Julian Hill.

InnovationAus.com revealed last week that McKinsey and KPMG won a sweet six-week deal worth $868,000 with the Department of Human Services to help design the strategy for the new Services Australia.

The consultants will provide “strategic advice” to the taskforce established to design Services Australia, with former NSW finance secretary Martin Hoffman at the helm.

Scott Morrison: Services Australia now under the microscope over outsourced advice

It was later revealed by the Australian Financial Review that McKinsey had pitched for the project offering a discounted rate with hopes it would win more work down the track. The AFR revealed that McKinsey partners typically charged government a day rate of up to $16,000.

Mr Hill said he was concerned about the reliance on outsourced advice in developing a fundamental framework for the new Services Australia department.

“No-one can seriously believe that it’s just six weeks of work, that’s just not credible. There’s absolutely a role for external expertise and consultants where there’s particular capability or where a second opinion or genuine knowledge transfer from other jurisdictions is needed,” Mr Hill told InnovationAus.com.

“But the extent of the outsourcing and the potential gravy train for high-price consultants in Services Australia is deeply concerning. This is exactly the kind of project that should be led by some of the best and brightest next generation leaders, taken outside of their day-to-day and tasked with thinking and redesigning, supported by external expertise where needed.

“You can’t contract out your brain and ability to think, which is what the Liberals keep trying to do with privatising the public service.”

The taskforce was established by government services minister Stuart Robert to develop a strategic plan for the “substantial reform program”, with Services Australia meant to be following in the footsteps of Service NSW.

McKinsey won the $858,000, six-week contract to assist with the design of this strategy on 11 July, with KPMG to work as a subcontractor under a “one-team approach”. When pitching for the project, McKinsey offered a highly discounted daily rate for its partners due to the “importance of this work to improving the lives of Australians and the government’s policy agenda”.

While the standard charge for a senior partner is a staggering $16,000, McKinsey offered up its partners at a discount of nearly 66 per cent for the six week project.

The team working on the Services Australia project includes McKinsey partners Damien Bruce and Jules Carrigan, McKinsey associate partner Victor Finkel, McKinsey manager Melanie Brown and KPMG partner Dean Grandy.

A spokesperson for the Department of Human Services declined to comment on McKinsey’s discounted rate or the prospect of further tenders in the future.

“Procurement decisions made by the Department are made in accordance with the Commonwealth Procurement Rules,” the spokesperson told InnovationAus.com.

The early reliance on external contractors risks the new Services Australia being dependent on this expensive method of outsourcing, Mr Hill said.

“It’s like the practice of weaning infants off breast milk by giving them baby formula until they’re addicted to it. You’ve destroyed the ability of the mother to feed, then stuck on a high price product,” he said.

“So much of the contracting out and over-use of consultants does that to the public service – it creates an expensive, debilitating dependency. That’s absolutely the risk.

“It shouldn’t be a radical proposition to say that some functions, especially serving citizens, should remain in the public sector.”

McKinsey was also awarded a separate $5.9 million, three year contract with the Department of Human Services in mid-June for “business advisory services”, but the department has denied this is connected to the Services Australia work.

Two new parliamentary inquiries were established earlier this month, with one to investigate the government’s $50 billion-worth of government services outsourcing, with a focus on the privatisation of major programs and consultancy contracts, and another focusing on competition and conflicts of interest between the big four accounting auditing firms and the performance of regulators.

Do you know more? Contact James Riley via Email.

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