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BFCSA: Big Four Bank inquiry into government consultancy binge gets buried. Michael West

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Big Four: inquiry into government consultancy binge gets buried

MichaelWest.com.au Apr 26, 2019

‘Triskele’

 

The inquiry into the federal government’s spendathon on government contracts, especially on that global elite of corporate welfare recipients, the Big Four audit firms, has been axed — because of the federal election, we are told. The paradox is that the blow-out in government costs comes despite claims by the Government that the outsourcing binge is all about “small government”. Triskele reports.

AFTER three days of public hearings and dozens of submissions into the Government’s unexplained splurge on consultants – particularly the biggest winners the Big Four accounting firms – the federal Joint Committee of Public Accounts and Audit has quietly taken the Inquiry into Australian Government Contract Reporting out into the back paddock and dispensed it with a quick bullet to the head.

Or, in other words, it has let the inquiry lapse without issuing a report, as would normally be the case. The calling of the federal election is blamed, even though another inquiry, the Inquiry into Cyber Resilience, will resume post-election.

Committee Chair Liberal senator Dean Smith summarised the Inquiry’s purpose in his last statement, saying:

“The public hearings explored issues such as government entities’ use of, and spending on, contractors, consultants, and labour hire workers; the reasons driving the use of contractors, consultants, and labour hire workers, and the impact their use may have on the public service; and issues raised in the ANAO Information Report related to the accuracy of contract reporting, and issues relating to the transparency of the current reporting framework.”

If your eyes have already glazed over, I share your pain. It is hard to imagine anything unsexier than this topic. But it matters; this is your money they are splashing about, our taxes

The Inquiry was in response to an Auditor-General’s report (Report No.19 (2017-18), Australian Government Procurement Contract Reporting), which raised red flags about both the massive growth and lack transparency of government outsourcing, especially the significant but opaque volumes of contracting going to the Big Four consulting firms (Deloitte, Ernst & Young, PwC and KPMG).

Analysis by data warehousing expert, Greg Bean, below, shows the dramatic escalation in government outsourcing to the Big Four since the Abbott/Turnbull/Morrison government came to office in 2013. Bear in mind the graph below has incomplete data for 2018. It was another record.

No wonder the Big Four have been known to refer to getting government contracts as “going to the dairy”.

Many people had made submissions to this committee in good faith, and many hours of work had been invested into these contributions, so it is not at all surprising that the reaction to the demise of the Inquiry was received with “disappointment”.

Submissions from unions and anonymous contributions pointed to how labour hire has exploded in the Australian Public Service, leading (ironically) to higher labour costs for agencies, a decline in pay and conditions for contracted staff and negative effects on corporate knowledge, quality of work and morale due to “churn”.

One anonymous submission noted that:

“Labour hire staff are employed on 12-month contracts and their employment can be terminated with just one week’s notice. Some staff have now worked, more or less continuously, for 13 years in the same role, doing the same work”. (submission 45).

What is bad for labour has been a bonanza for the big four audit firms — KPMG, Deloitte, E&Y and PwC. According to the Auditor General report (section 5), the value of consultants’ contracts went up from about just under $400m in 2012-2013 to just under $700m in 2016-2017.

Out of $3.1 billion in fees earned by the Big Four global accounting firms from government contracts between 2012 and last November, KPMG earned almost one billion dollars, or one-third of all the work.

The Grattan Institute submission noted the clear upward trend of the Big Four which are now receiving more than a quarter of all consulting contracts by value. (submission 50). The radical escalation in spending is one contributing factor to the blow-out in Government debt.

One of the drivers of this increase in outsourcing appears to be the government’s ideological preference for “small government” and minimising the size of the public servants by means of the imposition of caps.

A consistent theme in submissions to the Inquiry was that this drive to replace in-house work with externally sourced work was stripping the public service of its own capability, corporate knowledge, and capacity to learn and develop and maintain learning structures in-house. The Centre for Policy Development noted:

“It was for this reason that Terry Moran described the APS in November 2017 as being in ‘palliative care’”.

While the APS is in virtual palliative care, the Grattan Institute found:

“Since 2015, the ‘Big 4’ consulting firms have won almost $500 million in Australian contracts each year, around double the average between 2011 and 2014, and four times the average in 2008 and 2009. The increase is the result of an increase in the number and typical size of the contracts.”

There was evidence to suggest rushes of contracts just before the end of the financial year, which one submission from an independent consultant (submission 52) argued was a dynamic that favoured the Big Four, who were much better able to leverage this dynamic.

Over the six and three-quarter years analysed in the above chart, KPMG picked up $995 million in government work versus $826 million for PwC, $647 million for EY and $634 million for Deloitte.

Dr. Michael Howard of the University of Newcastle delineated in his submission the gradual erosion of the distinction between consultant and contractor, and how consultants have morphed into contractors. Worryingly, he also notes there is a tendency towards spending on work which is actually related not just to service provision, but to the development of policies and programs.

A similar concern regarding outsourcing of policy analysis and development was expressed by Paul Barratt (AO), who has extensive background in the Australian Public Service, including as Department Secretary of Defence. Barratt provided a number of examples of cases of contractor under or non-performance, or which failed to provide value for money.

Both Barratt and former public servant Paul Munro (submission 10) pointed to increased risks, including risks of corruption associated with outsourcing.

For her part, Professor Anne Tiernan of Griffith University notes that public administration has changed as has the context in which it does its work, and it is not tenable to return to the structures of the past.

Still, her submission, like most of the others, advocates for a more selection use of outsourcing and external contracting. There is good reason to go outside the APS, she argues, if what you want is an independent perspective, but in practice,

“this was the reason least cited by agencies for using consultants. Most often, agencies reported that they needed specialised or professional skills not available among their staff (ANAO, p21). This raises the question of whether contracting out is being used not for efficiency or to secure independent views, but often in reaction to the deficits in the APS”. (submission 32).

This parliamentary probe was to be the first time a parliamentary committee would investigate the volume and value of this massive spend on external consultancies. For those on the government’s gravy train, like the Big Four, alarm bells briefly sounded – and then died – thanks to the government’s decision to call a halt to the report.

Of the 25 reports produced by the joint committee, it’s interesting that this was the only one allowed to lapse. All the people who contributed their (sometimes considerable) time and effort to the Inquiry should be thanked for their public service. It is a shame that their effort was not rewarded with the formal publication of a report.

Federal Labor has announced that, if elected, a Labor Government “will scrap the arbitrary ASL cap on staffing levels and reduce spending on costly contractors and consultants, with the savings to be re-invested into building direct APS capacity and jobs, while increasing transparency around private sector outsourcing”.

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The above investigation is published anonymously at the author’s request. Triskele’s identity and bona fides are known to us. Triskele is an academic and journal editor as well as independent researcher interested in politics, history, current affairs, books, languages, and “all things nerdy”.

 

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