This chapter will examine the diminishing policy capability of the Australian Public Service (APS) due to an overreliance on external consultants.
Use of consultants
In line with the externalisation trend discussed in previous chapters, evidence to the inquiry raised compelling concerns about the extensive use of consultants for core APS work.
Submitters argued that an overreliance on consultants was eroding APS capability, particularly in regard to the provision of policy advice.
Evidence before the committee also revealed a distinct lack of information around the level of government expenditure on consultants, leading to concerns about transparency and whether the ongoing reliance on consultants represented value for money.
These matters will be addressed in the following sections.
An excessive dependence on a 'para public service'
John Halligan, an Emeritus Professor in Public Administration at the University of Canberra who submitted to the committee in a private capacity, informed the committee that Australia had chosen a 'more regular and much greater use' of consultants than Canada and New Zealand. He noted that of all the Anglophone countries, Australia had arguably the heaviest reliance on consultants for advisory and management work.
A comparatively active consultancy community has heightened externalisation by providing contestability and further advisory sources from outside of government, but also establishing linkages on management and policy issues that influence public administration in ways not seen before. It is Australia's enduring reliance on private sector consultants for policy and management work that is most striking. The para public service has become a fundamental part of the government landscape.
Professor Andrew Podger AO, a former APS Commissioner, informed the committee that although there was sometimes a valid need to engage external advice, the APS suffered from an excessive use of consultants. He highlighted the danger that arose from this trend and cautioned:
There is a danger, in using consultants, that they will say what they think is wanted in order to get the next job. That's not to say getting consultants in is always a bad thing. There will be times when you need external expertise that you don't have in the place or you want a perspective from outside that you won't get from internal [employees]. So there are reasons for using consultants from time to time, but they should be used with some care.
The Community and Public Sector Union (CPSU) argued that consultants were too often used by the APS, not because the work was not possible to complete 'in-house', but rather because of an unspoken preference from government for private advice.
As Ms Melissa Donnelly, National Secretary of the CPSU, set out:
Too often consultants are used for work that could and should be done by APS employees. It happens because there seems to be a tacit preference for privatised advice, provided through consulting firms, rather than public policy advice and a disregard for the skills and capacities of APS staff.
Ms Donnelly further explained that the excessive use of consultants raised transparency questions:
One of the many concerns we have around the use of consultants is about the impact it has on frank and fearless advice and the capacity of the Public Service to play its role in properly advising government. The lack of accountability and transparency and the risk that you have identified about getting the advice you want rather than the advice that perhaps should be given is absolutely a concern.
A September 2021 discussion paper released by the Australia Institute noted that private consulting firms were doing an 'unprecedented' amount of public work. It observed that the growth in government spending on consultancies appeared to correspond to limits on APS employment imposed by the average staffing level (ASL) cap.
Also of interest to the committee in its deliberations was commentary from Professor John Quiggin, a Laureate Fellow in Economics at the University of Queensland. Professor Quiggin made a number of observations in his essay for the September 2021 edition of The Monthly publication on the trend of governments relying on consultants for public policy advice. In particular, he remarked on the circular nature of the arrangement, given consulting firms are likely to provide policy advice that typically involves even more outsourcing. As he noted:
By their very nature, these firms are poorly placed to advise governments to reverse the process of which they are part'.
Professor Quiggin also identified that a fundamental cost of outsourcing policy advice was the subsequent loss of institutional memory within the public service. He elaborated on why this was an inevitable outcome:
While consulting companies have plenty of institutional memory, it concerns the process of consultancy, not the concerns of individual clients. Consultants need to develop the flexibility to move quickly from one contract, and one team, to another. Such flexibility involves an element of amnesia.
He further suggested that one of the important motives for outsourcing policy advice was the potential for 'blame-shifting when things go wrong'.
Loss of policy capability
The Independent Review of the APS (Thodey Review) cited research indicating that government ministers, alongside scholars and practitioners, had raised 'serious questions (and doubts)' about the APS's policy-making capacity.
Submitters to the committee's inquiry posited that the ongoing, unnecessary use of consultants by governments had gradually eroded the APS's strategic policy capability.
Professor Halligan stated that the condition of policy capability in Australia had been 'problematic' for over a decade. Additionally, he observed that the excessive use of consultants raised questions about ministerial attitudes towards public governance:
The lack of interest in supporting strategic policy development raises questions about the nature of public governance. It can either imply that ministers have no need for strategic policy advice from departments because their focus is on the short term or that when they do, it can be provided by political advisers (or external sources).
To counter the lack of policy capability, Professor Halligan recommended a policy profession stream be added to the list of APS professions, along with a renewed focus on the Policy Hub established by the Department of the Prime Minister and Cabinet (PM&C).
The CPSU reported that feedback from its members strongly indicated that consultants were being used to do 'more strategic, complex work' that APS employees should be doing. The CPSU reported that APS staff were often relegated to providing administrative support and thus missed out on opportunities to develop their skills and expertise.
Additionally, the CPSU stated that a key concern linked to the growth of consultants was the accompanying failure to transfer skills and knowledge to the APS.
The CPSU provided examples of feedback from members illustrating the concerns it raised. For example, a CPSU member working in the Productivity Commission commented on the loss of institutional knowledge:
I've seen it firsthand both working as a consultant and working in the public sector. Some agencies can barely do their job because work they would normally do in-house has been given to consultants — institutional knowledge has been lost.
Similarly, another CPSU member employed at the Australian Taxation Office remarked:
I have seen this first-hand in my Director job. We're carving out the most strategic work for consultants and delegating less complex work to ongoing staff — this does not build skills for the future...
Professionals Australia also commented on the loss of skill and institutional knowledge inflicted upon the APS by a reliance on consultants. It argued that while the APS lost out, the consultancy firms themselves captured the experience and expertise and retained it 'to sell again in the future'.
The knowledge and expertise developed in the delivery of APS business (be that infrastructure delivery, defence, health, innovation or biosecurity) should be captured by the APS and retained for the future prosperity of the Australian community. The APS should not be a vehicle to divert that expertise to the private sector, only to leave the Australian community with an ongoing consultancy bill anytime they want to use it again.
No clear picture on expenditure
During the inquiry the committee encountered a great deal of difficulty ascertaining an accurate and up to date amount of government expenditure on consultants across the APS given the shortcomings of the data reported in AusTender.
This difficulty is not new and has been well-documented in the media. For example, analysis in the Saturday Paper in October 2021 looking at the surge in outsourced policy work observed that the use of consultants in the APS was an ‘opaque and poorly governed space’.
The challenge inherent in gaining an accurate picture of government spend on consultants via AusTender was also a feature of extensive media analysis in 2018 in light of evidence presented to the Joint Committee of Public Accounts and Audit (JCPAA) inquiry into government procurement contract reporting.
The JCPAA inquiry was in response to a 2017 Australian National Audit Office (ANAO) information report which identified data suggesting that APS agencies may have systematically underreported consultancy contracts in AusTender. The report found that for both suppliers and service categories, there was a 'substantial difference' in the value of contracts identified in AusTender using the 'consultancy' flag and the total value of contracts for the identified suppliers and categories. As the ANAO explained in the report:
Many of these suppliers publically report consultancy as a substantial component of their business. Contracts with these suppliers and contracts in service categories including 'management advisory services' and 'information technology consultation services' have the vast majority (by value) classified as not being consultancy. This may suggest entities have underreported consultancy contracts.
The CPSU informed the committee that spending on consultants had 'dramatically increased' since the election of the Coalition Government in 2013, coinciding with the introduction of the ASL cap.
The CPSU emphasised to the committee that there was a lack of centralised data about the number of consultants working for the APS. It highlighted the 'inconsistent collection' of expenditure-related data in AusTender, as well as the absence of insights on whether consultants had met their objectives. It argued that this lack of data and evaluation had allowed the government to 'turn a blind eye' to the exponential growth of consultancy use and the subsequent hollowing out of APS strategic policy capability.
To address this, the CPSU recommended improvements to measurements for accountability, transparency and evaluation concerning the use of consultants. It explained that with better data, the APS could identify when consultants were genuinely needed, and where they were required, mandate plans to transfer skills back in-house.
2018–19: Close to $1.2 billion spent across eight consulting firms
In the absence of an official, collated dollar amount published by the APS, the committee turned to the most recent evidence available from the ANAO to gain an idea of government expenditure on consultants.
ANAO analysis of AusTender data up until 30 June 2019 showed a significant growth in the government's use of consultants since 2013. In 2018–19 consultancy contracts totalled $647.0 million, up from $365.9 million in
Through its analysis of the AusTender data, the ANAO identified eight firms reported as 'significant providers of consultancy services'. These consulting firms were:
The ANAO found that in 2018–19, the government spent close to $1.2 billion with those eight firms alone.
In arriving at this figure, the ANAO stated that it had included all contracts in AusTender with those eight suppliers, irrespective of whether they had been 'flagged' as a consultancy contract or not.
The figure below illustrates the total reported value of contracts with those eight firms over the ten years to 2018–2019.
Figure 5.1: Contracts value by significant consultancy services providers: 2009–2010 to 2018–2019 irrespective of consultancies classification
[Source: Australian National Audit Office, Australian Government Procurement Contract Reporting, Information Report No. 27, 2019–20, p. 45.]
As a way of illustrating the extent of the government spend, the Australia Institute estimated that the close to $1.2 billion spent on the eight firms in 2018–19 could have instead employed an additional 12 346 public servants.
However, the Australia Institute also noted that while there was very little public information on consulting fees, in practice the government's consultancy spend was 'unlikely to employ nearly as many people or produce nearly as much work' as hiring public servants directly. It drew attention to 2019 analysis by the Australian Financial Review (AFR) which revealed the 'standard daily fees' charged by consulting firm McKinsey. The AFR reported that, according to pricing information contained in a successful pitch to government, daily fees ranged from $10 000 to more than $13 000 for an associate partner, and between $13 000 to $16 000 a day for a senior partner.
Solutions in other jurisdictions
The overreliance on external consultants is an issue that is also impacting public services in other jurisdictions.
For example, in 2019–20 the central government spend on external consultants in the United Kingdom (UK) was more than £700 million. September 2020 media articles drew attention to comments from Lord Agnew of Oulton, Minister of State for the Cabinet Office and Her Majesty’s Treasury, who argued:
We [the UK Civil Service] are too reliant on consultants. Aside from providing poor value for money, this infantilises the civil service by depriving our brightest people of opportunities to work on some of the most challenging, fulfilling and crunchy issues.
To tackle this overreliance, in May 2021 the UK Cabinet Office launched a Government Consulting Hub (GCH) to support civil servants to take on a greater role in projects, thereby reducing Civil Service spend on external consultants.
The GCH functions as a centre of expertise on management consultancy. It aims to help reduce the amount that the UK Government spends on consultancy, maximise value where consultants are really needed, and upskill civil servants to deliver consultancy-type work to ensure the continuous growth of the Civil Service's internal capability and confidence.
In the Australian context, the Victorian Government has developed administrative guidelines on engaging professional services in the Victorian Public Service (VPS). The purpose of the guidelines is to provide
decision-making principles and practical guidance to support VPS bodies and entities to determine when the use of professional services is appropriate and ensure that public resources are used in an efficient manner.
The guidelines offer a framework for the 'valid use' of external engagements in the VPS. As the guidelines explain:
The decision to seek external support to deliver government policies, projects and programs is often driven by the need for specialist or technical skills or additional capacity to ensure new initiatives are delivered in a timely and effective manner. This is particularly true in situations where specialist skills are in emerging or growth areas not yet available within the VPS, it is not efficient to resource from within the VPS, or in areas where there is high demand for talent and certain specialist skills.
Parameters and tools to guide decision making in relation to external engagements, supported by quality workforce capability planning and development, will help to reduce inappropriate use of professional services and labour hire.
Principle One of the guidelines states that professional services should not be engaged to undertake work identified as a 'universal and enduring public service function'.
Enduring public service functions are defined as the work products and services that are intrinsic to the running of the public service and delivery of government priorities. While noting that the specific enduring public service functions will vary from one organisation to another due to their differing roles and functions, the guidelines note that there are 'universal functions' that should be resourced using public service employees as a first principle.
According to the guidelines, 'universal and enduring' public service functions include:
policy and program development, implementation, and evaluation;
business case development;
business strategy and organisational development;
external stakeholder/community engagement and facilitation; and
internal meeting and event facilitation.
In recognition that professional services can play a 'legitimate role' in the VPS, Principle Two of the guidelines offers a framework for the valid use of external engagements.
According to the guidelines, professional services engagements should be limited to the following circumstances:
Work requiring skills or expertise not efficient to recruit or maintain within an organisation
To meet this condition, the following circumstances must apply:
the necessary technical or specialist skill(s) required to deliver the work or services are not available or not efficient to maintain within an organisation, and
current and future demand within the organisation for the technical or specialist skill(s) does not warrant recruiting the capability into the organisation.
Need for genuine independence
Independence may be required to instil confidence in the objectiveness, impartiality, and integrity of Government work, services, or decision-making processes. In these circumstances, the type and level of independence required must be carefully considered, including the potential for another area of a department or Government to provide the services.
The engagement connects the VPS with the latest technical advances, emerging key skills or expertise and builds VPS capability
Initially these services may need to be delivered by an external provider, however over time it is expected that new technologies, specialist skillsets and/or ways of working will be able to be delivered by internal capacity.
Approval of external engagements must therefore be able to demonstrate a contractual obligation and clear project strategy for transferring relevant skills and knowledge across to the VPS from the professional services provider.
Work requiring capacity due to unpredictable demands that require immediate or time critical action.
The capacity condition is only applicable in circumstances that are characterised by unpredictable demands requiring immediate or time critical action, such as legal matters with court-imposed deadlines and urgency, or surge capacity required due to emergency management, or similarly critical events.
To meet this condition, the following circumstances must apply:
the necessary capacity required to deliver the work or services is not available or not efficient to maintain within an organisation, and
current and future demand within the organisation for the capacity do not warrant recruiting into the organisation.
The capacity condition must not be used to bridge shortfalls in regular or foreseeable demand for internal capacity or capabilities.
The committee is deeply concerned at the excessive use of consultants within the APS and the relationship of dependence that has formed.
It is utterly unacceptable that the government paid close to $1.2 billion in one year to eight private consulting firms in an entirely unaccountable way, for work that arguably should have been completed in-house by the APS.
The committee notes a discussion paper released by the Australia Institute stated that Australia's consulting industry (public and private) is the fourth largest in the world. The paper concluded that by population, Australia's spending on consulting is greater than that of any other country, and almost double that of comparable countries like Canada or Sweden.
The committee is alarmed by October 2021 media reports indicating that the Morrison Government is on track to achieve its highest yearly consultancy bill to date, with nearly 1000 contracts with consultants entered since 1 July 2021. This is an average of more than $2 million a day since the 2021–22 financial year began.
The committee also draws attention to analysis by The Saturday Paper of contracts published on AusTender for a nine month period – between January 2021 and 6 October 2021 – which revealed that $654 million worth of management advisory services, labour hire and consulting work were granted to just six companies.
Additionally, the committee considers it regrettable that the Morrison Government's decisions and strategies in significant areas, including the vaccine rollout, were informed by external consultants, rather than internal, independent expert policy advice.
With this context in mind, the committee is cognisant of the words of caution expressed by Professor Podger, Professor Halligan and Professor Quiggin, all astute observers of the APS and the broader Australian political environment.
The committee considers the role of the public service in providing 'frank and fearless advice' to government to be one of the key characteristics of a properly functioning Westminster democracy. When the government, despite access to a skilled and independent APS, consistently chooses to spend exorbitant amounts of taxpayer money on commissioning strategic policy advice from private consulting firms, public sector capability is undermined.
This preference for policy advice from private, for-profit firms that operate with an ethos vastly different to that characterised by the values of service, integrity and impartiality which define the APS, is alarming. The committee considers that this preference shows a flagrant disregard for the value of public policy, as well as the skills and capacity of the APS.
The committee is of the opinion that as a first principle, all strategic policy development work should be performed in-house by the APS unless there is a demonstrated and acute need to engage consultants. Using private consultants for strategic policy work should be the rare exception, not the rule.
On this matter, the committee considers it would be instructive for the APS to look at developing robust engagement guidelines, similar to those established by the Victorian Government, to ensure that external professional services are not engaged to undertake tasks identified as universal and enduring APS work. This would include work such as policy development.
Furthermore, the committee considers that when consultants are deemed necessary, any contracts of engagement must include a mandatory, enforceable provision requiring skill transfer to APS employees. The committee is also of the view that the Australian Government should consider introducing an effective cap on the amount agencies can spend on external consultants.
The committee sees merit in establishing an internal APS policy hub, modelled on the GCH in the UK. The committee would like to see an APS hub be responsible for monitoring and developing agency-level policy capability, as well as providing project advice, consulting and 'over-the-counter' strategy advice for agency and department heads. The consulting hub should also be responsible for assessing and approving all requests from agencies to use external consultants, and be given the authority to rewrite specifications before contracts are put out for tender.
The committee is concerned with the lack of transparency and oversight on consultant expenditure, particularly in light of the well-documented shortcomings of the data reported through AusTender. In conjunction with the large amount of money spent on labour hire, it is clear that the government could instead be investing considerable financial resources into the ongoing development and retention of APS staff and significantly reduce its reliance on externalisation.
The committee calls upon the government to strengthen transparency and accountability in monitoring and reporting on the use of consultants as a matter of urgent priority.
The committee considers that the Department of Finance should lead reform on how consultancies are categorised in AusTender to more accurately capture the level of expenditure and dependency of APS agencies on private consulting firms.
The committee recommends that the Australian Government commit to developing robust engagement guidelines (similar to those used by the Victorian Government) to ensure that as a first principle, external professional services should not be engaged to undertake work identified as a universal and enduring public service function.
The committee recommends that the Australian Government require that contracts of engagement for external consultants include a mandatory, enforceable provision requiring skill transfer back to Australian Public Service employees.
The committee recommends that the Australian Government establish a consultancy hub to provide in-house consultancy services to Australian Public Service departments and agencies.
The consultancy hub should draw lessons from the establishment of the Government Consulting Hub operating within the United Kingdom Civil Service.
The consulting hub should be responsible for monitoring and developing agency-level policy capability.
The consulting hub should be responsible for assessing and approving all requests from agencies to use external consultants, and be given the authority to rewrite specifications before contracts are put out for tender.
The committee recommends that the Australian Government consider introducing an effective cap on the amount agencies can spend on external consultants.
The committee recommends that the Department of Finance lead work to reform how consultancies are categorised and tagged in AusTender with the goal of more accurately capturing the level of expenditure on consultants across the Australian Public Service.
The committee recommends that the Department of Finance take into account the previous findings of the Australian National Audit Office in designing the AusTender reform.