Introduction by Croakey: The Department of Health and Aged Care has massively increased spending on consultants over the past 15 years, according to a new analysis that identifies a “substantial increase in policy development consultancies”.
“This suggests that the Department is increasingly turning to external sources for what should be core functions,” writes former senior public servant Charles Maskell-Knight, who conducted a detailed analysis of data from AusTender for contracts between 2008-09 and 2022-23.
“Another concern is the increasing concentration of consultancy work in the hands of a small number of providers,” he writes.
His article follows Jennifer Doggett’s analysis of the implications of governments’ increased reliance on large consultancies.
Charles Maskell-Knight writes:
A recent Croakey article addressed the emerging issues around the use of consultants in the public service. In this article I present an analysis of consultant use by the Department of Health and Aged Care, focussing on the change over the period since 2008-09.
I downloaded the data for contracts for consultancy services for the Department for 2008-09 and 2022-23 from the AusTender website. I chose 2008-09, for while it is the second year recorded on Austender, it was not affected by an election (just like 2022-23).
The Austender data includes both the title of the consultancy and a category. Over time the recorded title has become less and less specific, while the category classification is very broad. Apart from “legal service”, just about every consultancy is recorded as “management advisory services”.
I have imposed my own classification on the data for the purposes of this article, using the title of the contract and my knowledge of the kinds of services the provider delivers. However, many items in the 2022-23 data defy classification: “User research and evaluation” could mean just about anything.
Aggregate numbers
The data for 2008-09 show 330 consultancy contracts, with a total value of $60.3 million.
The data for 2022-23 show 329 contracts, with a total value of $127 million. (This is after adjusting for a contract that was reported twice.)
After adjusting for inflation, the value of contracts increased by about 40 percent.
However, the aggregate data hide some interesting trends.
Health technology assessment
The Department has a longstanding practice of entering into multi-year contracts with providers (mainly universities) to provide health technology assessment services to support the Pharmaceutical Benefits and Medical Services Advisory Committees.
In 2008-09, 15 of these contracts were reported, worth $22.8 million over several years. No comparable contracts were reported in 2022-23.
After adjusting the 2008-09 base to remove these contracts, the total value of 2022-23 contracts increased by an inflation-adjusted 125 percent.
Specialist services
For some reason, contracts for the provision of external legal advice are counted as consultancy contracts. In 2008-09 there were just under a hundred of these contracts worth $4.3 million; in 2022-23 there were only 46 with a value of $3.4 million.
The Department engages consultants to support advertising campaigns through market research, concept testing, and impact analysis. In 2008-09 there were 24 such contracts worth $4.0 million; in 2022-23 there were 19 worth $5.0 million.
In other words, there was not any significant change across these categories.
Management services
The Department also engages consultants to provide services to support its administrative operations: recruitment, code of conduct inquiries, procurement and probity advice, property services, staff training, IT services, and so on. In 2008-09 there were just over 40 of these contracts worth $2.3 million, but by 2022-2 there were almost 70 worth over $16 million.
The 2022-23 data includes three contracts totalling $2.1 million for internal audit services, as well as one with PwC for “audit and evaluation services” worth $2.3 million. (That entry has been annotated: “This contract has been paused in order for the Department to make enquiries and receive information and assurances from PwC in relation to potential conflicts of interest and related matters”.)
By contrast, the only mention in 2008-09 data of internal audit is a contract to engage an independent chair of the internal audit committee.
Other services
After allowing for health technology assessment, legal services, advertising support and management services, there were 155 contracts in 2008-09 worth just under $25 million.
By 2022-23 there were 185 contracts in this group, worth just over $100 million – a real increase in value of over 180 percent.
I have categorised these contracts as:
- Evaluation and review – analysis of an existing policy or program to determine its success (or not) and scope for improvement
- Program management – activities intended to support delivery of an existing policy or program, including monitoring and reporting, and assistance to program participants
- Policy development and research – activities intended to develop new policies or programs, including data collection and analysis, policy research, development of options, consultation, and guideline preparation
- Technical advice – small consultancies to provide advice within a narrow technical scope.
The available data for 2008-09 allow most contracts to be assigned to one of these categories with a fair degree of confidence. In some cases a consultancy may cross several categories, such as one for developing guidelines and then disseminating them, and in those cases I have categorised it on the basis of what seems likely to be the costliest element.
Unfortunately the lack of detail around a number of 2022-23 grants does not support any definitive categorisation. The following table shows the pattern across the two years.
Apart from the overall increase in the volume and value of these contracts, the striking thing for me is the substantial increase in policy development consultancies.
This suggests that the Department is increasingly turning to external sources for what should be core functions.
As the Department’s capacity to carry out these functions diminishes, so does its capacity to be an informed purchaser of these functions from outside sources.
The big four (or five) (or even six)
Another concern is the increasing concentration of consultancy work in the hands of a small number of providers.
Much of the public debate over the last few months has centred on the relationship between government and the “big four” consultancy firms: Deloitte, EY, KPMG, and PwC. In 2008-09 these firms were awarded a total of 17 Department of Health consultancy contracts, worth a total of $2.5 million.
In 2022-23 they secured 62 contracts, worth a total of $35.3 million.
In addition the Nous Group (which did not appear on the 2008-09 list) received 13 contracts, worth $8 million. Together with Monash University (7 contracts worth $10.4 million), these firms are receiving well over half of the total funding allocated to non-specialist, non-administrative consultancy contracts by the Department.
The challenge ahead
The Albanese Government has made clear its desire to reduce the use of consultants by the public service, and the October 2022 Budget booked savings from a measure to reduce external labour as well as travel, advertising and legal fees.
Stephen Bartos has published a three-point plan to help wean the public service off consultant dependency.
However, reducing consultancies requires Departments to develop their capacity to carry out the work that is currently outsourced. Given the Department of Health is currently outsourcing basic literature reviews, new Secretary Blair Comley has a lot of rebuilding to do.
See here for previous Croakey stories on the role of consultants in the health system
