We talk of sovereign capability, but we give it away in the services industry. We want international influence – but we don’t support the growth of Australian businesses that might become internationally influential.
Literally billions of dollars are spent on consultants by the APS, with the lion’s share going to a few companies. It’s not just in the Federal public sector either, the same behaviour exists across the States.
With a stroke of the pen, a new policy is written, “reduce the spend on consultants and increase the public sector’s capability and capacity”. If only that were possible, but the truth is consultants are here to stay. Billions of dollars of spend isn’t going to be replaced by in-house teams in any foreseeable future. We should use them less, for the things we can’t do ourselves, and engage them better when we need them.
Above all, we should get best benefit from the spend.
Figures from Austender show that $2bn was spent on the Big 4 and Accenture in 2021-2022 (Accenture, KPMG leads consulting firms for government work in 2021-22 (afr.com)). To this we should add the Defence MSP contracting, which tops about $4.5bn across four consortia. A spend to companies mostly not Australian, and who have made a big business out of advising how to minimise taxation. Bet they use that advice themselves!
The revenues of Australian companies pale into insignificance.
What a wasted opportunity
Four billion dollars a year spent on five or six companies, that aren’t Australian. The return is some services and the economic value of the spend in Australia.
Surely, we could take better advantage of that spend than line the pockets of partners of multi-nationals, many who live overseas, with self-interest rather than our interest, at heart. To quote one author, we are fostering ‘sports star-level incomes for men and women employing no special talent and taking no personal or entrepreneurial risk’ (Richard Brooks, Bean Counters, 2018).
What would happen if we spent just a few billion dollars in a way that fostered the growth of an Australian capability? Not one where we just have Australians working for foreign companies, but a capability we own and could export.
We should build a home grown, independent advisory industry that rivals the Big 4 – or at least gives an independent alternative in Australia, and an option internationally. Most of the work is done by Australians in these foreign companies. We just need to move the work to Australian companies and give those companies a chance to flourish.
We need to create the conditions for them to be successful.
Why so much is paid to so few
Size begets size of course.
They are very good at marketing. No one asks the Big 4, and their like, if they have the requisite skills or expertise. It is assumed. Sometimes a client needs scale, and they are very good at that. They are influential – $500k a year in donations to political parties, albeit equally, gets an open door. Only the big 4 can afford that.
Cash is key – and they have a lot of it. Expensive and extensive tendering is affordable. They can carry the cost of doing business with government – where the decision cycles are slow, momentum miniscule! For a small business, the velocity of decisions – the time from offer to engagement – is important. Small companies cannot carry teams while bureaucrats ponder. Big companies can and do. Ultimately, though, the team offered is unlikely to be the team delivering.
Above all, like water flowing down hill, the public sector takes the path of least resistance. It’s not hard work to select a big company. Easy choices for an easy life.
Like the homily of old, “no one gets fired for buying IBM”. It’s safe, no one argues. Maybe just a little too safe. Change needs a nudge.
Three simple things to start
Here are three things we could do, at no cost, that would invigorate an industry.
Allow all engagements under $5m pa to be sole sourced to an Australian SME. The Federal Government has this incentive to favour SMEs, but it is capped at $500k total contract price. That was a nice political announcement by the last government, not meaningful policy. In real terms that’s 3-4 consultants for about three months. That’s not a big job, and it has no longevity. It is not good cash flow and small engagements stifle small business. They need certainty and continuity as well as cash. Up the limit and make it multi-year, giving the Australian company a chance to invest, develop, and grow. Break the nexus of the Big Four and push them to doing the big stuff, where their scale is an advantage to the client, not to themselves.
Contract directly with the SME, not through a third party. This means, for example, breaking the current Defence MSP mandate that all work must go to one of four consortia. The self-serving justification that the big companies will build a vibrant SME industry is simply naive. Companies will comply with obligations, but they have no interest in creating competitors. The same is true of other contracts – build capability by contracting directly. This gives the SME client intimacy, a direct channel to engage with the client – building knowledge, capacity, and trust.
Redesign the ubiquitous “panel” approach. Panel contracts are pre-qualified vendors who can be accessed by an agency, without competition if a delegate chooses. It’s a way of avoiding or limiting competition – a mechanism for choosing favourites. They might have a place for commodity procurement – pens and paperclips – but not bespoke activities like services. Worse, these panels segment into quite tight categories of services, and are in place typically for five years before there is a refresh. The logic must be that no new companies can be established, or no existing company can build new capabilities during the panel period. It is an own goal when an organisation prevents itself from having access to the new and innovative.
A better panel
The only panel in Federal Government that comes close to an open model is the Digital Transformation Agency’s Marketplace. Vendors can apply for new categories at any time, and price is set by the market and relevant to the task, not on the stand-up of the panel. Buyers are shown the spread of prices for categories so they can assess value for money, in their context. This is the panel ANAO stated, a few years ago, couldn’t show value for money because it didn’t set consultant rates. Staff rates are an input cost, not a measure of output value. That advice flies in the face of Commonwealth Procurement Rules where value for money is more than cost. Disappointingly, the ANAO finding seemed to be based on dogma not insight or wisdom.
However, the DTA Marketplace is not very sophisticated – it concentrates on contracting people not services, so it needs some work. Similar models of open panels are used in a number of States, and the Marketplace provides a basis for designing more sophisticated panels. Panels that serve more than the ease of public sector procurement.
The Defence Support Services Panel, through which billions are contracted, is overdue a refresh. It would benefit from a consultative redevelopment – not like Defence’s last “tell you how it’s going to be” consultation, but an engagement eliciting ideas to build a model that builds a competitive Australian industry, not a closed shop.
With a stroke of a pen
With a stroke of a pen, we could open up the Federal Government spend, and create an opportunity to build a competitive Australian Advisory industry, one comprising Australian companies that will service Australia – and potentially take Australian influence to the world. At the same time reducing the reliance (and influence) of multi-national and foreign interests.
Just three things to start:
- lean towards SMEs in a meaningful way
- contract with SMEs directly, not through third parties
- fix the panels, starting with the big spend through Defence.
The people are all there, just working for the wrong companies. The money is all there, just spent with the wrong companies. We just need to nudge the APS to make choices that are in the interest of Australia, not their ease of doing business.
With a stroke of a pen, we could do something different, and get a different outcome!
