Public Sector Informant: Consultants are here to stay, so government needs to use them better

Consultants are a hot topic. Think tanks and the national media - conservative and otherwise - have raised concerns about the cost and influence of consultants used by government. We were recently told that consultants are costing the federal government an average of $2 million a day. Labor has signalled they will stem the tide should they win government, but consultants are here to stay. Given that, the nation needs to decide how private consultants are to be used, not just how much we pay for them.

Like art, you may not be able to define a consultant, but you know one when you see one. Perhaps for this reason the Department of Finance does not directly define "consultant". Instead it uses a table that compares contracts for high level, independent analysis and advice (i.e. consultancies) with those for a closely managed and tightly defined service. The line between the two is definitely blurred.

However defined, it is axiomatic that consultants should only be used if they bring some benefit that could not be achieved by public servants doing the same work. Increasingly, however, ministers turn first to consultants - and other non-government sources - for analysis and advice. In some portfolios, public servants seem to struggle to convince ministers that they are able to undertake major (or even minor) policy and program reviews and other analysis and advice. They are the provider of last resort, not the first source of advice to ministers. The public service even finds it tactically advantageous to engage consultants to present a case they, the public servants, have already advocated, as a "branded" report carries weight that departmental letterhead does not.

This pattern is not new. Commentators have repeatedly highlighted the progressive "hollowing out" of the policy capacity of the Australian Public Service since the 1980s. Most recently, the 2019 Thodey Review of the APS rang alarm bells about declining capability across the Service. This "hollow crown" has been well documented, with analysts noting the shift in power towards ministers and their staff that has accompanied "New Public Management" and related reforms. The growing dependence on consultancy advice is both a symptom and a contributory cause of this public sector decline. It is also implicated in a number of well documented policy failures, such as the problematic early stages of the COVID-19 vaccine rollout.

So what can be done to maximise the chances that consultants are engaged in ways that promote rather than hinder effective government? Incentives matter. Public servants are motivated by the rewards and sanctions of working in a bureaucracy; consultants are motivated by the forces of the market. Some ministers and departmental officials seem to not understand the market consultants operate in. Policy consulting carries high professional risks, is full of ambiguity, and can generate high rewards for those who manage the former and cope with the latter.

There are therefore strong incentives to find ways to minimise risks and to clarify ambiguity. In extreme cases these incentives may give rise to dubious behaviour, like constantly "shmoozing" ministers and their offices so as to be "front of mind" when they next need advice, structuring proposals so as to skirt procurement rules, or going to great lengths to find out exactly what the minister (or senior official) wants to hear and ensuring the consultancy delivers exactly that.

Fixing these problems starts with creating better incentives. There needs to be much greater transparency about why and how consultants are engaged. Reforming the procurement rules would be a big help. So would publishing ministers' appointments diaries, to reveal who is lobbying them for business. Such changes could also help stop some ministers trying to use consultancies to avoid accountability.

The current system leads to a considerable waste of public money. It also serves to reinforce public disdain for government, and it risks more public servants being reluctant to "speak truth to power", because that power just isn't listening.

Ethical consultants would like to see government become a smarter customer. This is not because they are idealistic dreamers, although many are committed to old fashioned ideals like the public good and democracy. Rather, they know the long term good of their profession and their firm depends on customers who know what quality means, are willing to insist on it being delivered, and will seek a level playing field.

Governments can make good and effective use of consultants. Consultants might be cheaper than the public service - although on a straight hourly rate comparison that seems unlikely - or more cost effective. They might use better analytical techniques, be better informed, or be more trusted by some stakeholders. Some consultancies can even help raise the skills of the public servants who work alongside top quality analysts and thinkers from the private sector.

If there are good grounds to use consultants, a clear case needs to be put and publicly defended, with explicit reference to the relative capabilities and capacities of the public service. The current regime of proforma rationales for limited rather than open (i.e. competitive) tenders under the Commonwealth Procurement Rules is not adequate. It should be replaced by real-time reporting of specific reasons for (a) not using public sector resources and/or (b) limiting the scope of the tender to one or a few respondents. This would enable better scrutiny by Parliament and stakeholders, and by consultants' competitors.

Crucially, a more transparent procurement system for consultancies that was regularly monitored by the Department of Finance and the Auditor-General would signal to public servants that they are "in the game" and not merely procurement functionaries enabling others to do the real work of policy analysis, evaluation and advice. This could help stop the long downward spiral where governments engage consultants because of a diminished public service, which thereby demoralises and deskills the public service, making it less likely to be considered for high level analysis and advice next time.

Of course, there also needs to be greater attention to the risks of poor behaviour on the demand side. Governments sometimes engage consultants for very dubious reasons. In 1997 the Howard government confronted the Maritime Workers Union in an effort to make stevedoring practices more efficient, less costly and more globally competitive, and to diminish the power of the union movement in general. Critical to this exercise was the engagement of private consultants to analyse the problem and promote to stevedoring companies the solution: a stoush with the MWU. Peter Reith, the responsible minister, subsequently made it clear that he did not wish to have the work undertaken or even overseen by apolitical public servants. Indeed, he did not believe that anyone working on such a matter could be apolitical. "If you are an apparatchik you are an apparatchik," he said, "it doesn't matter who is paying your bill. You are in it because you are in the politics" (interview, 11/4/2000).

Politics is a hard game and Reith played it hard. But winning political contests is how ministers rise to their exalted positions, it is not the purpose of those positions. Politicians from both sides need to always remember this point.

The issue of consultants is not new. What's different now is the sheer scale of the market, the decline in the size and capability of the core public service, and an even greater willingness among ministers to prioritise political tactics over public policy. Consultants are well-honed professionals, tested in the marketplace. They can and should be better used by government, which requires more than just cutting department's consultancy budgets.

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