How the Albanese government is approaching external public service contracting

Work is under way to create a single point for agencies to access labour hire services and spend on contractors, in a reform Public Service Minister Katy Gallagher said would increase transparency around the cost of outsourcing.

Experts have welcomed the change and described it as a positive move to tackle excessive outsourcing, but warn the government faces a complicated path to reducing the public service's reliance on contracting after years of growing use of labour hire firms, consultants and contractors.

Finance and Public Service Minister Katy Gallagher said the new register, first initiated by the previous Coalition government and to be called 'The People Panel', would cut red tape for industry and reduce waste.

"[The People Panel will be] supporting better recruitment and use of labour hire and increasing transparency around the cost of outsourcing," Senator Gallagher said.

"Coordinated procurement like the People Panel have been shown to provide better value for money for government."

Labor has vowed to reduce the public service's dependence on contractors and is auditing the extent of outsourcing in the federal bureaucracy as it brings more jobs back in-house to the Australian Public Service from the private sector. It expects to complete the audit by 2023.

Earlier in April 2022, while in opposition, the Labor party also promised as much as $3 billion in budget savings over four years could be achieved through purging contractors and consultants performing work that would otherwise be done by public servants.

Senator Gallagher said Labor embarked on the audit of APS outsourcing after finding there was no central point of information about public service use of contractors.

The new contracting panel, first initiated in December 2021 under the Coalition government and to be overseen by the Department of Finance, will centralise 20 separate panels that departments approach when requiring external work.

Since winning the election in May 2022, the Labor government continued this initiative as it fit within the policy goals to have better oversight and control over external recruitment.

Federal agencies spend about $1 billion per year on contracts. In tender documents calling for companies to join the panel, the Department of Finance cautioned the historic value did not represent any future level of government expenditure.

However at this stage, the Finance Department and Senator Gallagher's office do not have any predictions on what the future expenditure will be, as it depends on what each department requires in the years ahead.

Public sector expert heading the Crawford School of Public Policy, Janine O'Flynn, said it was typical for a government not to know the future costs of contractor spending at this stage, but the shift from contracting to employing more public servants internally would be difficult.

"It's a really complicated move to pull off simultaneously, in a sense you're being asked to reduce spend in an area where you might have become highly reliant ... at the same time as building and depending on capability in areas that have been neglected for some time," she said.

"There is going to be a pretty tough space in the practical day to day life of public servants so that switch is not going to happen overnight, it will take some time for that transition and I suspect it will be a quite challenging one and so I expect there'll be quite a bit of anxiety."

In an October 2022 speech to the Institution of Public Administration Australia, Senator Gallagher said the Coalition devalued the public service for a decade as resources flowed away from the APS and into the pockets of external organisations.

"There was the public downplaying of policy development, the devaluing or disposal of years of experience and knowledge and a casualisation of the workforce. A lack of interest in investing, nurturing, planning for the public service as an institution in itself," she said.

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"This changes under the Albanese government."

Public administration and law expert from the Australian National University, Robert McMahon, said the government had strong commitments before the election, however would likely need to step back slightly since holding office.

"The new government realises that it may have overstepped the rhetoric about temporary labour being the bogeyman," he said.

"But on the other side of the coin they are quite wisely realising that the government's being exploited by these companies which are charging huge overheads."

Professor O'Flynn said she sensed the government was committed to strengthening the public service and relying less on external contractors, however moving past the announcements would be the real test.

"It does take enduring commitment, not just a great speech or a soundbite ... the key ingredient is time and sometimes that might take several years, I'm not talking about six months, we're talking about systemic change," she said.

In the first three months of the Labor government, federal agencies entered into more than 3000 labour hire contracts totalling nearly $800 million, which Mr McMahon said would be due to significant reliance on external recruitment.

"The public service probably over the last 20 plus years has become increasingly dependent on labour hire," he said.

"The government has signalled that it wants to crack down on this but it simply can't ... because the public service is reliant on it."

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