Don't shoot the adviser

You can't blame consultants on public-sector projects for taking their fees. It's down to officials to make sure the advice is of high quality.

by Richard Reeves
Last Updated: 31 Aug 2010

Fancy a penny off your income tax rate? Here's an idea: ban all spending by government bodies on external consultants, which would save the required £2.8bn a year. Imagine the headline: 'Your money on schools, not suits, says Brown.' Picture the approval- rating graphlines shooting upwards. It's amazing that none of the political leaders has done it yet.

A crackdown would win the support of the National Audit Office and House of Commons public accounts committee. Both have been critical of the scale of state spending on external consultants, which has risen by £700m in three years. 'It is impossible to believe that the public are receiving anything like full value for money,' said the committee's Tory chairman, Edward Leigh. 'A good proportion of it looks like sheer profligacy. The consultancy firms are truly on to a good thing.' And the National Audit Office concluded: 'There is some way to go before central government overall is achieving good value for money from its use of consultants.' It recommended that public bodies 'should start with the presumption that their own staff are best fitted for their requirements'.

Newspaper reports have highlighted consultants earning 'up to £1,000 a day' from the public purse. A scandal, say the Liberal Democrats; obscene and ludicrous, according to the Public and Commercial Services union; and 'plundering the public sector', says David Craig, author of a book of that title (reviewed in MT, April 2006).

The truth is, of course, much more complex than a case of highway robbery by Porsche- driving consultants. For a start, almost all of the increase in spending is accounted for by the giant project to bring the NHS into the 21st century. Putting patient records in electronic format and linking medical staff together will be great for efficiency, convenient for doctors and will save more lives. It is a price easily worth paying.

But the NHS project demonstrates the good, the bad and the ugly of public-sector procurement of consultancy services. Consultancies offer great value when they bring in specialist expertise for fixed periods - and IT is the leading example. The cost of hiring consultants must be balanced against the cost of permanently hiring or training specialists who may be needed for only a few months. On the other hand, the NHS project has been a disaster. Accenture walk-ed off the job, writing billions off its bottom line, and the NHS head of the project, Richard Granger, had to walk the plank. In public, both sides point to progress made; in private, each pours vitriol on the other.

Using consultancies well is a tricky business. Few of them are the blood-sucking opportunists of stereotype, but they run organisations that are focused on making money. If the public sector is handing out sweets, they can hardly be blamed for the resulting sugar high. Granger is a decent man, but was evidently out of his depth. His position as the head of the £20bn initiative - the biggest IT project in the history of the world - was not helped by his mum, who let the press know that he had failed his computer studies course at Bristol University.

For senior public servants under huge pressure from their political masters to deliver 'reform', and fast, the temptation to bring in consultants is strong. Given the scale and bureaucracy of Whitehall - and central government accounts for £1.8bn of the £2.8bn spend - it is probably quicker and easier than finding the skills in-house; but what an indictment that is.

Civil servants and politicians tend to deify those in the private sector, assuming that by definition they are better. But having made the decision to reach outside for help, government officials then feel the need to try to get it at the lowest possible price - which sounds good in theory, but in practice they can end up with poor-quality consultants. The truth is that any half-decent management consultant will charge more than £1,000 a day.

It's easy for unions and MPs to express mock-horror at the money charged, but the hard fact is that, as in most markets, you get what you pay for. In general, it is wiser to hire just one consultant on £1,500 a day than three on £500.

All of which means that the headline figures are entirely meaningless: £2.8bn might be the best money the Government could spend, if allocated to tightly defined, well-run projects using high-octane imported skills for short periods. On the other hand, it might be a big bonfire of our hard-earned cash on second-rate chancers doing work that civil servants can and should be doing. (It's also worth remembering that the Government itself knows how to waste money: the public accounts committee also estimates that Gordon Brown's tax credits scheme has wasted £2bn in fraud and overpayment.)

The two areas of external expertise that account for more than half the public spending are IT and project management. This seems to demonstrate the division between good and bad buying. Putting in IT systems is something most Whitehall mandarins would struggle with; a First in Greats from Oxford is no help at all. But project management? If civil servants can do anything, they can surely manage a group of people to achieve a particular objective.

If they really can't, it might be time to get McKinsey to run the government, bringing in civil servants as and when they are needed.

Richard Reeves is director of Intelligence Agency, an ideas consultancy; e-mail: richard@intelligenceagency.co.uk.

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