Big four consulting firms accused of ‘lowball quoting’ to win government contracts

Taxpayers forked out $1.8 billion more than initially expected for big four consultancy contracts awarded over the past decade, sparking accusations the firms are lowballing quotes to win federal government work.

Amid growing scrutiny of the firms’ relationships with the government following the PwC tax leak scandal and ahead of a major Labor crackdown, an analysis by the Centre for Public Integrity found almost 19 per cent of contracts won by the firms were later changed.

An analysis undertaken by the Centre for Public Integrity has found that the consultancies charge the public purse an average of 43 per cent more than the contracts’ original worth over the past decade.Credit: Fairfax

Its examination of all big four contracts reported on the government’s procurement information system, AusTender, from 2012-13 found those that were amended increased by an average 139 per cent. None of the amendments reduced the price of the contract.

Total contracts awarded to the big four over this period ballooned by 43 per cent from an initially agreed value of $4.2 billion to $6.1 billion.

The independent think tank’s director, Geoffrey Watson, SC, said the rate of increase for some contracts appeared to be “inexplicably high” and questioned whether underquoting was occurring to secure valuable tenders.

“You can see what’s happening here. Anybody who’s renovated the bathroom can see what’s happened here, which is this kind of lowball quoting to get the work and then increasing the price as you progress on the project. It’s hardly new. It’s a low-grade tactic used by any number of industries,” Watson said.

The largest increase was for an Australian Tax Office contract with EY for the procurement of information and communication technology services, which went up by more than 5000 per cent.

The contract ended up costing $4,307,421 – compared with an original contract value of $82,655 – after undergoing 11 changes in the two years to June 2020.

An ATO spokesperson said the initial contract period was just for EY to advise on a new internal technology system. It was extended after the firm took over the rest of the project.

An EY spokesperson said contract extensions were entirely up to the contracting agency or department.

“In some cases, engagement contracts will be phased, or specify the possibility of future extensions,” the spokesperson said.

The centre’s research director, Catherine Williams, said while she accepted there were legitimate reasons for amending contracts, the public’s inability to properly scrutinise changes of this scale was deeply problematic.

Greens senator Barbara Pocock said the practice of adding extra work to existing contracts through a series of amendments had to stop.

“It takes work out of the competitive tendering process and denies others the right to bid for the work. It hides the process from public scrutiny and denies any assessment of value for money,” she said.

“This practice of ‘lowballing’, also known as ‘land and expand’, is a standard tactic used by the consultants to get a foot in the door and then jack up their fees without proper scrutiny and outside the competitive tender process.”

A KPMG contract with the Defence Department to transform the army’s training system increased by 3736 per cent, from $328,339 to $12,594,328, over 2019-22.

A spokesperson for KPMG said the firm was “definitely” not lowballing but referred questions about the increase in the contract to Defence.

A Defence spokesperson said: “Due to the complexity and length of the project, significant subsequent work was required, including the development of e-learning packages and upskilling of instructional staff to deliver approximately 45 courses.”

Earlier this week, the ABC’s Four Corners program aired allegations KPMG was submitting inflated bills to Defence, which has been denied by both the firm and the department.

The Albanese government went to the election promising to significantly cut back its use of consultants.

A parliamentary inquiry is currently investigating ethics in the sector, which has been rocked by revelations that former PwC partner Peter Collins shared confidential government tax plans with some colleagues.

Labor senator Deborah O’Neill, who is chairing the inquiry, told ABC radio this week the big four consulting firms were practically embedding themselves into government departments and agencies, adding that the public service itself had been hollowed out and the line between the bureaucracy and consultancy was blurred.

“We’ve had a very cozy relationship, and that’s part of the problem,” she said.

The Centre for Public Integrity recommends caps on the use of consultants, rigorous reporting by departments on the use of consultants, and re-centring the public service as the main policy advisory body for government, among other courses of action.

Cut through the noise of federal politics with news, views and expert analysis from Jacqueline Maley. Subscribers can sign up to our weekly Inside Politics newsletter here.