Commonwealth awards fewer contracts to big four consulting firms following PwC tax scandal

The four major consulting firms have seen a rapid decline in government work in the past six months as the Commonwealth turns to other firms following the PwC tax scandal.

Australia’s big four consulting firms have seen the value of contracts awarded by the Commonwealth nearly halve in value following the federal government’s cold war against the sector after the PwC tax scandal.

The cold shoulder towards KPMG Australia, EY, Deloitte and Scyne Advisory, which acquired PwC Australia’s government arm in a $1 fire sale, has been a win for other firms which have enjoyed noticeable increases in business over the first half of the financial year.

Amid the fallout from the PwC tax scandal, federal agencies cut spending at the big four firms by more than 42 per cent to $308.2m in the six months to December 31 compared to the same period a year earlier, analysis of AusTender data reveals.

Deloitte had the smallest decrease over the half, with the value of contracts awarded in the six months to December 31 down 20.6 per cent to about $111m, followed by a 24.4 per cent decline for KPMG to $147m.

Business at EY dropped 56.6 per cent to $49.2m from a year prior, according to AusTender. While the volume of contracts was similar, values overall were lower than the previous half when three agreements alone totalled $51.4m, including a $28.3m contract with the Department of Defence for program management services.

PwC secured $110.2m worth of government business in the first half of the 2023 financial year before details about its tax scandal came to light a year ago. There has been little work for the acquirer of its government business, Scyne Advisory, which secured a single $1.1m contract to support the Department of Health’s primary care work. Sources at the big four told The Australian there had been a slowdown in federal government projects and procurements, which had resulted in lower spending on specialist external advisers. The consensus was that smaller firms were getting more work on lower-valued contracts that would have previously gone to the big end of town.

Labor senator Deborah O’Neill said less work going to the major firms was a welcome rebalancing of the relationship between these consulting firms and government, and how they worked together to deliver services and policies. “The fall in payments to many of these companies shows that our efforts to bring core government capabilities back in-house are bearing fruit,” she said. “The result is a public service that is able to rebuild its expertise and capability, and that brings long-term benefits for all Australians.”

Consultancy firms have come under the spotlight from politicians and the public in the wake of the PwC tax scandal last year, amid wider concerns about an overreliance on such firms by government departments. Prime Minister Anthony Albanese previously pledged to slash hundreds of millions of dollars spent on external advice by moving to create a consulting team housed inside the public service.

Accenture, which specialises in IT consulting, secured a 150 per cent increase in the value of government contracts over the half to $112.9m.

The largest contract was awarded by the ATO and worth $29.6m for a year to support its Digital Identify program, while it received a further $26.2m from nine contracts split between the health and defence departments.

Management consulting practice McKinsey Pacific Rim secured $10.38m worth of contracts in the half, headlined by a $5.9m, six-month deal with the Department of Defence for computer services. That contract was worth more than the $4m in work it had in 2022. Boutique advisory Terrace Services won $2.1m in new work, compared to $1.55m in the previous period.

Many other firms secured more work over the half despite a drop in the dollar value of contracts. Canberra-based public policy specialist Nous Group secured 29 contracts worth $12.6m, a 70 per cent increase on the 17 awarded in the prior year.

Deloitte Australia chief executive Adam Powick said that the firm remained focused on working collaboratively with its public sector clients to address issues despite a decline in the value of ­contracts.

“The public sector has a complex change agenda to drive, and the firm believes there’s a continuing need for service providers with complementary and specialist skills to help accelerate and successfully deliver important public sector agendas and programs of work,” he said. Senator O’Neill, who has also been grilling consulting firms over the past year in her role on the finance and public administration committee, said she remained concerned about the lack of professionalism and scrutiny of consulting services, and would be pushing for further reform in the national interest.

“What we have uncovered over the past year is a worrying culture around these large consulting firms where the pursuit of profit has been the primary driver, and the best outcomes for taxpayers a secondary concern,” she said.

Australian National University associate professor Alessandra Capezio, who specialises in organisational behaviour, said the major firms had a lot to learn from recent scandals and that a drop in government work could make them stronger in the long term.

“Disruption in the sector can only be good in acting as a catalyst for change. Clearly some practices and habits of mind need disruption within and outside of these firms.

“It is important for them to understand the root causes of problems and not just focus on the symptoms,” she said.

Ms Capezio said she had seen a more judicious approach in how contracts are awarded.

“That’s not to say external advice isn’t needed. We find ourselves in times where there are lots of highly complex geopolitical, social, technological and climate problems that the APS cannot address by itself,” she said.