Labor losing war on bureaucratic waste as consultants' bill hits $450m

THE Rudd government spent $454 million on consultants in 2008-09, an annual increase of 5.6 per cent during a time of supposed public sector austerity.

THE Rudd government spent $454 million on consultants in 2008-09, an annual increase of 5.6 per cent during a time of supposed public sector austerity, as a new administration increasingly turned to outside experts for policy advice, market research and data.

Labor's first full financial year of stewardship -- when it grappled with a response to the global financial crisis, the design of a carbon emissions trading scheme, water woes and big infrastructure projects -- generated an unprecedented reliance on consultants.

The Australian has analysed spending on consultants by 40 federal departments and agencies, over four years, that typically spend $1m or more a year on outside advisers.

To determine whether a contract qualifies as a consultancy, a project must produce an "intellectual output" that is both independent and aids the agency's decision-making.

Taking into account a clean-up of contract reporting in recent years by some agencies, the Rudd government has surpassed the Howard government's spending on consultants.

Removing anomalies, the underlying growth in spending on consultancies under Labor last financial year was almost 9 per cent, or 6.6 per cent above the peak recorded by the Howard government in its dying days.

In its pitch for office, Labor vowed to slash $395m in what it identified as "wasteful" federal spending on consultants; in government, it has shifted the emphasis and rebadged consultants as important providers of independent, timely and evidence-based advice.

In an opinion piece published in The Australian in March 2007, Lindsay Tanner outlined how Labor would save $3 billion from the federal budget: "Labor's savings include hundreds of millions wasted on government advertising, opinion polling and consultants."

In a press release issued that day, Mr Tanner also said Labor's plan would include "a $395m cut in the use of consultants in the commonwealth public service".

As Finance Minister, Mr Tanner now argues that Labor "has cracked down hard" on spending in line with its election commitments, where its definition of "consultants" was eventually tweaked to mean government advertising, market research and information-technology contractors. "The government has generated $7bn in savings over six years from its own operations," he said yesterday.

The Rudd government does not monitor spending on consultants across the federal sphere.

Mr Tanner's own department doubled its spending on consultants in 2008-09 to almost $23m, although this is a far cry from the $42m spent by Finance in 2006-07.

Under the Coalition, merchant bankers and high-end lawyers won the most lucrative contracts as public assets such as Telstra were put on the sale block.

In the Rudd era, companies such as Boston Consulting Group, McKinsey Pacific Rim Inc, KPMG and the Allen Consulting Group have won major contracts to design business models, improve processes and gather data.

In the past two years, BCG has won almost $28m in federal government contracts, while McKinsey has successfully gained about $27m in consultancies.

Kevin Rudd, a former consultant, and the secretary of his department, Terry Moran, have become advocates for the use of consultants by the Australian Public Service.

"Some of the growth (in spending on consultants) would be represented by the strategic use of consultants to provide particular, scarce expertise for a number of high-priority projects," Mr Moran told The Australian yesterday.

"This is a consequence of new initiatives, which require a set of skills that haven't been required by the public service in the past."

On face value, the Rudd government last year spent $26m less than the record $480m bill racked up by the Coalition in 2006-07. That year saw the Department of Immigration and Citizenship declaring $92m in spending on consultants -- twice as much as the heavy-spending Defence Department. Since then, Immigration says it has improved its record-keeping and systems. In 2008-09, it spent $40m on consultants. Taking Immigration out of the equation reveals the underlying tendency: in 2008-09, Labor spent $414m, outstripping the Coalition's previous record of $388m.

An Immigration Department spokesman said that since 2006-07, the department had conducted a review of consultancy reporting "to better differentiate between consultancies and other contracts".

"The more rigorous approach, coupled with scrutiny by a central procurement reporting unit, has resulted in a more accurate level of reporting of the number and value of consultancies," he said.

While the federal government has trumpeted its credentials as a strict cost manager, the Department of Defence's consultancy bill jumped by 16 per cent last financial year to almost $80m, as it looked for ways to streamline its systems, prepare for future security needs and trim its costs.

Hiring experts to prepare the ground for the national broadband network produced a jump of 76 per cent to $19m of consultancies in Stephen Conroy's Department of Broadband, Communications and the Digital Economy. That figure will be surpassed when McKinsey and KPMG complete a $25m NBN project early next year.

Other significant areas of spending growth on outside advice occurred in Penny Wong's Department of Climate Change and Martin Ferguson's portfolio of Resources, Energy and Tourism, although this partly reflected new bureaucratic arrangements, and the Australian Taxation Office.