How the public service should better use consultants

"Submitters to the committee's inquiry posited that the ongoing, unnecessary use of consultants by governments had gradually eroded the APS's strategic policy capability."

So declared the Senate Finance and Public Administration Committee last November, in its report APS Inc.

If this is true - and the consensus seems to be that it is - then can consultants be used to slow the erosion of the Australian Public Service's policy capability, perhaps even help reverse it?

In our previous PSI article we suggested some ways to improve how consultants are selected and engaged. But how should ministers and public servants work with consultants once they've been engaged? Yes, there are too many consultancies and they cost too much. But fewer consultancies alone is not the solution. Government also needs to become a smarter buyer and a more engaged client of professional advisory services.

How government works with consultants is largely driven by why they have been engaged in the first place. There are two main forms of consultancy:

Sometimes, the government client and/or the consultant is confused as to which mode they are working in, resulting in crossed wires; the client may want a simple piece of analysis yet the consultant produces a set of options and recommendations that the client never asked for. That's why effective procurement matters in buying in these services.

If a department or agency is capable of defining the product for a more transactional consultancy, then it may well be able to actually do the work itself and not go the outsourcing route at all. However, there are two important and quite common circumstances under which transactional consultancies are warranted:

As noted in the APS Inc report, the recent decline in the number and capability of public servants in core policy roles has driven an increasing need for such consultancies. The increased reliance on such consultancies then compounds the decline in APS capability, creating a vicious spiral.

Aside from simply doing more such work in-house, one way to deal with this problem is to build into contracts an expectation that the consultant will work closely with departmental staff, to help build internal knowledge and skills.

Over time this would help strengthen internal capability and reduce reliance on outsourced advice and analysis (assuming, of course, that the egregious staffing caps and efficiency dividends are also removed). Thus a pernicious spiral may become a virtuous cycle.

Building internal capability in this way can potentially be done through both transactional and relational consultancies. Ensuring consultancies deliver more knowledge transfer would also help government agencies become better clients, lifting the game of both parties and focusing a higher proportion of consultancies on "high end" strategy and "wicked" policy problems.

Consultants who work with government come in many different sizes and configurations. They can be highly diversified global corporations with very sophisticated methodologies and information gathering and processing.

At the other end of the scale they can be sole operators with niche specialist skills. The majority of firms fall somewhere in between, although the available evidence suggests the lion's share of contracts with the Commonwealth go to the "big end of town", largely because ministers seem to trust well known brands. This is not smart buying by government, and risks capture by an oligopoly of consultancy firms.

There are, in fact, many examples of consultancy contracts where departments have been smart in their buying and effective in building working relationships with consultants.

In a recently published study led by Catherine Althaus, researchers found that it is indeed possible to employ a "pragmatic and sophisticated approach [that] shifts theory and practice on the use of consultants to ensure clarity in the rationale of seeking external advice in order to build or improve policy capacity".

This is based on a detailed case study of a "tier 1" consultancy firm engaged by the Queensland Treasury Corporation. The corporation was no "soft" customer in this process: it knew exactly what it needed but also recognised that it needed to build its own internal policy capability, and used the consultancy process to do exactly that.

High-end policy is not the only area where relational consultancies can work well. Drawing on our experience as public servants, one area where we have seen consultancies help in building in-house capability and the capability of external stakeholders is Commonwealth-state relations.

Intergovernmental work can be full of tension, traps, and misunderstandings. The Commonwealth may suspect the states want more funding for doing very little, and the states may think the Commonwealth wants to tell them what to do when the states are on the ground and have an intimate knowledge of the issues and challenges. Often, both jaundiced views have an element of truth.

Thus, consultancy firms with known expertise and trusted by all parties have long been employed to undertake sensitive or complicated pieces of work, not least to help manage delicate sector consultations.

The early childhood policy space alone has several good examples:

As we've previously argued, to do any of this sort of work, Australia needs an APS that has agency. Public servants need to engage constructively and effectively in developing and implementing policy, drawing on deep knowledge and analysis of the issues, stakeholders, trends and problems. They can and should stand toe-to-toe with top consultants, and work collaboratively with them to get better results for us all.

This is key to the whole enterprise. Consultants, public servants and ministers are all (or should be) working to enhance the public good. The APS performs a crucial role in connecting the commercial and analytical world of consultants with the policy, operational and political world of governments, but it needs the intelligent and active support of ministers - including resources - to fulfil that role.