If there's one thing Canberra is all too familiar with, it's consultants. The former federal government spent almost $4 billion on consultants, contractors and labour hire back in 2021-22, and now the new government has promised to cut it back.
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Is it a good idea?
The argument against consultants is simple: the government would be better off investing that money in our public servants. Not only would it improve the capabilities and specialisation of the public service, it would save money, too.
Sounds sensible. But is it correct? As a former consultant myself, I would argue that, while it is correct in many circumstances, the reality is more complicated.
Whether the use of consultants is in the public interest ranges across a spectrum.
At the sensible end of the spectrum, consultants address a market failure. If a government department requires specialised skills, specialised assets or a temporary surge workforce for a one-off project, it's more efficient to use consultants than to undertake those investments yourself. It's simple cost-benefit analysis.
Using consultants similarly makes sense when an independent, third-party perspective is required (provided the consultants are actually independent).
The other end of the spectrum is not sensible. The use of consultants to complete the core, repeat tasks of a department is not in the public interest. The government would be better off investing in its own people than outsourcing to others.
The solution might seem simple - keep consultants when it's sensible and scrap them when it's not - but most projects fall between these two extremes.
Some departments will hire consultants because they don't have the necessary skills or assets, even though those skills or assets are available in another department.
Some departments will hire consultants for political reasons, because their minister might have an ideological preference for hearing advice from the private sector.
Some departments will hire consultants as a circuit breaker when the public service is paralysed by group think.
The use of consultants in each of these situations isn't ideal, but at least the job gets done.
Solving these problems requires us to first answer an important question: who is to blame for the rise in consultants over the last 10 years?
The reason consultants have flourished is simple: successive governments have deliberately underinvested in the public service and favoured the private sector.
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The problem isn't consultants, it's a lack of investment in the public service. This lack of investment left a gap. This gap couldn't be left unfilled, and so it was filled with consultants.
The solution is not to simply cut the use of consultants, at least not immediately. Removing consultants without first filling the capability gap is like removing the supports before construction is finished.
It similarly doesn't make sense to cut the use of consultants at the sensible end of the spectrum where they are providing expertise or assets for which, under any sensible cost-benefit analysis, the government should never invest in.
Instead of blindly swinging the axe on consultants, the federal government should do three things.
First, the government should identify the areas where consultants are doing the core work of the public service. Where this is happening, they should require existing consultants to build the capabilities of the public service, teach public servants how to do their jobs, and then fire the consultants or hire them as permanent staff.
Second, the government should leave consultants alone where they are at the sensible end of the spectrum. Departments should be encouraged to use consultants for specialised, one-off jobs to save money.
Third, the public service should better coordinate itself to overcome the situation where one department needs to use consultants because the skills or data they require is located in another department. The public service is already moving in this direction, but they will likely struggle.
The public service is trying to set up an in-house consulting service which can be used across the public service. It's a great idea, but it'll only work if they can fix three problems - wages, politics and resources - and it's unlikely they will.
The wages problem is that a public servant who is skilled in the art of consulting - and yes, it is genuinely an art when you've seen it done well - would make bucket-loads more money in a consulting firm. A model that relies on highly-skilled public servants to take big pay cuts is not sustainable.
The politics problem is that Treasury, for example, might not be too keen on the idea of handing over money, projects and thus power to Prime Minister & Cabinet (if that's where the in-house consulting firm is located). Politicians don't always get along, and neither do their departments.
The resources problem is that an in-house public service consulting firm can only overcome the government's coordination problem if it can pool resources from across government, particularly data. Given Treasury couldn't even access tax office data when COVID-19 erupted, this is a big challenge.
All these challenges can be overcome, but they will require lots of money, lots of effort, lots of trust and lots of legislative change.
Will the government succeed? Given they are already increasing their recruitment in Canberra this year, the big consulting firms are betting they won't.
- Adam Triggs is senior research manager at the e61 Institute, a non-resident fellow at the Brookings Institution and a visiting fellow at the Crawford School at the Australian National University
Adam Triggs
Adam Triggs is a partner at the economics advisory firm, Mandala, a visiting fellow at the ANU Crawford School and a non-resident fellow at the Brookings Institution.
Adam Triggs is a partner at the economics advisory firm, Mandala, a visiting fellow at the ANU Crawford School and a non-resident fellow at the Brookings Institution.
