PwC scandal highlights risks of rampant outsourcing

What ensued was a veritable feeding frenzy for consultants and contractors.

According to an audit commissioned by Finance Minister Katy Gallagher, while the Australia Public Service laboured under a hiring freeze and actually shrank between 2012 and 2022, over the same period the ranks of consultants swelled, reaching the equivalent of almost 54,000 full-time positions at a cost $20.8 billion.

According to the Centre for Public Integrity, the value of contracts awarded to the Big Four consulting firms (KPMG, PricewaterhouseCoopers, Ernst & Young and Deloitte) alone soared from $282 million in 2012-13 to more than $1.4 billion in the last year of the Morrison government.

Collectively, they made more than $4.1 billion during the bonanza.

At the time, this was justified on the grounds that outsourcing all this work would save taxpayers millions while giving the public service access to expertise not available in-house.

Now the costs of this approach are starting to become clear, nowhere more so than in the stunning breach of confidentiality allegedly committed by former PwC tax partner Peter Collins.

As has now become known, thanks to the work of journalists at the Australian Financial Review and the subsequent tabling of emails by the Tax Practitioners Board, there occurred what Treasury has described as "significant unauthorised disclosure of confidential Commonwealth information" about proposed changes to multinational tax laws to a wide range of PwC employees.

The scandal has already claimed the scalp of PwC Australia chief executive Tom Seymour, while Mr Collins is no longer at the firm and has had his tax agent registration cancelled for two years. Others may face criminal charges, depending on the findings of the police investigation.

The depth of government anger over the breach is clear.

Treasury has referred the matter to the Australian Federal Police for investigation and Finance Department secretary Jenny Wilkinson told a Senate Estimates hearing that her department directed PwC to ban all those directly involved in the confidentiality breach, or with knowledge of it, "from all existing and future contracts under the management advisory services panel".

This is bound to be financially painful for PwC, which currently has government contracts worth $255 million.

But probably most worrying for it is that Ms Wilkinson said the episode raised "serious concerns about the broader culture within PwC" - concerns only heightened by initial attempts by the firm to downplay the breach and blame it on an individual.

The effects of the scandal are rippling through the government and the consultancy ecosystem.

Departments and agencies are inevitably wondering how current and former consultants and contractors, not just from PwC but across the spectrum, have handled any sensitive and confidential information they have had access to.

It raises important questions about the ability of the public service to effectively oversee the implementation of often complex contracts.

The blow to trust caused by the scandal also has ministers and advisers wondering how to conduct effective consultations given the risk of confidences being breached.

The consultancy profession, which is inevitably being tarnished by the PwC breach, is wondering how to rebuild the trust and confidence of such a lucrative client.

Even before the scandal, the government had embarked on changes to the way things had been done under the Coalition.

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It has begun rebuilding the public service, including converting thousands of consultant, contractor and labour hire positions back into full-time APS jobs.

It is also winding back on the use of external expertise.

But, even as the PwC scandal unfolds, it is apparent there will be many more changes to the way things are done.

While the arrangement under which the breach occurred did not involve a contract, Finance has updated government contracts to include template clauses that will allow the government to terminate arrangements where an "adverse event" occurs, including one which is outside the specific contract.

It has written to all chief financial officers, procurement officers and 413 management advisory services panel suppliers about varying existing agreements to include the new clause.

More changes are likely.

The rupture in what for years has been a cosy relationship between government and consultants is far from total.

But even when it heals it is likely to leave some deep scars.