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The major consultancies are not just a preferred employer for former ministers – they have helped privatise the bureaucracy by stealth. By Mike Seccombe.

Pyne, Bishop and the Big Four

A noteworthy aspect of Christopher Pyne’s quarter-century in federal parliament was his occasional tendency towards heedless candour. But even by his own standards, his initial statement about his post-politics employment seemed remarkably oblivious to the fuss it would cause.

Just a couple of months after quitting politics and his role as minister for defence, Pyne had taken a job with the giant multinational accountancy and consulting organisation EY, an outfit commonly associated with advising on tax-minimisation strategies but which also makes hundreds of millions of dollars through contracting work with government.

“I am looking forward to providing strategic advice to EY, as the firm looks to expand its footprint in the defence industry,” Pyne said last week.

He’s been trying to walk it back ever since. And no wonder, for on its face that statement indicated Pyne’s new job could put him in breach of the ministerial code of conduct, which provides that for 18 months after leaving a portfolio former ministers “will not lobby, advocate or have business meetings with members of the government, parliament, public service or defence force on any matters on which they have had official dealings as Minister” nor “take personal advantage of information to which they have had access as a Minister, where that information is not generally available to the public”.

In a subsequent statement, Pyne quoted from the code and denied any breach. He said his “high-level strategic advice” would not require lobbying or advocacy. He went on to point to a raft of policy decisions, white papers, industry and export strategies, et cetera, about which he had detailed knowledge, but whose detail also was “generally available to the public”.

Still, as Senator Rex Patrick noted: “Mr Pyne cannot unknow what he knows from nearly three years’ service at the top of the Defence portfolio.

“His acceptance of his new job with EY is unquestionably a breach of the spirit, and indeed the letter, of the prime minister’s standards. The question is now that of what the prime minister is going to do about it.”

Patrick, with the support of a collection of strange bedfellows including the Greens and Pauline Hanson’s One Nation party, has been pushing for a parliamentary inquiry. It was to be debated on Thursday morning, but was deferred at the last minute until the next sitting day, July 22, after the senate was told Scott Morrison had written to his department head, Martin Parkinson, for advice on whether Pyne had breached standards.

Regardless of what Parkinson finds, though, the code of conduct is only a set of guidelines, without legal force, so there is little Morrison can do, except perhaps exercise moral suasion with EY. Theoretically, he could take up Patrick’s suggested option of directing the Department of Defence and other agencies to avoid contracts with EY until either it terminates its deal with Pyne or Pyne’s 18-month quarantine period has ended. The chances of that happening, however, are about nil.

Rex Patrick’s notice of motion refers to data collated from the government’s AusTender site showing that “over the past four years EY has secured over 830 contracts with the Australian Government worth more than $370 million, including 138 contracts with the Department of Defence worth $148 million”.

Following the Pyne news, we learnt another former government minister, Julie Bishop, had joined the board of consultancy firm Palladium.

As foreign minister, Bishop had driven increased outsourcing – read privatisation – of the delivery of Australia’s foreign aid. In this year’s budget about a quarter of Australia’s aid budget – about $1 billion of $4 billion – was outsourced. Palladium was a major beneficiary of that policy shift.

Labor’s spokeswoman for foreign affairs, Penny Wong, pointed out that the company said Bishop had been appointed in part for her extensive network of global contacts.

“The statement by Palladium makes it clear Ms Bishop has been appointed because of her unique knowledge,” Wong said.

There is a bigger issue here, though, than the public appearance that avarice led Pyne, Bishop and many others – from both sides – to outsource themselves to the private sector. It is the increasing trend towards the outsourcing of what used to be seen as core government functions.

We’re not talking about privatisations as people generally think of them, in which government assets or businesses are sold off, for better or worse – in the case of Qantas, for example, a good thing; or in the case of electricity infrastructure, a disaster.

Rather, we’re talking about the ever-growing recourse to private operators to provide services that were formerly delivered by public servants. In particular, we’re talking about consultancies – contracts to deliver what the Department of Finance calls “intellectual output that assists with agency decision-making”. This involves nebulous things such as “management advisory services” and “strategic planning” and “business intelligence” and “economic and financial evaluation” and information technology advice.

Consulting to government is a growth business, driven in part by the increasing complexity of governance in the modern world, but also by an ideology which holds that almost anything the public sector does the private sector can do more efficiently.

That belief is particularly strong in the current government, and consulting contracts have grown accordingly. A report by the Australian National Audit Office (ANAO), delivered 18 months ago, found the cost of this advice had almost doubled in dollar terms from about $380 million in 2013-14 to almost $700 million in 2016-17.

The so-called Big Four global accounting and consultancy outfits got the lion’s share of the business. It is worth noting, too, that the Department of Defence is the biggest spender on outside contractors, including consultants. Over all, the ANAO showed that over the five years from 2012-13 to 2016-17, Defence spent almost $112 billion on contractors, more than seven times as much as the next biggest spender, Immigration and Border Protection.

This might explain why one of those four, EY, formerly Ernst and Young, was keen to hire a former defence minister. When it comes to defence consultancies, EY is the little pig at a big trough.

Numbers culled from AusTender records and published by Michael West, a veteran business journalist and bête noire of the Big Four accountancy and consultancy firms, showed that in two years, 2016 and 2017, EY ingested $208 million from Defence. Which seems like a lot, until you compare it with its competitors: Deloitte took in $279 million, PwC $334 million and KPMG a whopping $612 million.

This “stupendous” level of spending is, in the view of Paul Barratt, largely unnecessary, if not wasted.

Barratt was a long-time senior bureaucrat who served in various departments, in two stints, interrupted by four years as executive director of the Business Council of Australia. He is by no means anti-business, although it should be noted he was sacked as head of the Defence Department in 1999 by the then minister, John Moore, not long before the scandal-plagued Moore was removed by John Howard. Barratt has also worked as an adviser to companies dealing with government. He has seen it from all sides, if perhaps with a jaundiced eye.

He thinks the increasing reliance on external advisers is damaging in a number of ways: it leads to de-skilling of the bureaucracy, evasion of responsibility for decision-making, diffusion of accountability and greater corruption – while failing to provide value for money.

Speaking to The Saturday Paper, he says that unlike career bureaucrats, whose prime responsibility is to the public, for the big consultancy firms “it’s all about profit maximisation”.

“In many cases, the consultants do not provide any benefit that a properly functioning bureaucracy can’t,” he says. “I may sound terribly cynical, but I’ve seen so much of this.” When a big tender is coming up, the firms often offer higher-paid jobs to public servants to draft the tender and do the work. “So they are actually recruiting from the public service to do the work of the public service.”

The difference, he says, is that where public servants traditionally did their work “without fear or favour”, consultants, because they always want more work, “ask themselves, ‘What answer does this person want?’”

Barratt laid out his concerns in greater detail, including case studies, in a submission to parliament’s joint committee of public accounts and audit (JCPAA) last year, as it further inquired into the issues raised by the ANAO.

While Barratt’s was the most swingeing critique, other submissions, some from very senior former bureaucrats, made similar points.

The submission from the Grattan Institute amplified the ANAO’s concerns, noting that since 2015 the Big Four consulting firms had won almost $500 million in Australian government contracts each year, which is about double the average between 2011 and 2014, and four times the average in 2008 and 2009. Further, a lot of these contracts were effectively hidden, in that only about a quarter of them by value were flagged as consulting contracts.

Grattan’s analysis of AusTender data showed: “Agencies are no more likely than a decade ago to use consultants because their staff are lacking the relevant skills.”

Which made them wonder why work would be outsourced “if the work is ongoing and a suitably qualified public servant could do the same work for less money”.

Commenting on the inquiry last year, the doyenne of reporters on the public service, Verona Burgess, wrote in The Mandarin: “One of the drivers of the inquiry is the extent to which the government has increased its spending on outsourcing and consultants to mask the size of the bureaucracy in the name of ‘small government’.”

The deputy chairman of the inquiry, Labor’s Julian Hill, also pointed to arbitrary public service staffing caps imposed by this government as the driving force behind a lot of the outsourcing and privatisation. The incoming Abbott government promised to reduce public service numbers to the level they were at under John Howard, when Australia’s population was 25 per cent smaller and the task of government arguably less complex.

“Unsurprisingly, [departmental] secretaries, with more population and more money, have had no choice but to privatise things, go to consultants or labour hire,” Hill says.

His views were shared by many who made submissions or gave evidence, notably the Department of Prime Minister and Cabinet, which submitted that as a result of the imposition of staffing caps, “agencies have more frequently needed to engage external contractor and consultancy services to fill key roles. Through removing [average staffing level] caps, agencies may have greater flexibility to recruit specialist staff at a reduced cost.”

Note those last three words. The Bureau of Statistics told the inquiry that its analysis showed contracted information and communications technology staff are twice as expensive, and other staff one-and-a-quarter to one-and-a-half times as expensive as public servants to employ, and that “this higher human capital cost therefore has a significant impact on ABS costs and budgets”.

In short, the evidence suggests government’s ideological commitment to small government actually comes at a big financial cost, even as it hollows out the public service.

The inquiry went into other sensitive areas, too, such as the organisational structures of the Big Four consulting firms, which, as Hill notes, are not corporate entities for tax purposes and are therefore not included in the Australian Taxation Office’s corporate tax transparency reports.

Furthermore, as a submission from independent think tank Per Capita noted, the government was “spending billions of taxpayers’ dollars on advice from private, highly profitable firms, which concurrently provide advice to some of Australia’s biggest companies on how to minimise their tax liabilities … Money that would otherwise be retained in, or contributed to, government revenue to pay for public services.”

These are side issues, albeit significant ones. The bigger issue, says Professor Anne Tiernan, an expert in public administration at Griffith University, is the damage done to the quality of public policymaking.

She is not as hardline as the likes of Barratt in his defence of the old ways of an independent public service. There is, of course, a need for greater recourse to outside knowledge. But, she argues, undue reliance on big consultancy firms has actually narrowed the range of advice to government. She questions “their level of deep policy knowledge and expertise”.

“Public servants will tell you – and they’re right – that ministers want to go external because that way they will get the answer that they want.”

The JCPAA usually provides non-partisan, unanimous findings. In this case, however, it could not agree on any recommendations at the end of its hearings. Thus all the evidence and submissions came to naught, and the inquiry lapsed.

Just another of those areas, perhaps, like climate change, where conservative ideology could not admit the reality of evidence.

On the bright side, it leaves open the prospect of post-politics jobs for more former ministers. 

This article was first published in the print edition of The Saturday Paper on Jul 6, 2019 as "Pyne, Bishop and the Big Four". Subscribe here.

Mike Seccombe
is The Saturday Paper’s national correspondent.