Committee of Public Accounts Press Notice

31st PAC Report 2006-07

Central government’s use of consultants

Edward Leigh MP, Chairman of the Committee of Public Accounts, today said:

“Vast sums of money are being spent by government on external consultants. Central government alone is paying out nearly £2 billion a year. It is impossible to believe that the public are receiving anything like full value for money from this expenditure. In fact, a good proportion of it looks like sheer profligacy.

“Consultants can of course bring in valuable expertise that departmental officials do not possess. But departments are often on the phone to consultants without first finding out whether their own in-house staff have the skills to do the job. Even worse, departments and the Office of Government Commerce do not know how much is being spent on consultancy and so have no idea at all whether the benefits are justified by the cost. Departments routinely do not agree with the consultants any measurable benefits to be expected from the contracts. And consultants are often paid simply on the basis of the amount of time worked and not on what the work has achieved.

“What would we say of anyone in private life who dealt with contractors like this? The consultancy firms are truly on to a good thing.

“Departments must now adopt a much more intelligent approach to the use of external consultants. They must become commercially much sharper in procuring consultants and in drawing up fixed price contracts or ones containing incentives for achieving the desired outputs. Sir Gus O’Donnell has reportedly told departments not to hire advisers when in-house advice is available. This is none to soon for efficiency savings of over £500 million a year are possible.”

Mr Leigh was speaking as the Committee published its 31st Report of this Session which, on the basis of evidence from the Office of Government Commerce (OGC), examined six main issues: using internal resources instead of consultants; the poor quality of information on the use of consultants; gaining a better understanding of suppliers; getting better deals by using different payment methods and making more use of competitive tendering; the effectiveness of OGC’s good practice work; and OGC’s own use of consultants.

In 2005-06 the public sector in England spent approximately £2.8 billion on consultants, with central government accounting for £1.8 billion. Aside from the scale of expenditure on consultants, they are routinely used on key government initiatives such as the Identity programme at the Home Office and the Capability Review programme at the Cabinet Office.

In the past three years spending on consultants has risen by a third, from £2.1 billion in 2003-04 to £2.8 billion in 2005-06, largely due to increases in spending by the NHS. Only two departments have shown a consistent decrease in their spending on consultants over the period. Central government is repeatedly using consultants for core skills, including project and programme management and IT, and is increasingly turning to a select list of suppliers.

Central government has made some progress in implementing previous recommendations and good practice in using consultants but much more can be done to improve value for money. In particular, departments are making good use of framework agreements and qualified procurement staff are regularly involved in the buying process. However, areas where departments require significant improvement are: collection and use of management information; the assessment of whether internal resources could be used instead of consultants; controls on awarding contracts by single tender; completing and sharing post-project performance reviews; actively engaging with and managing the relationships with key consultancy suppliers; and planning for and carrying out the transfer of skills from consultants to internal staff.

Consultants, when used appropriately, can provide considerable benefits for clients. There are examples where consultants have added real value and enabled departments to make improvements they would not have achieved otherwise. For example, the Ministry of Defence is saving on its procurement, having used consultants to help implement a new approach and develop its internal procurement capability. Nevertheless these benefits will only be secured if departments are much smarter in their use of consultants and more commercially astute in how they procure them. Getting a better grip on the use of consultants would lead to efficiency gains of more than £500 million a year.

Notes for Editors

1. Contact details for requests for further comment from Mr Edward Leigh are provided below. ISDN facilities are available for broadcasting purposes.

2. The full text of the Committee’s Conclusions and Recommendations is attached to this press notice.

3. This report can be accessed via the internet from around 11.00 am on the day of publication.

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