Cut back on consultancy, say MPs

Central government needs to reform the way it works with external consultants the Commons Public Accounts Select Committee (PASC) has warned, after detailing how £1.5 billion pounds was spent - or according to the popular press, "wasted" - in 2009/10.

The investigation by the Public Accounts Committee found there was no way of definitively concluding whether the outlay represents value for taxpayer money as Departments' records were inadequate.

"There are of course legitimate reasons for a Department to buy in specialist skills where they are in short supply internally. But departments have become too reliant on buying in core skills rather than developing them in their own staff," said PASC chair Margaret Hodge.

It is "unacceptable," she added, that there is such "poor understanding" of whether the extent of a Department's use of consultants is justified by the nature of its business. 

The Committee found in that last financial year, Departments spent £789 million on consultants and an estimated £215 million on interim managers. Hodge's Committee also  estimated £700 million a year was spent on consultants by arms-length bodies, which should be required to report their spending, in addition to an identified £1 billion on that and use of senior contractors by Whitehall.

Overall, in the Committee's view, Departments did not properly manage such consultancy spend, with 70% of contracts based on the amount of time spent on a project while only 29% were based on a fixed price and a mere 1% were based on achieving specific goals.

To improve the efficiency of the way government operates, more work was needed on improving civil servants' skills - particularly in project management and IT, the committee said. But Cabinet Secretary Sir Gus O'Donnell told the committee that the civil service is weak in these areas as top graduates can earn so much more in the private sector and that public sector people prefer policy roles to project management functions. 

Hodge's team also heard from senior civil servants that in comparison to the private sector, the average so spent budget-wise is at the low end, 4%, compared to more like 15% in other areas and that the £789 million figure was significantly down on 2006/07's £904 million.

Nonetheless, the Committee says Ministries must negotiate more fixed price contracts and develop "core" skills among their own staff to avoid such high bills in the future.

It singles out in particular imbalances in reliance on consultants between Ministries, asking why Department for Transport spends £70 on consultants for every £100 it spends on its own staff while HM Revenue and Customs spent only £2 per £100 in the period.

The report finds new measures brought in by the Coalition to control the use of consultants seemed to be having some effect but that some departments' spending was still "unacceptable". 

It also counsels that "uninformed" cuts as part of current cost-control measures need to be done sensitively, or risk higher spending and training long term; for example, HMRC has stopped hiring consultants for six months, which had put an end to revenue-raising tax collection campaigns and while DoH has cut consultancy spending by 95% in 2010/11, that will simply rebound as new policies are developed and implemented.

This kind of "stop-go" approach could rebound on cost-cutting attempts if mandarins don't learn how to better manage their money, concludes the Committee: "It is a mark of departments' poor understanding of spending on consultancy that some have reacted to cost pressures by cutting that spending in an uninformed way," said Hodge.