TCG0007

Written evidence submitted by Tom Macfarlane

1. I am an independent management consultant. I have previously worked for major consulting firms and have led engagements both in industry and within the public sector. The public sector makes extensive use of private consultancies, many of whom do excellent work, however the scale of the industry creates significant opportunities for the public purse to be plundered by bad actors. Some of the methods employed by these bad actors include:

2. Grade Falsification. Government management consulting frameworks (MCFs) ask bidders to set different daily/hourly rates for the varying expertise of their resources (e.g. a recent graduate versus a seasoned 5, 10 or 20 year veteran). Grades and rates within the public-sector contract map to the providers internal career grades, thereby, in theory, keeping providers’ profit-margins reasonable. However, providers have been known to bill junior employees as more senior grades, thus increasing their growth profit to 70% or even higher. This practice has been highlighted within the Public Accounts Committee before, under different chairmanship, yet it still occurs.

3. Intellectual Property Lockin: The same lack of niche expertise that necessitates external consultants within the public sector, can also prove problematic when contracting them. This is particularly the case when technology is being procured. A technology services or systems vendor will have much more experience of selling their wares than the public body does buying them. Thus, if the former is less than transparent or fails to highlight long-term implications, the latter may become exposed to much greater risk and/or expense. In one instance, a UK public sector body that sought to update its own data repository discovered it was liable for an eight-figure bill from the vendor that had installed it over a decade earlier, since that company had  retained copyright of the data-model contained therein.

4. Bid Misrepresentation. One of the principle justifications for the use of external consultants is that  a public sector body may lack depth of experience in a given area. Procurement teams must seek out and validate this expertise within applicants’ bids. One of the most useful indicators is case studies of work with other clients, but little checking occurs hence some can, and do, falsify these case-studies. A second line of defence is offered by interviewing the team that will perform the work. Unfortunately, a company may propose a highly skilled team for an engagement, including sending impressive resumes and even allowing them to be interviewed by the client, but then deploy less experienced, more profitable, resources, once the contract has been won and signed. This practice, known in the industry as ‘Pitch and Switch’ is specifically called-out in the Government’s Consultancy Playbook. However, those employing the tactic know that once their bid has been awarded and accepted, it is extremely difficult for public sector bodies to back-out and repeat the lengthy tendering process.

5. Market manipulation: Such is the attraction of public sector contracts that larger firms – those with deeper pockets - sometimes offer their services at a vastly subsidised rates, or even pro-bono, in order to secure a contract. It can be difficult for a cash-strapped public-sector to ignore these offers, which benefit, larger, global consultancies at the expense of smaller, specialised firms, even if the latter are better qualified and would provide a better outcome. The larger firm, meanwhile, benefits in the long-run: Firstly, they obtain ‘bragging rights’, such as communicating to private-sector clients that they are running programmes inside the very departments that regulate industry. Secondly, they are able to establish a beach-head, growing the team and allowing the public-sector client to develop a dependence upon them, before upping the rates (a practice known as ‘Land and Expand’).

6. Corruption. Public-sector employees are extensively trained in how to mitigate the possibility for corrupt contract awards. Unfortunately, some of the decision-makers are themselves external consultants temporarily working within the public body. They may not be the one who signs the contract award (that must be a civil servant), but they are the defacto decision makers because only they have the specialist knowledge required to decide which is the better bid. This relationship can and does lead to corruption, ranging from insight into the bidding process and scoring, to actual quid-pro-quo arrangements, wherein contract awards are made in exchange for some other benefit.

7. Ostensibly, there are rules and procedures within public sector contracting frameworks to prevent the above abuses. Some contracts will reference the 1967 Misrepresentation Act, but this old legislation is very rarely, if ever, used within the public-sector procurement setting. Even when they discover they have been duped, public sector organisation seem unwilling or unable to pursue the companies and individuals responsible.

8. The 2014 Care Act clamped down on misrepresentation within healthcare, creating a specific criminal offence in response to the Mis Staffordshire Trust scandal. The Committee should perhaps consider whether strengthening procurement teams, or promulgating additional legislation, could do the same within other areas of government. Unless and until it does, unscrupulous vendors will continue to mislead and plunder public sector organisations with impunity.

May 2023