From demand-side to supply-side regulation of government consultants

From demand-side to supply-side regulation of government consultants

The relationship between consultants and government purchasers has primarily been governed through demand-side regulation. This is designed to control government purchasing and includes greater transparency and monitoring of contracts. However, there has been a move to regulating the supply-side of consulting. An article in Public Management & Money discusses these changes and examines the regulation trajectory in the UK, Canada, and Australia. 

The rise of policy consultancies in government

Governments across the globe have increasingly turned to the use of external consultants to design the delivery of public services and increasingly, to advise on policy. These practices have raised concerns about the impact of unchecked use of external consultants both within and outside of traditional public service bureaucracies. 

One growing issue of concern is how external consultants have been displacing traditional advisors in aspects of core internal government business. The potential rise of a ‘consultocracy’ in which consultants secure input and influence has proven controversial. This is not only due to the significant costs incurred but also to a spectrum of problems stemming from their proximity to government officials and decision-makers. 

The existing regulatory framework for consultancies in government: a demand-side orientation

The growth of external consultants in the public sector has contributed to the escalation of existing regulation which is mainly demand-side. Demand-side tools can be categorised into those restrictions which affect the operation of private sector consultants and those monitoring them and keeping them accountable. These regulations generally consist of applying established procurement and contracting procedures to consultants. 

Key goals in these approaches are addressing an existing lack of transparency in contract tenders and increasing accountability on the quality or value-for-money attained from consultancy projects. 

The need for supply-side reforms

Changes to demand-side regulation generally seek to augment existing controls on government spending. Governments in many countries have begun to move beyond demand-side regulations to consider imposing professional regulatory regimes that enhance supply standards and improve the quality of the services provided. 

Typically, what is being proposed is some form of professional self-regulation. This creates an institutional arrangement to establish and enforce norms of professional conduct. Self-regulatory models can be positioned on a spectrum based on the level of government involvement. Spanning low to dominating levels of government involvement, the models are categorised as: 

• voluntary codes of conduct: minimal levels of government involvement. 
• statutory self-regulation: creation of an intermediary self-regulatory organisation with regulatory powers delegated by the state 
• firm-defined regulation: individual firms taking responsibility for their own regulations 
• regulatory self-management: delegates responsibility for regulatory programs to an industry association. 

Proposed self-regulatory models

There has been a new emphasis on supply-side regulation in countries such as UK, Canada and Australia. Currently what little supply-side regulation exists in these countries is implemented via weak industry-driven certification through the International Council of Management Consulting Institutes (ICMI). The possibility for a shift from weak firm- or industry driven certification to a more robust licensure regime is the most common proposal being made. 

The UK case 

Management consulting in the UK is currently governed by a weak self-regulatory regime which provides no barriers to entry into the field. However, proposals have been made to shift from no barriers to entry to either certification or licensure. This would allow the government to regulate the management consultancy profession through a self-regulatory framework led by the ICMI. 

The Canadian case 

As in the UK, the current system of regulation of management consultants in Canada can also be described as a weak system of industry- and firm-centred self-regulation. The desired shift is for the federal and provincial governments to move from self-registration and weak certification to licensure. 

The Australian case 

Increasing controversy associated with external consultants in the Australian public sector in terms of their cost-effectiveness, efficiency and quality has highlighted demands for supply-side regulation. Recent conflict of interest regulation has taken steps towards limiting the active ‘revolving door’ between government personnel and consultancies. 

Potential problems with the self-regulatory model

The advantages of self-created standards and professional discipline in an industry-based licensure model can be substantially counterweighed by shortcomings that stem from its voluntary and, often, self-interested nature. For example, an industry can attempt to manipulate self-imposed standards to avoid more stringent forms of direct government regulation, or existing firms can try to limit competition through restricted entry to the (self) regulated industry. 

There is always the possibility that a self-regulating professional body can be dominated by influential companies in the industry. This can enhance oligopolistic tendencies and behaviour and provide an opportunity for influential companies to become immune to any disciplinary actions taken by the self-regulating organisation. 

The bottom line

The growing numbers of external consultancies in the public sector pose increasing problems for many governments. Creating supply-side regulation may prove to be the missing piece to the puzzle of how to ensure the effective participation of management consultants in the public sector. Using third-party non-state actors, existing weak self-regulatory arrangements can be revitalised and help create the robust regulatory framework needed for public service to act in the interest of the public and obtain the best possible value for money in its external contracting work. 

Want to read more?

From demand-side to supply-side regulation of government consultants: Recent trends in three OECD countries –  Sahar Zaman, Michael Howlett and Andrea Migone, Public Management & Money, January 2024. 

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