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Rethinking the commissioning of consultants to enhance government policy capacity

30 November 2021



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Can governments use consultants to preserve, and even enhance, the fundamental role of the public service? Featuring a case study analysis, ANZSOG’s Catherine Althaus, Lisa Carson and Ken Smith have published a paper in Policy Sciences about harnessing the strengths of consultants and improving government policy capacity.

Why use consultants?

The global use of management consultants by public sectors across the policymaking cycle has risen significantly since the 1980s. Engaging consultants is usually seen as having three potential problems:

  • cost
  • a loss in democratic accountability and corporate memory; and
  • the hollowing-out of public service capacity.

There are a range of demand and supply factors in favour of public services using management consultants. These include:

  • The advent and aftermath of New Public Management that saw downsizing of public sector workforces and diminished capability.
  • Knowledge expansion warranting more players in the contestable policy advice domain.
  • Politicisation of decision-making, creating roles for consultants as political agents or legitimisers of policy choices.
  • Declining perceptions of public service quality and the central contribution of the public service as an institution of democratic governance.
  • Increasing complexity of government, where there is limited time or skills left in the public service to perform deep and challenging analyses of complex policy matters.

Who are the consultants?

Consultancy firms can be classified on hierarchy of three tiers, with Tier 1 considered the most prestigious. Although definitions vary, Tier 1 is generally seen as including McKinsey, Boston Consulting Group, Partners in Performance, Bain and Port Jackson Partners [now EY-Parthenon]. Tier 2 is often referred to as the “big four” and tends to include Deloitte, Ernst & Young (EY), PriceWaterhouseCoopers (PwC) and KPMG, along with smaller companies.

Tier 1 is usually twice as expensive to engage as Tier 2 and generally out of reach for the public sector. Tier 1 tends to be engaged for more boutique and strategic areas of advice, whereas Tier 2 is often involved in more transactional, routine and regulatory focused activities. Tier 1 and 2 engagements play out in parallel, often working in complementary rather than competitive ways to serve different areas of market needs.

About the case study

Queensland Treasury Corporation (QTC) is the Queensland Government’s central financing authority. In 2015 there was a major restructure which followed QTC’s strategic vision that stronger outcomes could be delivered for the state if QTC leveraged its own skills together with targeted private sector expertise. To achieve this, QTC established a new operating model with a network of Tier 1 consulting firms. Projects focused on achieving budgetary outcomes and improving service delivery outcomes around health, justice and social housing.

Tier 1 firms were matched to particular projects based on specific expertise. QTC deliberately structured consultancy projects with specific performance targets to achieve skills and expertise transfer across both QTC and government agencies.

The aim was to engender cutting edge policymaking confidence back into the public sector. QTC staff were to expand their commercial expertise increasingly into policy domains while departmental staff supplemented their policy expertise with commercial, contract management, and data analysis skills.

Guiding principles from the case study

Using a qualitative evaluative approach, the paper identified several guiding principles from the case study. These capture the main conditions and necessary considerations when commissioning consultants in other settings.

Define and determine commissioning capability: Identifying and building actionable consensus around a clear purpose for engaging external consultants is the key. How best to go about this is contingent on nuanced understandings of the particular environment and reputable levels of trust.

Pay attention to authorisation, governance and political nous: For QTC, the authorising environment was not always as clear as it needed to be to get broad buy-in to the project. While a clear role existed for QTC to commission consultants, the authorisation for this and taking ideas or recommendations coming out of each project process to political decision-makers was a matter for the members of the project-specific governance group.

Clarify scope and preparation: The nature of Tier 1 “sprints” necessitates significant preliminary baseline work, access to relevant materials and data, and a willingness for all stakeholders to work in a fast-paced and continuously engaged way.

Strengthen knowledge and skill transfer: Clear expectations at the outset about the degree of anticipated skills transfer need to be carefully considered and agreed by all parties.

Pay attention to implementation from report to delivery: The extent to which and how agencies implement the final recommendations from Tier 1 consultancy-related projects is a critical phase when it comes to realising the value of the model.

Widen evaluation to include broad conceptions of success: Looking beyond specific project aims, broader conceptions of success can include opening up new ways of thinking, collaborative pathways, and creating concerted efforts around particular issues.

Define acceptable risks: Risks to realising the benefits of using Tier 1 consultants will be in engaging with the authorising environment, managing relationships over the longer term, maintaining confidentiality, and demonstrating value for money in outcomes realisation.

Implications for policy capacity

The case study analysis showed strong improvement in:

  • individual analytical capacity: this was improved for all parties through sprint processes and by observational learning and learning by doing
  • organisational operational capacity: there were tangible savings and also benefits in tacit knowledge improvement.
  • systemic operational capacity: the innovative financing approach underpinning the QTC model afforded Tier 1 quality which leveraged economies of scale.

QTC’s partnerships approach in working with Tier 1 companies is strategic and harnesses competitive tendering processes. But it treats Tier 1 contributions with respect and dedicated purpose to create the transfer of skills rather than naively assuming knowledge transfer or seeing the Tier 1 companies as challengers or intruders.

Whilst it is no panacea for policy capacity improvement, high-quality external consultants properly commissioned can potentially offer significant assets. These can be better leveraged by public sectors to aid policy improvement and capability.

Want to read more?

Rethinking the commissioning of consultants for enhancing government policy capacity – Catherine Althaus, Lisa Carson & Ken Smith, Policy Sciences, October 2021

The original article is available via individual subscription to the journal or institutional access through a library service such as a university library, state library or government library.

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Published Date: 30 November 2021