Big four’s vicious $4bn circle of government contracts and political donations

The so-called big four consulting firms — Deloitte, EY, KPMG and PwC — have collectively raked in more than $4 billion in federal government contracts over the past decade, funnelling their handsome returns back into recurring political donations to build a culture of policy development co-dependency.

That’s the brutal take from new research released by the Centre for Public Integrity (CPI), an independent governance advocacy think tank that has run the numbers on the extent of political funding extended by the heavily entrenched consulting industry renowned for cultivating political favour.

The report comes as pressure builds for meaningful sanctions against consultancies that play on both sides of the fence when advising government and stakeholders amid bombshell revelations of conflicts of interest that resulted in a PwC partner being booted off the Tax Practitioners Board.

An email trail unearthed by questions on notice put by Labor Senator Deborah O’Neill has subsequently exposed the vast extent of leakage, with the government keeping its powder dry in terms of a possible criminal investigation.

“The big four have jointly averaged donations of over $400,000 to both the Coalition and Labor since 2012-13, though this figure has been closer to $500,000 per year since 2016-17. While there was previously greater equality between donors, PricewaterhouseCoopers (“PwC”) has emerged as the major donor of the big four since 2016-17. Since 2012-13, PwC has donated over $2 million,” the CPI report said.

“The increased outsourcing of crucial public interest policy work to private contractors who are not directly accountable and financially back both parties raises both questions of integrity and public value-for-money.”

The research group noted that the donations, while political, are not partisan in nature. Consultants back whichever horse is in power, or they reckon will win power.

“A peculiar feature of the big four’s donations is that they are largely party indiscriminate. Between 2012-13 and 2020-22, 47.8% of their donations were to the Labor Party, whereas 52.19% were to the Coalition (though the proportion given to the Labor Party steadily increased between 2017-18 and 2020-21 before falling in 2021-22),” the CPI said.

“Analysis of donations going back to 1998-99 reveals that the big four donations tend to move in political ‘cycles’, whereby the firms prefer to move their donations away from incumbent governments and towards opposition parties as presumptive future governments.”

It’s a prudent and lucrative investment according to the CPI, which labels the culture of public policy co-dependence “clientelism” that it says leaches away public service capability.

The phenomenon has previously been referred to as a public sector culture of “learned helplessness” where agencies lose internal policy development and execution capability and cede it to external providers, usually outsourcers, big enterprise software and the consulting firms that hawk their playbooks.

By far the biggest consulting goldmine of the decade (or two) has been the phenomenon of digital transformation and so-called Web 2.0 where large parts of the public sector found themselves left behind as other consumer-facing industries cast their business models to become “online first” so that transactions became primarily digital and often automated.

One of the key reasons the big four consulting firms gained such a foothold in the public sector is that many agencies simply divested their internal information technology capability in the late ’90s and early ’00s in the belief the commercial market offered better outcomes than the public sector could internally develop.

That doctrine was not partisan either, with the Howard government prosecuting whole-of-government outsourcing off the back of the previous Labor government’s push to source commoditised tech products and services directly from the market led by the Department of Administrative Services.

The one element missing from the CPI’s number crunching is to what extent revenue flowing into consulting firms was tech-related, a figure that has been persistently difficult to tease out because of the different ways spend can be accounted for on the AusTender contract reporting system.

What is known, though, is that the big accounting firms have previously been forced to spin out or divest their tech consulting divisions to manage conflicts, the best example being Accenture, which was spun out of Arthur Andersen, the latter imploding after the Enron scandal.

While the figure of $4 billion over 10 years for consulting firms jumps out, if it were split evenly (and it is not) the spend would amount to $100 million per big four firm per year — an amount that is certainly well below the real figure that is more complicated to calculate.

With major tech refreshes in agencies like Centrelink, Defence and Tax now typically costing more than $1 billion apiece, and much of the cost being chalked up by IT contractors the government can’t afford to hire permanently, $4 billion seems almost modest.

Also not visible is what tech firms pay to consulting firms for getting them in the door of government, either by way of “solutioneering” (pre-packaged capability fixes, like transaction processing outsourcing, i.e. immigration visas) or through partnership arrangements.

Also not in the mix are the likes of Boston Consulting Group, McKinsey & Company, Booz Allen Hamilton and the RAND Corporation.

This said, the CPI’s report does throw a spotlight on the well-trodden path of political patronage that becomes even more questionable when the well-established practice of public servants being seconded as political staff is taken into account.

“It is not difficult to see the increasingly close relationship which has developed between the big four firms and their political patrons,” the CPI observes before providing a recent catalogue.

“For example, Christopher Pyne accepted an employment offer from Ernst & Young (EY) while still minister for defence in 2019; former trade minister Craig Emerson joined KPMG as an economic consultant three years after leaving office in 2016; recently elected Labor member for Hawke, Samuel Rae, formerly worked at PwC after having been state secretary of the Victorian Labor Party; former Labor Party national secretary Noah Carroll joined KPMG after the 2019 election loss; and Jamie Briggs, former minister for cities in the Abbott government from 2013-15, joined PwC in 2017.”

As that list suggests, the big four’s investments in talent to open doors tend to follow the colour of money rather than ideology, as do their donations.

“Donation behaviour is distinct from most other donors,” the CPI observed. “Most interest groups donate to political parties in furtherance of their own ideological interest to one rather than both major parties.”

“The big four’s persistent donations to both major parties show that their donations are unrelated to any ideological goal or end sought but are rather focused on currying favour with whoever may be in power. This trend in bipartisan donations has been observed among other large industries in Australia and characterised by some as a form of ‘state capture’.”

The report concludes that successive governments made “conscious decisions” over the past decade “to outsource crucial functions to a new ‘para-public service’ while the public service is sidelined.”

The Centre for Public Integrity argues that the role of the Australian Public Service (APS) needs to be re-centred, and makes five recommendations to that effect:

• ReIcentring the APS as the main policy advisory body in government, with resort to external advisers only where there is a demonstrated and acute need for such services;
• Imposing a cap on each department’s use of consultants (with exceptions available for circumstances of national emergency);
• Requiring rigorous reporting by departments to Parliament in respect of the use of consultants;
• Removal of the APS average staffing level cap introduced in 2015-16;
• Implementation of a donation cap and spending caps to reduce the undue influence of well-resourced corporations.

This piece was originally published at The Mandarin.