West Coast Rail fiasco shows that Government procurement “savings” are not consequence free

I wrote this at the weekend before I read yesterday’s Financial Times, which talked about the lack of financial advisers on the West Coast programme.  "George Muir, former director-general of the Association of Train Operating Companies, said: “I am told that it is all about austerity and the DfT trying to do as much of it in-house and spending as little as possible on consultants.” Mr Muir added: “It is certainly true that if they had spent some more money on consultants they wouldn’t have made these arithmetical errors”.”

I’m going to do something very difficult, perhaps even dangerous today. I’m going to speak in praise of management consultants. That includes the big firms, the Ernst and Young’s and PWCs ,right through to the one-person firm with a deep knowledge of a particular area that has given them a market value of perhaps £500-£1000 a day. We might call the latter a contractor rather than a consultant, but if they have genuinely expert knowledge, we might categorise them similarly.

Now Francis Maude, UK Cabinet Office Minister, has made much of the “procurement savings” across government that he and his team have driven. A large percentage of those savings have come, as we’ve discussed before, from demand management - simply cutting off the use of consultants, from the one-person bands to the big firms. Nothing wrong with that – it was clear that spending on advertising, external staff, professional service and recruitment needed to be reduced given the nation’s perilous budget and financial situation.

But, as National Audit Office commented in their report of February this year, Cost reduction in central government: summary of progress:  

"...there is no consistent way of identifying whether specific savings measures have improved efficiency or affected services”.

They point out that savings made through simply cutting expenditure are not true savings if we can’t assess whether the reduced spend has caused a decline in services provided.

And I think we could now make a strong argument to say that the reduction in consulting spend in government has had at least some negative consequences. The West Coast Rail fiasco is just the most recent in a string of problems that I really do not think would have happened if there had been a few more consultants around Government.

Take some of the less successful elements of the budget – a few consultants in Treasury to take a look at the figures, the practicalities of the policies, and I don’t think they would have seen the light of day. The ongoing mess that is the Police IT Company? And we can probably think of a few more examples, and some that haven't reached the light of day yet, but will...

So let’s be balanced, and agree that consulting spend needed looking at and reducing; but that we have thrown a few babies out with the bathwater in doing that. And perhaps we’re beginning to understand the benefits consultants can bring to the public sector  (because "you never know what you’ve got till it’s gone”...)

 


Voices (7)

  1. David Atkinson:

    I completely agree with David Orr.

    The activity described here is ‘core business’. Why it should be placed in the hands of contractors or consultants beats me (and I’m a consultant).

    I don’t know what’s changed but when I went to ‘procurement school’, the rule was “never outsource core activity”. Indeed “never outsource a problem”. What’s changed?

    1. Final Furlong:

      Perhaps, for some civil servants, there is a distinction between ‘core business’ and ‘core skills’

  2. Dave Orr:

    Is anyone going to find out from what date this complex raul franchise spreadsheet was in error and why it was changed? If that was in the period 1997-2010, then there were plenty of contractors & consultants around.

    On the scandalously wasteful £14bn NHS IT programme there was plenty of engagement with (non-medical) consultants.

    Surely the DfT should have had these strategic & key skills in-house if they are monitoring and letting complex rail franchise contracts?

    When the DfT had contractors & consultants in before, why was there no skills transfer & training program for the permanent staff?

    How would the DfT assess the work of contractors & consultants brought in for peak activity periods, without these skills being in-house?

    Can you imagine Tesco, Shell or a similar big business operating in key strategic business areas without in-house skills?

    I will lay a bet here & now, that any rail franchise model that allowed profits to be front-loaded and paybacks to the taxpayer to be back-loaded (near the end of of along contract with little penalty for simply walking away), was originally created by someone with a vested interest or connection to the rail contractor side. Follow the money!

    Quoting someone formerly in ATOC is hardly an impartial view Peter.

    Do we want the blood transformation consultant Dracula to be placed in charge of the National Transfusion Service?

    I doubt that the whole truth will ever emerge (without a judge-led enquiry able to call & question all participants) given the vast sums of money and the sensitive politics involved.

    1. RJ:

      Good points and good questions, David. However, surely another real issue is not whether consultants are in themselves a force for good or evil but whether users of their services, and the associated buying teams, have the skills to brief and manage them appropriately.

      As has been pointed out many times on this blog, no organisation (including the Tesco/Shells of this world) has all the skills or knowledge within its organisation that they need to continually improve themselves. They therefore outsource processes and services and seek advice from external providers to complement the core skills they have in-house. However, the best organisations in the world have disciplines, policies, processes and relationship management skills that help them to clearly define their needs, analyse proposals and select appropriate providers to meet these needs and can then manage delivery against their objectives.

      Sadly, in my experience, the public sector has failed to invest in these skills (which don’t generally come cheap), has therefore historically been reliant on external advisers to support analysis and recommendations without always having the deep understanding of the requirements and has also been susceptible to politically-motivated decision-making. Now that even the (flawed?) support of external advisers is being highly restricted I am therefore not surprised to hear of fiascos such as this.

      As in so many areas, this Government, and many before it, has failed to understand the concept of “invest to save” in terms of procurement skill levels.

    2. life:

      Like all people, you can have great or dreadful consultants. The systems should be in place to procure the right ones, and to quality assure that work. You cannot transfer the risk on this, although you can get external help to make sure that your responsbilities are fulfilled.

      There is sometimes not a business case for holding certain strategic or key skills. Also, sometimes it is not possible to hold this internally, as the level of capability needed requires constant use of that skill, and your normal operations may not provide this. Also of course, the market may intervene and mean holding expensive skills, however “core”, for less frequent tasks, is not economic even when you include a need for contingency. It is often important to draw distinction between consultants and contractors/interims here as well – not mutually exclusive but the dynamics and economics are generally very different.

      Skills transfer and training is beloved of procurement, but generally not by sponsors (believe me) who want the job done properly first time at lower risk, as they see it – and of course although the risk calculation should be at the organisational level, it is often their careers that will go down the tubes if it goes wrong (witness latest fiasco). They also may appreciate the risks and level of detail required more than procurement or senior management under cost pressure, not because they are brain surgeons but just because they are closer to it. One strong criticism of consultancy, or if you’re charitable how consultancy is used, is that however well performed there is often no enduring benefit. To achieve benefit anything other than the most perfunctory “skills transfer” would usually require TNA, ongoing training, investment in resources, etc., and also a structure that is capable of retaining trained personnel for a period adequate to justify the business case. I’m a believer, but not confident.

      It’s reasonably straightforward to assess specialist staff if you invest time in the structures and mutual understanding prior to contract/delivery. Real and sufficient investment. If you don’t, expensive things happen. The only realistic way to save money in Government, in the short or medium term, is to do less.

      Blue Chips I work / have worked for (none that you mention), do operate in strategic business areas, generally effectively, with external assistance and sometimes less in house skills than one might think. So do some Government departments.

      I won’t take your bet, and if only we could have a judge-led enquiry (although it looks like we’re not even out of the woods with acceptance of Levenson’s recommendations), but I also do think the timing of back ended budgets and models such as these, PPP PFI etc. are something, just maybe, to do with tenure of all those involved, not just the consultants.

      Finally, really, and totally without irony, there are currently large departments (one in particular springs to mind) that truly would recruit Dracula for the bloodbank if they came in £18.50 per day less than Van Helsing – is that saving money?

      .

  3. life:

    Yes, and you don’t need to look too far in other areas to see the chickens coming home to roost. Ironic really that it’s all kicked off in Rail though, given that historically that’s where the consultancy industry grew from – they must have been useful at some point!

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