Crown Commercial Service Paid McKinsey £10 Million To Identify Procurement Savings

In May 2015 Cabinet Office (Crown Commercial Service) told me that “we are working with McKinsey on a savings project - and they were appointed through an open competition under the ConsultancyOne agreement.”  CCS explained that the contract was going to be performance-related in terms of the consultant’s reward. So late last year I asked an FOI question:

  1. Please can you tell me how much was paid to McKinsey in each of 2014/15, 2015/16, 2016/17 and this financial year in relation to this project?
  2. Were Mckinsey paid on a share of savings, fixed fee or day rate basis for their work?
  3. What savings (£) were identified from this project? (If you are prepared to give them by category that would be very helpful).
  4. Can you give a couple of examples (perhaps the less commercially sensitive) of the McKinsey ideas that led to savings?
  5. How were those savings tracked and measured – were they “identified” or actually real money taken out of budgets?”

Here is a summary of the answers we got.

1. The amounts paid “in relation to the Commercial Accelerator Programme” were

2014/15               £1,000,000

2015/16                £5,010,515

2016/17               £3,762,710

2017/18                £0

Total                      £9,773,225

 

2. Supplier compensation was assessed with reference to the commercial benefits Identified.

 

3. CAP identified commercial benefits worth £813 million, broken down in the table below. These are as reported in CCS’s annual report and accounts. McKinsey supported the identification of some of these initiatives but also the capability of existing civil servants in CCS and departments to develop initiatives themselves as part of CAP.

2015/16 Central Government     £ 282M

2015/16 NHS                                     £ 101M

2016/17 Central Government     £ 430M

 

4. McKinsey worked on over 100 initiatives. Examples included:

Example

Reducing the fees charged for storage                                    Multiple departments

Optimising the use of refueling facilities                                 MOD

Reducing unsorted mail costs                                                     DWP

 

5. An initiative’s value was determined by assessing the cost of a given activity and comparing it to a baseline before the initiative was implemented, factoring in also the cost of the initiative itself. Initiatives were tracked using a gated process. Benefits accrued to departments and all budget decisions remained with them.

_______

Of course this raises all sorts of interesting questions. How much input (days’ work) did McKinsey provide for their £10 million? I know that doesn’t matter in some sense when a contract is based on performance, but it is still an interesting question.

That final answer also leaves open the question of whether departments really got the benefit of these “savings” and took the money out of their budgets – did the taxpayer really benefit here?  And the examples given don’t look particularly innovative or high-powered. I know that is hard to judge from a short description, but “reducing the fees charged for storage” – that’s what the mega-brains at McKinsey came up with? I suppose if internal commercial functions hadn’t spotted these things, then that’s fair enough, even if they sound somewhat obvious.

Finally, we should point out that this was all done before the current CCS CEO, Malcolm Harrison came onto the scene. Whether this was Sally Collier, Bill Crothers, or even John Manzoni’s idea, we don’t know. But if it really saved £800 million, for a £10 million outlay, then clearly it was a good one.

Voices (5)

  1. In The Thick of It:

    Ahhh, the old CAP.

    In summary Crothers idea, implemented by Collier and spanned into Harrison’s reign (sometimes) keenly embraced by Departments as good old Cabinet Office were funding and they had nothing to loose.

    Used the traditional consultants technique of stealing the watch to tell the time, yes departments had spotted that storage costs had been lower and were working with CCS to deliver it before McK turned up.

    The gated process, using a proprietary tool called Wave, led to significant money being paid to McKinseys when savings were identified and recognised by the Department, but not actually realised( Implementation Level 3). It was the big pay day when the saving were actually realised at Implemetation Level 5 although most never got that far! Of course savings were profiled over a number of years making the savings in year 1 roll over in to subsequent years making the prize bigger.

    Turned into a farce when they made a successful land grab of claiming that CCS framework savings, which were really cost avoidance, were actually cash releasing! It was successful as senior CCS leadership, they know who they are, knew it was the only way to make it look a success. Also in my very personal experience most, but not all, e.g. MoD & Home Office, effectively refused to engage at a useful level.

    To be fair, lots of bright young McKinsey things doing some pretty impressive analysis and PowerPoints that sang, but it always felt as if it was a very expensive way of justifying the existence of CCS.

    Other than running some useful but marginal courses for a few CCS people there was no true capability uplift as a result of the programme.

    Good headlines, but nowhere near the reported levels of financial benefit!

  2. David Turner:

    I think the clue is in the title. – Crown Commercial Services – this department should be commercially aware and therefore able to identify such savings without resorting to employing McKinsey – begs you to wonder how ‘commercial’ they are ?

  3. David Jenkins:

    I would love to believe this but think there are a load of half-truths here.

    For example, “McKinsey supported the identification of some of these initiatives but also the capability of existing civil servants in CCS and departments to develop initiatives themselves as part of CAP.” It doesn’t even say that McKinset identified any savings, they just “supported the identification”. What does that mean? Did they say to DWP “have you had a look at your unsorted mail costs” and then take credit for the savings found?

    You are totally right in identifying that they fudged answer 5. They assessed the before cost and the after cost and decided that was a saving. Sounds like a finger in the air calculation, like when you decide that a process change saves you 5 minutes per day, gross it up across 10,000 people and claim a saving of 20,000 mandays per year (which equals £5m of “savings”). Savings are really easy to claim if you don’t actually have to prove them!

    Agreed that if McKinsey did find the best part of £1bn of savings, good on them. But when the smoke has cleared and the mirrors have been put away, is the only hard provable number here the £10m that CCS paid to McKinsey?

  4. Sam Unkim:

    Interesting
    So around the same time Carter was doing his shtick, McKinsey were identifying
    £ 101M from the NHS. Let’s hope there was no double counting.

    1. NHS Buyer:

      You live in hope Sam.

      It could have been anything, but given that Pat Carter focused on EVERYTHING including the price of kitchen sinks thrown in, I can’t see what value they could have extracted from McKinseys. I’m hoping that Peter lobs in another FOI to obtain a layer of visibility on the £101m. I’m hoping that it’s something that no-one ever thought of previously, but we already know the answer to that….

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