KPMG “working for nothing” to get on the right side of the Government

This piece in the Guardian raises all sorts of interesting issues.  KPMG (and I suspect they are not the only major firm to whom this applies) are carrying out significant consulting work free of charge for Government;

KPMG, ranked the 11th biggest government supplier in the first five months after the election, provides audit, advisory and consultancy services. The firm said it was not expecting to profit from its work with the coalition until the middle of next year, that 10% of its public sector work was done for no charge and that it has bid just £1 for some contracts worth millions.

It can't go on forever, says Alan Downey, head of public sector at KPMG, but , "We're hoping to position ourselves well when the government decides it is willing to pay."

Would I be happy to take advantage of this if I was still a Procurement Director in a government Department?  Yes, faced with a challenging agenda and not enough budget, I'm sure I would.  And as a taxpayer, I should be happy.  So why does it make me feel deeply uncomfortable?

Well, KPMG partners made £763,000 each last year. So they are using what an economist might define as the 'super-profits' coming largely from the private sector, including a strong position in audit work (and we might discuss why they can make quite so much money there another time) to subsidise public sector work.  Which they can afford to do for a while.

But make no mistake, this is about two things; firstly, the big boys driving competition out of the market and in some cases out of business.  Small to mid-size public sector consulting firms who are (were) strong in the public sector are struggling (look at the share prices of Tribal and Mouchel for instance), and very small firms / one person bands just can't afford to work for nothing for months on end.  Might this even be considered abuse of market power or 'predatory pricing'?

Secondly, KPMG obviously hope that getting in particularly at the beginning of large programmes will lead to major (paying) contracts on these programmes in time.  Remember that the rewards can be huge; I know of consulting firms that have had 100 consultants working on a single programme, earning a couple of million pounds per month.   And when the paying work comes along, there aren't going to be as many lower-prices firms left to bid against them...

So, an apparently attractive move for Government that may have negative longer term market effects.  It will reduce market diversity; it is hugely discriminatory against small firms (SMEs) who just can't afford to do this; and it may lock buyers into a small number of top tier consulting firms.  It clearly doesn't fit with the stated desire to support SMEs, another Government initiative.  But it saves money in the short term.

You pays yer money and takes yer choice....

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Voices (6)

  1. Peter Smith:

    I’m sure that never occurred to him….
    I think actually Accenture now see consulting as a lower priroity now – they’re much more interested in large scale outsourcing / IT and process delivery type work, which has been hit less by the cuts so far. They’ll be looking keenly at projects like the Universal Benefit I suspect and the contracts around that…!

  2. Conspiracy Theorist:

    Ian Watmore – is this the same guy who used to be MD of Accenture?

    I hope there isn’t a suggestion he would welcome the reduction of market diversity so that only the major players can feed from the government trough?

  3. Procurement Practitioner:

    Assuming there are companies left who are capable of bidding for future work, surely there are then real issues when work is tendered in accordance with the procurement rules. How on earth are they to tally transparency and objectivity in the process with rewarding those such as KPMG who have ‘invested’ in this way?

  4. Public sector refugee:

    It is perfectly rational behaviour for the KPMGs iof the world to be behaving in this way-and given this Government and particularly the Cabinet Office and Ian Watmore should be considering how rational it is for Government to go along with it, The long history of apparently free lunches suggest otherwise.

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