Reforming the use of consultants in government

I have now read Mariana Mazzucato's latest book, The Big Con: How the consulting industry weakens our businesses, infantilizes our governments, and warps our economies, which exposes the problems with reliance on consultants. 

This post will share some snippets from the concluding chapter and offer a tangible set of suggestions for a way forward. 

From the book, on banning prime contracting,

A critical reform that follows from recognizing the state as a value creator and risk taker would be to move away from all large-scale prime contracting altogether...Mandating that, when a government body does enter into a contract, it is managed internally is also important for helping the public sector to absorb the lessons that invariably emerge from the contracted task... Eliminating the intermediation by consultancies that prime contracting creates also helps to ensure that governments are able to develop purposeful, direct relationships with businesses, and are able to recognize when that partnership is no longer valuable.

On incorporating explicit learning mandates into consulting contracts,

In existing contracting processes, value is often viewed in transactional terms: capacity or expertise is provided in exchange for money. But when knowledge-sharing agreements are included in the terms of reference with contractors, procurement and other forms of partnership can also be a source of learning... learning to become independent is built into capability-building contracts... Rather than evaluating projects using cost-benefit analyses, success can also be understood based on how the organization and ecosystem it exists within benefit over time and across multiple parts of the organization and wider economy... 

Beyond judging simply whether a contract between a municipal government and an environmental consultancy succeeded in developing a strategy for investing in green infrastructure projects locally, the contract evaluation might also assess what employees internally learned from the contracting process. Was that knowledge then applied in subsequent environment-related activities, perhaps even in the implementation of the green infrastructure fund? Did the employees feel more confident or empowered in their roles from the learning process? Key here is whether the consultancy created new local capacity, supporting the public actor to become independent from future consulting needs... By embedding learning into evaluations, even when it is not clear in the beginning what the ‘spillovers’ will be, those involved on either side of the contract are forced to consider what the lessons are, and in the process record them in ways that ensure they do become part of the capabilities of the contracting organization.

On addressing conflicts of interest in consultants,

Big consultancies are often on both sides of the street – advising, for example, both the leading fossil fuel polluters and the government mandated to reduce national emissions, or auditing a large prime contractor while bidding for similar contracts, or writing national tax legislation at the same time as advising clients on how to sidestep it. In democratic societies, it is important for both business and government organizations – and their employees – to know about the conflicting interests another organization has when it enters into a contract with them... As it stands, there are no rules mandating consulting companies to disclose information about who they work for. Some companies’ financial reports describe the amount of revenue that is received within a particular industry, such as pharmaceuticals, or a geographic region, such as North America. But details of particular clients and the nature and value of work that is being carried out are allowed to remain under wraps. Knowledge about conflicting interests is critical for clients seeking to make informed decisions about which company to contract for a service... 

Citizens and businesses concerned that politicians and civil servants could abuse public money when contracting have long lobbied for governments to publish information about their contracts with third parties, and many now do this... To fully understand how a consulting firm’s clientele might affect the advice it provides, consultancies’ contracts should no longer be allowed to operate under a veil of secrecy. In the same way that publicly traded companies are mandated to provide information about their material risks to potential investors via financial reports, companies that provide consulting advice should be mandated to provide clear information about ‘conflicting interest’ risks to potential clients.

On the problems with pro-bono services,

Big consultancies often provide services to governments pro bono or for a fee that is far below market rates because they believe doing so will lead to profitable contracts in the future, whether from the contracting public sector body, or from private sector clients who value the access that working for the government brings. Smaller consultancies are usually unable to lowball in this way, because it essentially entails a huge upfront investment in the salaries of consultants who deliver work the company is not paid for. Fundamentally, this is an issue for democratic accountability, as well as for competition, because when contracts are undervalued to the extent they so often have been in governments like the United Kingdom’s over the past decade, it is impossible to assess the influence of consultancies in the public sector. The value of contracts becomes completely disembedded from changes in their scale and scope... Ultimately, because there is no such thing as free advice – pro bono contracts usually carry costs for accountability and impartiality in the long term – contracting processes also need to encourage public sector bodies to reject offers of a free lunch.

Here are a few suggestions to reform the practice of using consultants in government. 

1. All policy designs should be done inside the government. This would include the prohibition of any outsourcing of the core activity of preparation of policy documents and guidelines. In particular, policies in areas that primarily involve the private sector should necessarily be done internally. 

An exception to this would be in the preparation of detailed project reports for technical procurements - engineering works, IT solutions, technical products, etc. Here too, while the consultants can be hired to prepare the reports, the officials concerned should be accountable for making the important decisions. Each decision should be supported with a reasoned case made out by the officials (or group of officials, committee) concerned.  

2. The use of consultants to manage contractors or project management consultants, should be severely restricted. Given the fiduciary responsibility in the use of public resources, the management of contracts is a core function of governments. This activity should be managed in-house by government officials. Again, for deeply technical projects in engineering and IT, an exception can be made, but only to the extent of technical supervision (which however should have an internal oversight). 

This is important not only for establishing immediate project accountability but also for learning and building capabilities within the government. 

3. All consulting contracts should have an explicit learning and knowledge transfer dimension. Apart from transferring the entire data, process documentation, delivered reports, and other documents, this would entail transferring knowledge about the activities undertaken to the government officials/agencies involved. 

For sure, in the abstract, it would be a challenge to define benchmarks and outputs in regard to learning and knowledge transfer. But it should be possible to work out the details at the individual project level. This process can be guided by some standardized templates.

4. A good consultant's role is to advise the government, not force decisions. Accordingly, the deliverables on all consulting contracts should necessarily involve listing out the important project/program or policy determinants, their respective pros and cons, and the consultant's recommendation on each determinant. The consultant's accountability should not get diffused within a voluminous report but should be clearly and unambiguously captured in a brief to the main report. This brief shall form the basis for all accountability. 

However, the officials concerned should be accountable for making the decision on each determinant, and the consultant's recommendation should be the only one among the considerations in the decision. This would ensure accountability on both sides. This post outlines a process that can guide a consultant's engagement with the government. 

5. The consultants contracted by governments should necessarily disclose all their relationships with private and public sector clients in the same field of engagement. Instead of being a one-time exercise at the time of contracting, any new relationships entered during the duration of the contract should also be disclosed.  

This should be complemented by officials engaged with the project disclosing any relationship they or their family members have with the consultants. See this for more.

6. The practice of consultants offering their service pro-bono or at deeply discounted prices should be strongly discouraged. In fact, in all contracting systems, tenders that come in below a certain level of discount on the benchmark (or offset) amount are considered void. There's no reason to make an exception to this in the case of consultants. Pro-bono work, in particular, should be strongly discouraged. 

There are no free lunches. Why aren't other goods and services offered pro bono? Given that there is a significant cost of production, why are consultants offering their services free?

7. In certain cross-cutting traditional areas like procurements, program appraisal, and engineering designs, and in certain emerging areas like data analytics and digital solutions, governments should necessarily build in-house capabilities. These can be shared services offered by central and state governments and made available at request to government agencies. These divisions should be staffed with regular employees, with support from contracted individual experts. Apart from internal expertise, this is essential to even manage outsourced contracts, and help keep consultants and vendors honest. 

A separate recruitment mechanism can be arranged whereby they can work for a shorter duration within the government, say 10 years, and then have the option of leaving. A process of continuous recruitment will help maintain institutional memory.

8. Finally there should be a code of conduct that outlines the expectations from consultants when they work for governments. It should refer to all the generally observed problems with consultants' work with governments and should make suggestions to address them.

This code of conduct should both exercise moral suasion and have legally binding aspects, though mostly the former to begin with. This would at the least explicitly surface the problems that bedevil consultants work with governments, force everyone to confront them, and thereby reframe the narrative of the engagement. 

For sure, apart from strong opposition from vested interests, all these will create inconveniences and problems within the government itself, especially in the short to medium term. There will be several reasons adduced as to why each of these is not possible. Even if some of these are accepted as being ideal, they would be deemed impractical. Even well-intentioned officials will not be convinced. 

Therefore an essential starting point has to be by acknowledging the problems with outsourcing core functions of the government. The narrative has to be reshaped within the government itself. These efforts should be seen as part of actions to regain the lost ground and rebuild capabilities within the government. It should be about the larger and long-term project of building strong state capability. Reading Mariana Mazzucato's book would be a good start. 

There should also be a conscious determination of what constitutes the core functions of the government. Certain principles can be laid down which can be used to determine whether a task can be outsourced or not. All forms of outsourcing of these core functions and their proximate activities should be explicitly prohibited.

Once this is acknowledged, there are some things that can be done to address some of the transition challenges. 

1. Contract with individual experts or consultants. Young professionals, freelance experts, retired officials from governments and international organizations, etc are useful and cost-effective sources of expertise.

Such expertise can be contracted as per requirement for specific projects or programs or tasks, or recruited as lateral entrants in 3-5 year contracts. Apart from being cheaper, they are less likely to suffer from the level of conflicts of interest with the hiring of consulting firms.

2. Establish partnerships with colleges, universities, research institutions, and think tanks and draw their expertise as required. This could be either in the form of institutional relationships or with individual academics and experts. 

Ideally, for every program, the Government of India should empanel a list of institutions (in particular) and individual experts (as optional) with expertise in supporting governments in the design, implementation, and evaluation of the program. 

3. Identify and nurture capabilities within the Departments in the specific technical areas where it would likely need expertise. Existing officials with requisite qualifications and interests, irrespective of their seniority, can be capacitated. This can be by actively engaging them in ongoing projects to enable learning by doing, working closely with any external experts including consultants, extensive training, etc. They could also be encouraged to briefly work outside and develop expertise from outside. Working outside should also include working on deputation in agencies of the Government of India and other state governments. 

Departments that feel the need for such expertise should factor the requisite qualifications into their recruitment.

This, this, this, this, this, this, this, this, this, this and this are earlier posts in this blog about consultants.