The money governments have spent on consultants and contractors has tripled in a decade, leading to demands from some commentators for the “consultocrats” gravy train to be cut.

If New Zealand follows Australia, highly-paid consultants could face a crackdown in the way they charge for their services, but that could lead to a whole new industry of workers employed solely to drive down external rates, not to mention swelling public servant numbers. 

It’s not new, but the debate over consultants and contractors has flared again, with spending hitting a new record of $1.2 billion for 2021/22. National is promising to slash the spending by $400 million and put the money into subsidising childcare.

“It’s a perennial,” says RNZ’s Phil Pennington, who points out it’s an easy target when stories of $1000-a-day consultants hit the headlines.

He explains how it became a flashpoint at the end of 2017, when a spreadsheet from the Ministry of Business, Innovation and Employment (MBIE) was leaked to the media, showing that the ministry was understating how much it was spending on contractors and consultants by half. 

A review found MBIE’s reporting was not clear and led to changes. Then-public services minister Chris Hipkins removed the cap on the number of public servants with the aim to “in-house” more work.

While the number of public servants has increased, so has the spending on consultants and contractors. The 2021/22 spend was 32 percent higher than the previous year, with the government blaming the extra costs associated with Covid-19.

Pennington explains to The Detail the difference between contractors and consultants, and why government agencies continue to hire them, even though public servant numbers have risen by 14,000.

“They don’t have the skills in-house often, they only need those skills for a limited amount of time so they don’t want to take on permanent or even fixed terms,” says Pennington, who cites Inland Revenue as a classic case.

“IRD’s spending went through the roof when they started their big IT overhaul. Their spend went to $200 million a year, twice as much as MBIE.” 

Pennington says the rates vary from up to $160 per hour for IT specialists, to $40 for helpdesk support. But it is the $1000 daily rate for contractors to do public relations work or be “team leader” that rile taxpayers. 

NBR co-editor Hamish McNicol says the use of consultants in both the public and private sectors has taken off since the global financial crisis.

“A lot of those companies can’t afford to have those sorts of skill sets in-house,” he says.

He explains how the “big four” – Deloitte, EY, KPMG and PWC – evolved from accounting firms to consultancies, advising on all manner of issues including tech, cyber security, regulation, and law. 

For many, it is the professional services and consulting that the fastest growing part of the business.

McNicol explains how they are “an insurance policy on decision-making”, but says it’s difficult to judge value for money and whether the services are better off going in-house.

Government revenue is not insignificant for the big four, but corporate and commercial clients remain the engine room of these firms, he says.

In addition to the big four, a number of other consultancies have set up shop in New Zealand, including the likes of Nomura, Boston Consulting Group, Slalom, Accenture.

McNicol says they too are growing at pace.

Nomura wants to hire about 500 staff here in the next three years, while Accenture has quickly grown to about 500 staff and doubled its revenue to more than $200 million.

Hear more about how the government uses contractors and consultants in the full podcast episode.

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Sharon Brettkelly is co-host of The Detail podcast.

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