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Use of consultants and temporary staff

According to a National Audit Office report today, better scrutiny of proposals within government since 2010 has helped to reduce annual spending on consultants and temporary staff (C&TS) by £1.5 billion.  However, since 2011-12, annual spending on C&TS has gone back up by between £400 million and £600 million, while departments were reducing their permanent workforce. This pattern suggests a short-term reduction rather than a sustainable strategy.

Used well, C&TS can be a flexible and cost-effective part of a department’s workforce, for example to provide specialist skills that are required for a short period only. More of these skills may be needed following the 2015 Spending Review as departments will have to invest further in transformation projects while cutting their overall spending. Significant skills shortages remain in key areas needed to transform government, including project management and ICT.

Strategic workforce planning, assessing current staffing and skills against future needs, is critical in managing these cost pressures, but is under-developed in departments. This leads to short-term decision-making on the use of C&TS. In 2014 15, departments spent an average of 6% to 8% of the cost of their civil servants on C&TS, with individual departments ranging from 1% (HMRC) to 35% (Cabinet Office). The Cabinet Office recommends that departments review requests for C&TS but NAO found that this internal approval process is weak in some departments and the Cabinet Office itself did not always follow its own procedures. There is limited evidence so far that departments are reducing their dependence on C&TS.

Departments are generating limited competition for both consultancy and temporary staff assignments. Departments chose to use single-tender action, or extend existing contracts for 43% of consultancy work in 2014-15. The largest six consultancy firms win three-quarters of the work let through the Crown Commercial Service (CCS) cross-government consultancy agreement, while small and medium-sized enterprises win only 9% of this work (and 5% of all government consultancy work). For temporary staff appointed through CCS’s temporary staff agreement, around half are appointed without competition.

Although some elements of the way departments manage consultancy assignments have improved since 2010, problems remain. For example, the Cabinet Office recommends that consultancy assignments be paid according to a fixed price or on delivery of pre-agreed outcomes, rather than a daily rate, but only around half were in 2014-15.  And departments appoint only about half of their consultancy and temporary staff through the CCS’s agreements as in many cases they are still using long-standing and local arrangements, which in some instances are more expensive than the CCS agreements. This reduces CCS’s ability to negotiate fees by using government’s spending power.

NAO analysis suggests that specialist staff are generally paid twice as much as comparable in-house staff.  Departments such as the Home Office and Defra sometimes have difficulty recruiting temporary specialists and go outside the CCS agreement to pay higher rates. Cabinet Office data suggests that, between 2011 12 and 2014-15, there was an 18% increase in the full-time equivalent annual cost of temporary staff – from an average of £48,000 to £56,500.

The Cabinet Office infrequently monitors temporary staff on very high rates.  As at 1 May 2015, 47 temporary staff were engaged on a daily rate of over £1,000, compared with 30 senior civil servants with comparable pay. Neither CCS nor the Cabinet Office and Defra actively manage the numbers of temporary staff who have been in post for extended periods.

“Used well, consultants and temporary staff can be an important source of specialist skills and capabilities for departments that need to transform how they do business. But such specialist staff can be expensive, costing twice as much as their nearest permanent staff counterpart. Government spending on these staff has reduced significantly since 2010, when strict spending controls were introduced, but is now increasing once more. This suggests that the underlying issues have not been fixed. Professional workforce planning to address skills and capacity gaps in key areas is essential to drive down dependency on consultants and temporary staff”.

Amyas Morse, head of the National Audit Office, 13 January 2016

Notes for Editors

£1.0bn-£1.3bn
Departmental spending on consultants and temporary staff, 2014-15

£1.5bn
Approximate fall in annual spending by departments on consultants and temporary staff between 2009-10 and 2014-15

47
Number of temporary staff in central government being paid more than £1,000 a day, in May 2015

6% to 8%
Percentage of the cost of permanent staff that departments spent on consultants and temporary staff, 2014-15

£700 million
Departmental spending on consultants and temporary staff, 2011-12

76%
Average percentage annual share of consultancy work (procured through Crown Commercial Service agreements) won by the largest 6 suppliers, 2009-10 to 2014-15

28%
Share of consultancy work (government overall) won by the largest 6 suppliers, 2014-15

9%
Share of consultancy work (procured through Crown Commercial Service agreements) won by small and medium-sized enterprises, 2014-15

5%
Share of consultancy work (government overall) won by small and medium-sized enterprises, 2014-15

18%
Increase in the average daily rate paid to temporary staff, 2011 12 to 2014 15

2 times

Cost of employing temporary specialist staff compared with employing the equivalent grade of civil servant

57%
Percentage of consultancy contracts (procured through Crown Commercial Service agreements) awarded on a fixed-price basis

1. The NAO report covers central government only, and looks particularly at three case study
departments – the Cabinet Office, the Department for Environment, Food & Rural Affairs (Defra) and the Home Office.

2. Since 2010 departments must operate internal approval processes and obtain Cabinet Office approval for the use of consultants for assignments that extend beyond nine months. Departments control their own use of temporary staff.

3. The overall level of spending on C&TS is uncertain because departments apply different definitions of C&TS for different information systems and this information is not co-ordinated centrally. However, the sources the NAO examined suggest that in 2014-15, the main 17 departments spent between £1.0 billion and £1.3 billion on C&TS compared with around £2.7 billion in 2009-10. These totals do not include other areas where consultancy firms are active for example, spending on professional services, management of outsourced services, some legal and financial advice and research.

4. The 6 largest suppliers of consultancy to government are PricewaterhouseCoopers, Deloitte, KPMG, Ernst & Young, PA Consulting Services and McKinsey & Company.

5. Press notices and reports are available from the date of publication on the NAO website. Hard copies can be obtained by using the relevant links on our website.

6. The National Audit Office scrutinises public spending for Parliament and is independent of government. The Comptroller and Auditor General (C&AG), Sir Amyas Morse KCB, is an Officer of the House of Commons and leads the NAO, which employs some 810 people. The C&AG certifies the accounts of all government departments and many other public sector bodies. He has statutory authority to examine and report to Parliament on whether departments and the bodies they fund have used their resources efficiently, effectively, and with economy. Our studies evaluate the value for money of public spending, nationally and locally. Our recommendations and reports on good practice help government improve public services, and our work led to audited savings of £1.15 billion in 2014.

Contact

NAO Press Office
+44 (0)20 7798 7400 or email pressoffice@nao.org.uk

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