Report

by the Comptroller
and Auditor General

Cross-government

Use of consultants
and temporary staff

HC 603 Session 2015-16 13 January 2016

Our vision is to help the nation spend wisely.

Our public audit perspective helps Parliament hold government to account and improve public services.

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.

Report by the Comptroller and Auditor General

Ordered by the House of Commons
to be printed on 12 January 2016

This report has been prepared under Section 6 of the National Audit Act 1983 for presentation to the House of Commons in accordance with Section 9 of the Act

Sir Amyas Morse KCB
Comptroller and Auditor General
National Audit Office

11 January 2016

This report provides our independent opinion on whether the government’s use of consultants and temporary staff (C&TS) delivers value for money.

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10891 01/16 NAO

The National Audit Office study team consisted of:
Sudip Dasgupta, Benoit Guerin, Tom Wallace, George Worlledge and Paul Wright-Anderson, under the direction of Keith Davis.

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Key facts

Summary

1 Government departments make extensive use of consultants and temporary staff (C&TS). C&TS can be a flexible and cost-effective part of an organisation’s workforce, for example when providing specialist skills or dealing with peaks in workload, and can bring a useful external perspective. However, in some cases they can be more expensive and may lack the detailed organisational knowledge of permanent staff.

2 Since 2010, the Cabinet Office has required departments to operate additional spending controls before approving C&TS appointments and to comply with a central procurement strategy. The Crown Commercial Service (CCS), set up as an agency of the Cabinet Office in 2014, aims to save money and improve the quality of common goods and services by bringing together policy, advice and direct buying of common goods and services on behalf of central government and the public sector. The Cabinet Office operates central spending controls over long-term consultancy appointments, and the CCS offers procurement agreements for common types of C&TS and manages relationships with key suppliers.

The scope of this report

3 This report examines the progress made by central government since our 2010 report on consultants and interim staff.1 It focuses on three questions:

Have departments reduced their spending on C&TS?

Do departments let and manage C&TS assignments cost-effectively?

Does the centre of government, primarily the Cabinet Office in this case, effectively manage and support the use of C&TS by departments?

4 This is a cross-government report that also focuses on three case study departments – the Cabinet Office, the Department for Environment, Food & Rural Affairs (Defra) and the Home Office. The report does not cover the use of C&TS within the wider public sector. It also does not cover services provided by consultancy firms that are not classified as consultancy, such as the management of outsourced services.

Key findings

Central government spending on consultants and temporary staff

5 Better scrutiny of proposals within government has helped to reduce spending on C&TS. Since 2010, departments must operate internal approval processes and obtain Cabinet Office approval before they appoint consultants for assignments that extend beyond 9 months (and cost more than £20,000). Departments say that this process has encouraged them to assess their proposals more rigorously, including providing reasons for using C&TS rather than permanent staff. Although the Cabinet Office refused only 1 application in 2014-15, a further 18 out of 162 (14% by value) were withdrawn by departments, and 90 (70% by value) were approved with conditions. The Cabinet Office is not involved in any spending controls on temporary staff. Instead, approvals come from within the departments (paragraphs 3.2 to 3.4 and Figure 12).

6 Departments have substantially reduced their spending on C&TS since 2009-10. In 2010, the Committee of Public Accounts recommended that the Cabinet Office should require departments to record spending consistently. 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 coordinated centrally. However, all the sources we examined suggest that departments have significantly reduced C&TS spending. 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. This was a reduction in annual spending of around £1.5 billion. These totals do not include other areas where consultancy firms are active. In these areas, spending also reduced in cash terms: for example, spending on professional services, management of outsourced services, some legal and financial advice, and research reduced by £430 million (8%) in 2014-15 compared with 2009-10 (paragraphs 1.4 to 1.8, Figure 3 and Figure 4).

7 Reported spending has, however, increased since 2011-12 and there will continue to be upward pressure on C&TS spending. Departments spent around £700 million on C&TS in 2011-12. Since 2011-12, departments have increased their annual spend on C&TS by between £400 million and £600 million, while reducing their permanent workforce. Following the 2015 Spending Review, departments will have to invest further in transformation projects, which generally require support from C&TS, while cutting overall spending. Significant skills shortages remain in the areas needed to transform government, including project management and, ICT which are common specialisms of C&TS. Departments will need to address the risk that managers will increasingly use potentially higher-cost C&TS resources to bypass their department’s controls over recruitment as a way of paying market rates for the necessary skills. For example, the Cabinet Office is proposing to introduce new pay bands for staff with specialist skills (paragraphs 1.8, 1.13, 3.13, Figure 3, Figure 4 and Figure 7).

Departments’ use of consultancy and temporary staff

8 Strategic workforce planning is critical in managing 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 permanent staff on C&TS, with individual departments ranging from 1% to 35%. To use these resources effectively alongside permanent staff, departments should use strategic workforce planning to determine how best to fill skills gaps and manage peaks in workload across the groups. However, in our recent report Central government staff costs2 and the 3 case study departments covered in this report, none of the 7 departments examined had plans that covered their entire organisation. The case study departments reviewed their workforce as part of the 2015 Spending Review, which was completed in November 2015, and plan to develop improved strategic workforce plans in the light of the Review outcome. However, while departments often considered alternatives to the use of C&TS in individual cases, none had yet analysed their applications to assess their overall skills requirements and identify common reasons why permanent staff could not be deployed or recruited (paragraphs 1.7, 1.9, 1.11, 1.14, 1.15 and Figure 5, Figure 8 and Figure 9).

9 Compliance with departmental approval processes is weak in some departments. The Cabinet Office recommends that departments use ‘resource boards’ to review requests for C&TS. However, Defra’s central function only set up this board in May 2015. The Cabinet Office, the department with policy responsibility, did not follow its own internal procedures: in 2 of the 10 cases we examined from 2014-15, the Cabinet Office’s resource board had not considered requests for C&TS as required by its approvals systems. It has now developed simplified procedures that are intended to ensure compliance with its internal procedures and rules. In all 3 departments, requests for consultancy must be accompanied by a formal business case. In our sample of 10 Cabinet Office assignments, 5 cases had been approved without a formal business case. There was little evidence in the 3 departments’ that their C&TS requests compared in-house costs with the proposed external costs (paragraphs 2.2 to 2.4, 2.7 and Figure 9).

10 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. This is usually because of a lack of time or because they think only one supplier has the skills needed. The largest 6 consultancy firms win three-quarters of the work let through the CCS consultancy agreement, and 28% of all government consultancy work. The comparable share of CCS agreement business given to small and medium-sized enterprises (SMEs) rose to 9% in 2014-15, while across all consultancy work only 5% is won by SMEs. For temporary staff appointed through CCS’s Contingent Labour One agreement, 41% are appointed without competition as departments fill posts with their chosen appointee (paragraphs 2.12 and 2.14).

11 Although some elements of the way departments manage consultancy assignments have improved since 2010, problems remain. The Cabinet Office recommends that consultancy assignments be paid according to a fixed price or on delivery of pre-agreed outcomes, rather than on a daily rate. The proportion of assignments on fixed prices increased from 30% in 2010 to 57% in 2014-15. However, suppliers commented that in practice contracts are priced on the basis of daily rates, which undermines the fixed-price approach, and that these are often extended once the fixed price is reached. Suppliers also consider that departments are not clear about how the assignment will contribute to their objectives and do not assess the benefits achieved (paragraphs 2.5, 2.15 to 2.18, Figure 11, Appendix Four).

The role of the centre of government

12 The centre of government is now acting to help departments reduce their dependence on C&TS, but it is not yet clear whether departments have used less C&TS as a result. The Cabinet Office expects the development of 10 core Civil Service functions will help to recruit, develop and retain specialist and professional skills across government, while the Civil Service Resourcing service provides help to departments with recruitment and redeployment more generally. However, we saw limited evidence so far of departments reducing their dependence on C&TS as a result. The Home Office and Defra have used some staff flexibly between bodies within their departmental group. There are some examples of teams of permanent staff being deployed flexibly between departments, including HM Revenue & Customs’ (HMRC) ‘surge team’ of 200 staff, which has supported several departments. The Cabinet Office itself makes extensive use of staff on loan. HM Treasury is also piloting flexibility on pay, which should allow departments to offer more attractive salaries where these are needed to recruit and retain staff (paragraphs 3.16 to 3.18).

13 Departments appoint only about half of their consultancy and temporary staff through the CCS’s agreements. The Cabinet Office has instructed departments to use CCS agreements whenever possible. But appointments made through these agreements still account for only about half of the total departmental spending on C&TS. Departments are still using long-standing and local arrangements, which in some cases are more expensive than the agreements. This reduces CCS’s ability to negotiate fees by using government’s spending power (paragraphs 3.7 to 3.8, Figure 14 and Figure 15).

14 The cost of some C&TS can be significantly higher than for comparable in-house staff. CCS has reduced the daily rates paid to temporary staff and consultants through setting target daily rates below existing rates, which it estimates has saved £79 million in 2014-15. However, it does not compare these rates against the direct costs of equivalent permanent staff. While temporary administrative staff cost a similar amount on a daily basis to permanent staff, our analysis suggests that specialist staff are generally paid twice as much as their nearest permanent equivalent. Even so, departments sometimes have difficulty recruiting temporary specialists and go outside the CCS agreement to pay higher rates. Although average daily rates paid within CCS agreements have fallen since 2011-12, data suggest that rates paid by departments for temporary staff overall have increased by some 18% since then. This increase was due to increases in the proportion of expensive interim managers and technical contractors and in market rates for these skills (paragraphs 1.13, 3.11, 3.12 and 3.14, Figure 16 and Figure 17).

15 The Cabinet Office monitors temporary staff across government paid more than £1,000 per day. CCS infrequently monitors temporary staff paid more than £1,000 a day, which is a higher equivalent salary than all 17 main permanent secretaries (although 5 of them have a higher-value package). Departments are expected to explain how they plan to replace these staff with permanent employees. As at 1 May 2015, 47 temporary staff were engaged on a daily rate of more than £1,000, compared with 30 senior civil servants with comparable pay. However, neither CCS nor 2 of our case study departments, the Cabinet Office and Defra, actively manage the numbers of other temporary staff who have been in post for extended periods. In addition, 94% of specialists engaged through the Contingent Labour One agreement are contracted through personal service companies. In 2012, the Committee of Public Accounts expressed concern that too many staff were paid off-payroll for too long.3 Most departments now report that they obtained assurance from these staff that tax has been paid (paragraph 3.12, 3.15, Figure 18 and Figure 19).

Progress made against the recommendations made in 2010

16 In December 2010, the Committee of Public Accounts made 8 recommendations relating to the use of C&TS.4 The government agreed with 3 of the Committee’s recommendations and partially agreed with the remaining 5. In December 2012, the government reported to Parliament that it had taken action on relevant aspects of the recommendations it had agreed or partially agreed, and so considered those implemented. Our assessment is that the Cabinet Office and other departments had partly implemented 5 of these recommendations by October 2015, limited progress had been made with 2 recommendations and 1 recommendation had not been implemented. This slow implementation is unsatisfactory, and has implications for the value for money achieved from C&TS spending. The Cabinet Office accepts that more action is needed on the Committee’s recommendations to manage down spending on C&TS (Appendix Three).

Conclusion on value for money

17 Used well, consultants and temporary staff can be an important source of specialist skills and capabilities that are uneconomic for departments to maintain in their permanent staff. Since 2009-10, the government has used spending controls to reduce its use of consultants and temporary staff, and by 2014-15 spending had fallen by £1.5 billion. However, spending has increased by between £400 million and £600 million since 2011-12, suggesting that this was more of a short-term reduction than a sustainable strategy. Departments must now manage significant further cuts in their budgets. They will have to make major changes to achieve the required cash savings and to deliver services in new ways.

18 The skills needed to manage and deliver change are essential to making that transformation successfully. In the short term, departments will need to draw on consultants and temporary staff to make up for shortages in these skills in the Civil Service. In the longer term, departments will need to develop workforce, skills and capacity plans to reduce their dependence on external skills. They will need to improve their strategic workforce planning to determine where they can deploy existing staff, where they need to recruit, and where they need to engage temporary resources. Without this, departments cannot demonstrate that they are achieving value for money from the use of consultants and temporary staff.

Recommendations

19 We have a number of recommendations aimed at improving the value for money on the use of C&TS.

a Departments should develop a strategic plan that covers all bodies within their group, identifies their current skills and expected ‘skills gaps’, and determines how best to fill those gaps, including likely future demand for C&TS.

b Departments should draw more on existing good practice to improve the way they let and manage C&TS assignments, including to:

strengthen approval processes so that all C&TS assignments are based on business cases that are rooted in the strategic workforce plan;

use CCS agreements as the default option for procuring C&TS;

carry out regular reviews of the ’pipeline’ of requirements for consultancy, and of the ongoing need for temporary staff as is currently done by the Home Office; and

review all significant assignments and feed back lessons into the planning and approval systems.

c The Cabinet Office should:

examine whether its spending controls on C&TS are continuing to have an impact and, in particular, whether they need to be refocused to address the upward trend in spending;

resolve the long-term problem of inconsistent information on the use of C&TS in government, including whether some C&TS costs are wrongly coded as other professional services, which prevents the government from making well-informed decisions; and

identify and resolve the causes of a lack of competition for C&TS assignments and domination of consultancy work by the largest suppliers, including through redesigning new procurement agreements in 2016.

d Civil Service Human Resources should:

support departments in developing workforce plans that fully consider the use of C&TS;

help departments identify opportunities for sharing staff, including through the Civil Service Resourcing service;

support the progress of civil service professions in developing, retaining and flexibly deploying specialist skills within government; and

develop a strategic workforce plan for the whole of the civil service that enables the government to plan for C&TS more strategically after considering reallocating staff within the civil service.

1 Comptroller and Auditor General, Central government’s use of consultants and interims, Session 2010-11, HC 488, National Audit Office, October 2010.

2 Comptroller and Auditor General, Central government staff costs, Session 2015-16, HC 79, National Audit Office, June 2015.

3 HC Committee of Public Accounts, Off-payroll arrangements in the public sector, Twelfth Report of Session 2012-13, HC 532, September 2012.

4 HC Committee of Public Accounts, Central government’s use of consultants and interims, Twelfth Report of Session 2010-11, HC 610, December 2010.

Part One

Analysis of departments’ spending on consultants and temporary staff

1.1 Central government is labour-intensive: the main 17 departments and their agencies paid permanent staff salaries totalling £17 billion in 2014-15. Departments also make extensive use of consultants and temporary staff (C&TS), who are paid as independent suppliers rather than as employees. In this part of the report we examine:

why departments use C&TS and the reductions they have made in spending on C&TS since 2009-10;

the extent to which departments rely on C&TS;

the main types of consultancy and temporary staff that departments use; and

the use of strategic workforce planning to forecast the need for C&TS.

This report does not cover the use of C&TS within the wider public sector. It also does not cover services provided by consultancy firms that are not classified as consultancy, for example the management of outsourced services.

Why departments use consultants and temporary staff

1.2 C&TS can be a flexible and cost-effective part of a department’s workforce, for example to provide specialist skills that the department requires for a short period only (Figure 1).

Departments’ spending on temporary staff since 2009-10

1.3 In 2010, as part of its plan to reduce the deficit, the government changed the way it procures common goods and services. It considered that spending could be reduced if departments took a more coordinated approach to procurement, including the use of cross-departmental contractual agreements (frameworks) for C&TS. It also introduced controls on the use of C&TS, which required departments to obtain ministerial approval and inform the Cabinet Office before appointing consultants.

1.4 Our 2010 report, Central government’s use of consultants and interims, found that departments’ management information on spending on C&TS was unreliable, as departments applied different definitions of these terms.5 The Cabinet Office has since published a definition to be used across government so that spending can be monitored consistently (Figure 2).

1.5 However, departments find it difficult to apply these definitions consistently because:

consultancy firms provide a range of services that are similar to consultancy – including delivery of IT services and running outsourced functions – but which are classified as non-consultancy; and

some suppliers, including consultancy firms, provide people who work with departments on a day-to-day basis but who remain employed by the suppliers. For example, the Ministry of Defence’s Equipment and Support organisation spent £481 million in 2013-14 on contractors, technical support staff and other temporary staff operating in similar specialist roles. MoD classifies these resources mainly as external suppliers rather than as temporary staff.6

1.6 Since 2010, Cabinet Office bodies have established three reporting systems that capture information on overall temporary staff spending by departments: the Cabinet Office Spend Analytic, which is based on invoices received; Efficiency and Reform Group savings returns from departments; and workforce management information. Departments also report spending on C&TS in their annual reports, although this has not been done consistently over the period. These sources, and other data we reviewed (see Appendix Two), do not give a consistent picture of spending, particularly on consultancy, which is not easy to identify on departments’ financial information systems.

1.7 Departments spent between £1.0 billion and £1.3 billion7 on consultants and temporary staff in 2014-15 (Figure 3 and Figure 4) – equivalent to around 6% to 8% of the annual salary and pension costs of permanent staff. This compares with £2.7 billion spent in 2009-10 – a reduction of around £1.5 billion in annual spend. However, these totals do not include all other areas of spending where departments engage firms that provide consultancy services. Only 38% of the government income of the largest 6 consultancy suppliers is classified as consultancy.8 Some consultancy firms are active, for example, in managing outsourced services, in legal and financial advice and in research. Spending in these areas totalled £4.65 billion in 2014-15 but has reduced by £430 million (8%) since 2009-10. These figures do not include other services delivered by consultancy firms: for example, in delivering IT projects and in providing technical assistance to international aid programmes.

1.8 All the data sources we examined suggest that a significant fall in spending occurred between 2010-11 and 2011-12 when departments spent around £700 million on consultants and temporary staff. Spend has since rebounded by between £400 million and £600 million. Our 3 case study departments told us that the reductions immediately after 2010 were due to the combined effect of the restrictions on consultancy spending and the Cabinet Office’s other spending controls on digital and major projects.9 We found an unplanned increase in spending within the case study departments since 2011-12 and some uncoordinated decisions made in individual cases.

The extent to which departments rely on consultants and temporary staff

1.9 On average, departments and their arm’s-length bodies spent 6% to 8% of their permanent staff salary-related costs on C&TS but this varies widely between departments and individual bodies (Figure 5). Two of the largest employers, HM Revenue & Customs and the Department for Work & Pensions, spend only the equivalent of 1% to 2% of their permanent staff costs on C&TS. In contrast, some smaller departments can be proportionately high users of C&TS: HM Treasury and the Cabinet Office spend 17% and 35% respectively of their permanent staff costs on C&TS. The Cabinet Office is a particularly large user of temporary staff (representing 24% of its permanent staff costs) as it has a strategy of recruiting private sector expertise for fixed terms, for example, for the Government Digital Service, Major Projects Authority and Crown Commercial Service.

1.10 Arm’s-length bodies vary in the amount they use C&TS during the year and in some departments can account for most of the spending within their departmental group. For example, in March 2015:

the Home Office’s Security Industry Authority spent 73% of its payroll costs on C&TS (and accounted for 5% of the Home Office group C&TS spend); and

the Environment Agency spent 25% of its payroll cost on C&TS (and accounted for 73% of the Defra group C&TS spend), compared with 6% over the year as a whole. This unusually high monthly spend was due to work on flood defences carried out by suppliers’ staff.

Types of consultancy and temporary staff used by departments

1.11 Two-thirds of the largest government projects are related to transformation ICT and service delivery programmes. The Major Projects Authority was concerned that departments now rely more on external support because they have lost project management skills in permanent staff in recent years as a result of high staff turnover. Departments told us that they find it difficult to recruit and retain staff and senior managers with the skills necessary to run these programmes due to restrictions on civil service pay rates, and have to pay more for C&TS with these skills. Some managers also commented that, even where recruitment was possible, the length of time needed to recruit and appoint permanent or fixed-term staff meant that using temporary staff was essential to achieving their objectives.

1.12 However, although more data is now available than in 2010, data on the skills of the consultants used by departments, and changes in their use, are still limited. In 2014-15, the most common types of consultancy employed through CCS framework contracts were “multi-specialism”, finance and audit (Figure 6).

1.13 In 2014-15, the most common type of temporary staff procured by departments through the CCS agreements was clerical and administrative. This accounted for 52% of the ‘full-time equivalent’ resources. However, it accounted for only 19% of the total spend, as the average day rate paid by departments was lower than for other types (Figure 7). The most common types of specialist temporary staff were digital and ICT and project management. These are skills that the Civil Service Capabilities Plan has identified as priorities to develop internally. There is limited information on how departments’ demand for particular specialisms outside the CCS agreements has changed over time. From 2011-12 to 2014-15, there was a 156% increase in the number of interim managers and a 44% increase in technical contractors, who attract substantially higher fees than clerical grades.

The use of strategic workforce planning

1.14 Strategic workforce planning is a management process used to assess an organisation’s current staff resources and skills, predict its future needs and plan how to meet these needs cost-effectively. In our 2015 report, Central government staff costs, the 4 departments we examined had good intentions to develop strategic approaches but none had yet implemented these across their group.10 For this report, we examined how far the 3 case study departments have progressed with their strategic workforce plans. We found that they have made limited progress. In both the Home Office and Defra, there were business areas that had considered C&TS as part of their wider workforce planning. However, none of the case study departments had strategic workforce plans that covered their whole group (Figure 8). This can lead to short-term decision-making on the use of C&TS. All 3 departments intend to improve workforce planning to help them to implement the outcome of the 2015 Spending Review.

1.15 Strategic workforce planning should help organisations to understand their future skills needs, respond flexibly to local peaks and troughs in workload pressures and reduce the overall size of their workforce. However, 2 of our 3 case study departments had no skills registers, or any analysis of their internal approvals of consultancy and temporary staff to better understand the skills they need, why recruitment efforts had failed or how to locate suitably qualified staff. The Home Office told us it was trying to attract ICT specialists to reduce its reliance on temporary staff. All 3 case study departments plan to improve their strategic workforce planning.

1.16 Having effective workforce planning will be increasingly important as the government implements the budget reductions announced in the Spending Review 2015. Civil Service Human Resources has set up an expert service to help build capability in strategic workforce planning within departments. This service has just completed a maturity audit of strategic workforce planning in departments to understand capability, share good practice and identify commonareas for improvement.

1.17 Despite not having strategic workforce plans across the departmental group, some managers have used a mix of permanent and temporary staff to respond flexibly to temporary changes in workload. The Home Office has used its caseworkers to meet peak workload demands across the group. For example, in 2014 UK Visas and Immigration (UKVI) loaned 150 staff to HM Passport Office to help clear a backlog of casework. When UKVI had a large volume of work in autumn 2015, HM Passport Office then loaned 300 staff to UKVI. However, without a strategic workforce plan across the group, there is a risk that opportunities such as these could be missed and temporary staff employed unnecessarily.

5 Comptroller and Auditor General, Central government’s use of consultants and interims, Session 2010-11, HC 488, National Audit Office, October 2010.

6 Comptroller and Auditor General, Reforming defence acquisition, Session 2014-15, HC 946, National Audit Office, February 2015, paragraphs 2.2 to 2.7.

7 Since our fieldwork, Cabinet Office has carried out a further review of its data sources, which suggest that C&TS spend in 2014-15 is in the middle of this range. However, we have not audited this figure.

8 The largest suppliers are Pricewaterhouse Coopers LLP, Deloitte LLP, KPMG LLP, Ernst & Young LLP, PA Consulting Services Ltd and McKinsey & Company. The spend total comes from the Cabinet Office Spend Analytic.

9 Cabinet Office, the Department for Environment, Food & Rural Affairs and the Home Office.

10 Comptroller and Auditor General, Central government staff costs, Session 2015-16, HC 79, National Audit Office, June 2015. The 4 departments were the Department for International Development, the Department for Transport, HM Revenue & Customs and the Ministry of Defence.

Part Two

Letting and managing consultancy and temporary staff assignments

2.1 In 2007, we published a toolkit for assessing whether an organisation is achieving value for money in its use of consultants.11 This can be applied to both consultancy and temporary staff (C&TS) assignments. In this part of the report we assess whether departments are letting and managing assignments effectively, using the 5 stages identified by the toolkit.

Stage 1: Assessing needs and specifying requirements;

Stage 2: Considering resource options;

Stage 3: Tendering and contract award;

Stage 4: Project delivery and skills transfer; and

Stage 5: Post-contract evaluation.

Overall assessment

2.2 We have based our assessment on 3 case study departments and have summarised the results in Figure 9. The assessment showed variable results across the 5 stages. None of these departments had procedures in place to fully meet the expectations of all stages, but there were some good practices that could be applied more widely across government. The Cabinet Office has now developed simplified procedures that are intended to ensure compliance with its internal procedures and rules.

Assessing need and specifying requirement

2.3 The Cabinet Office recommends that departments use ‘approvals boards’ to review requests for C&TS. Teams should submit business cases to help the board to assess whether C&TS are needed for a particular business activity. The Department for Environment, Food & Rural Affairs (Defra) only set up this board in May 2015 (although it has been operating a formal approvals process since 2010). The Cabinet Office’s resource board was set up in 2010 to approve all consultancy requests costing more than £20,000 (now £50,000). However, in 2 of the 10 2014-15 cases we examined it had not followed this requirement.

2.4 All 3 departments require teams submitting C&TS requests to prepare a formal business case. Requests for individual temporary staff are less formal, but have similar information requirements as for smaller consultancy applications. We found that business teams in Defra and the Home Office had submitted business cases for all requests for C&TS except one. However, in our sample of 10 Cabinet Office assignments, 5 had been approved without a formal business case.

2.5 Consultants think that departments could improve the specifications of their requirements. For example, a small survey of consultants in 2015 (Appendix Four) found that only 16% considered that the government had improved the quality of documents issued with tenders, while 65% disagreed. Suppliers we interviewed told us that departments often could not clearly articulate their objectives or had unrealistic expectations. The Interim Managers Association told us that its members thought their assignments for government often lacked clear objectives.

Considering resource options

2.6 Consultants and skilled temporary staff may be expensive compared with using staff with the required skills who are already on payroll, particularly when the latter have periods of surplus capacity or where additional staff can be readily recruited on a fixed-term or permanent basis. Consequently, public bodies should start with the assumption that using their own staff will be the best use of resources. They should use C&TS only where they can show that this is necessary and cost-effective (see Figure 1).

2.7 We found little evidence in departments’ business cases that they had rigorously assessed the availability of skills internally or had compared in-house and external costs. The departments lacked processes for locating available staff with the required skills elsewhere in the Civil Service, although there was some informal consultation with the Civil Service professions.

The Cabinet Office forecasts the resources it requires but does not highlight shortages, and we saw no evidence that the business cases had been assessed by the relevant head of profession.

In Defra, there is no understanding of skills shortages across the departmental group or the need for C&TS, although some of its arm’s-length bodies do consider the use of C&TS within their own workforce planning processes. However, the Environment Agency told us that it monitors day rates and length of service for temporary staff.

Although Home Office’s business units forecast their staff needs 3 years in advance, the group-wide position is not set out in a strategic workforce plan. Project teams are not confident that information on the skills requirements for major projects is reliable as they find it hard to forecast skills needs beyond the next few months.

2.8 The lack of comprehensive information on availability of skills increases the risk that departments may commission C&TS in circumstances where they do not need to. In August 2015, the Home Office approvals board carried out a review of temporary staff in post. This was the only example we found of such an exercise within a case study department. The board found that only 22% of the temporary staff had skills that were not readily available within the department or could not be recruited on a permanent basis (Figure 10).

2.9 Only 1 of our 3 departments routinely monitors the start and end dates of its temporary staff. Of the 147 temporary staff employed by the Home Office as at August 2015, 121 (82%) had been engaged for more than a year. This included 8 staff who had been employed for between 5 and 9 years.

Tendering and contract award

2.10 Since 2010, the Cabinet Office requires that departments should use CCS framework agreements whenever possible for engaging C&TS (see Part Three). However, general procurement principles still apply: departments need to avoid single-tender action, encourage strong competition and use fixed-price or incentive-based agreements where appropriate.

2.11 Our analysis suggests that around half of C&TS assignments were let outside the CCS agreements in 2014-15 (see paragraph 3.8). Case study departments told us that this reflected existing arrangements that are slowly changing. However, they also reported that some specialist temporary staff are hard to obtain through the CCS agreements. This is because daily rates set by the agreements are comparatively low and agency commission is capped at 8% (compared with up to 20% charged on assignments outside the agreements).

2.12 Departments sometimes choose single-tender action within the agreement because they need to fill a position urgently or because they consider that only a particular individual or supplier can do the job. Of 60 consultancy assignments let or extended by CCS on behalf of departments between April and October 2015, 43% had limited or no competition:

34 (57%) were let competitively;

11 (18%) were single-tender actions at the department’s request; and

15 (25%) assignments were extended (without competition).

For specialist temporary staff appointed through CCS’s Contingent Labour One agreement, around 41% are appointed without competition. In our sample of 31 C&TS assignments (Figure 9), 15 were approved for single-tender action or nominated workers.

2.13 In early 2015, CCS carried out a review of consultancy contracts awarded through its agreement. It found that only 40% of tenders attracted the target of 5 bids. Suppliers told us that a lack of pre-tender contact by departments and short timescales for tenders were factors in their decisions not to bid. They also expressed concern at the cost of bidding unsuccessfully for contracts: ranging from 2% to 25% of their total government fee income.

2.14 Suppliers not currently listed on the CCS consultancy agreement also thought there were too few suppliers available on the agreement, resulting in most work being awarded to the largest 6 suppliers, who are able to offer a wide range of services.12 Between 2009-10 and 2014-15, small and medium-sized enterprises saw their share of CCS consultancy agreement business rise from 6% to 9% while their share of all consultancy spend fell to only 5%. In the same period, the largest 6 suppliers have, in total, won between 70% and 85% of the business let each year through CCS consultancy agreements – an average of 76%. In contrast, these suppliers won only 28% of all government consultancy work in 2014-15. Departments also accept ‘pro bono’ consultancy advice: for example, a large consultancy gave 18 days to the Home Office free of charge to develop a commercial model. Such assignments can help departments, for example by better defining their requirements but can give firms a ‘foot in the door’ for future work, resulting in poorer value for money in the longer term through reduced competition.

2.15 The proportion of consultancy assignments paid on a fixed-price basis or delivery of pre-agreed outcomes increased from 30% in 2010 to 57% in 2014-15 (Figure 11). However, suppliers commented that, in practice, departments awarded contracts on the basis of the daily rate that suppliers used to calculate the fixed price and that these contracts were often extended when the fixed price was reached.

Project delivery and skills transfer

2.16 Departments should set realistic milestones for delivery of clearly defined requirements for each C&TS assignment and encourage the transfer of skills to permanent staff where possible.

2.17 Our previous reports on consultancy found that departments did not clearly define the services they required from suppliers – and paid assignments on the basis of time spent rather than for delivering a defined output (see paragraph 2.15). This time, we found that departments had different processes for determining outputs and outcomes for projects and it was challenging for some departments to specify outputs in an early stage of a programme.

The Home Office’s approvals board consider whether outputs or deliverables have been clearly defined, and most business cases had very clearly defined work packages.

The Cabinet Office’s forms for submitting requests for approving C&TS require the applicant to explain the desired outcomes and deliverables. However, in practice we found that not all proposals were complete and the ones that were varied in quality.

Some of Defra’s contract approval forms defined a specific output, but others referred only to generic outcomes such as ‘driving forward’ an objective. Defra accepts that specific outputs should be defined whenever possible, but considers this can be difficult in the early stages of specialist assignments.

Post-contract evaluation

2.18 Departments should review contracts and projects once they are complete to learn lessons for future procurement. None of the case study departments could provided evidence of doing this. Consultancy suppliers told us that formal feedback was rare and that they believe that a systematic review and evaluation should be completed by the employing departments for all consulting assignments. This lack of review increases the risk that departments are not learning lessons from past projects.

11 National Audit Office, Consultancy Assessment Toolkit, 2007.

12 See Footnote 8 on page 15.

Part Three

The role of the centre of government

3.1 This part examines how the centre of government has provided strategic leadership and supported departments since 2010. The centre focuses on:

running spending controls for consultancy;

managing procurement of consultants and temporary staff (C&TS), including the use of Crown Commercial Service (CSS) agreements, on behalf of departments;

monitoring the use of temporary staff; and

reducing dependency on C&TS by supporting the use of permanent staff.

Cabinet Office spending controls

3.2 The Cabinet Office’s spending controls cover consultancy but not temporary staff. In addition to their internal approval systems (see Part Two), departments wanting to use consultants must also get approval from the Cabinet Office before appointing consultants for assignments lasting more than 9 months (and costing more than £20,000). Although the Cabinet Office is not directly involved in decisions about appointing temporary staff, it receives monthly summaries of departments’ staff resources, including both consultancy and temporary staff. Departmental officials we interviewed told us that these processes had significantly discouraged spending on both consultancy and temporary staff, and that there was now a culture of trying to minimise spending.

3.3 The Cabinet Office approves most of the requests made by departments for consultancy assignments of over 9 months duration (Figure 12). In 2014-15, departments made 162 applications (total value of £275 million) for new assignments or to extend existing contracts. Of these, only 1 case was refused, an application for £6 million to advise the High Speed Rail Group in the Department for Transport. Departments withdrew a further 18 cases (£37 million) without a formal decision being reached by the Cabinet Office. The remaining 90 applications (£193 million) were accepted with one or more conditions applied, including:

in 16 cases, the Cabinet Office told departments to investigate using internal staff before applying for further extensions;

in 10 cases, the Cabinet Office would not permit further extensions without retendering; and

in 9 cases, the Cabinet Office asked departments to investigate reducing the price, either immediately or before applying for extensions.

3.4 Other Cabinet Office spending controls affect departments’ use of C&TS. For example, the Department for Environment, Food & Rural Affairs (Defra) had initially engaged consultants to carry out systems integration work for its Common Agricultural Policy delivery programme. However, it terminated these arrangements because of the Cabinet Office’s concerns about high day rates and the risk of becoming dependent on a single supplier.13 Defra brought the consultants’ systems integration role in-house, but it underestimated the complexity of the role and did not foresee the difficulty it would have in getting the necessary skills in place.

3.5 Departmental staff and consultants we interviewed expressed concern that it takes too long, up to 9 months in some individual cases, to complete the internal and external approval and procurement processes, while departments do not give enough time to suppliers to respond to invitations to tender. Although we were unable to confirm the overall timescales for procurement as the early approval stages are informal, a sample of CCS procurements found that bidders were given between 1 and 4 weeks to prepare and submit their tender.

3.6 The Cabinet Office’s service level agreement is to make a decision on departments’ requests for any consultancy which extends beyond 9 months within 28 calendar days (adjusting for the time taken by the departments to provide relevant information or until price reductions have been sought). The Cabinet Office told us that, once ‘pause days’ had been taken into account, it met the service level agreement on all requests received in 2014-15. Including these delays (9 days on average, but 256 days in one case which was subsequently withdrawn), we calculated that 59% of requests were determined by Cabinet Office within 28 days (Figure 13).

CCS procurement framework agreements

3.7 The CCS was set up as an agency within the Cabinet Office in 2014 to save money and improve the quality of common goods and services by bringing together policy, advice and direct buying of common goods and services on behalf of central government and the public sector. It carries out the functions previously run by the Government Procurement Service and the Cabinet Office: setting overall procurement policy; providing contracts, including framework agreements allowing departments to procure common goods and services (including for C&TS) at pre-negotiated prices; and managing relationships with suppliers. From 2014-15, CCS has also provided a jointly managed procurement and contracting service for participating departments, with existing departmental staff often transferring to CCS.

3.8 In 2010, the Cabinet Office required departments to source all suitable C&TS through central agreements (frameworks) managed by CCS. Its objective was to reduce administrative costs and reduce fee rates by using the government’s purchasing power. We estimate that, although the volume of spending through the agreements is increasing, departments procure only around half of C&TS through CCS agreements (Figure 14 and Figure 15).

3.9 The reasons for the low proportion of spend through CCS agreements after 5 years are unclear, but do include the following:

Departments can directly employ temporary staff or have their own specialist agreements. For example, the Office for Security and Counter-Terrorism, within the Home Office group, maintains a framework for security-vetted companies, but intends to transfer its other agreements to CCS in 2016.

Defra and the Home Office reported that sometimes they are unable to recruit highly specialised staff at the rates set within the CCS agreements. When procuring specialist skills outside the agreements, departments sometimes engage companies rather than individuals, which can further add to the cost.

3.10 Both suppliers and departments have criticised the design of the CCS agreements. The current design is a compromise which attempts to meet the varied needs of departments. However, too many suppliers on an agreement may result in large numbers of unsuccessful tenders and some suppliers being awarded too few contracts to justify the agreed reductions in their fee rates. Some employment agencies, who provide temporary staff through the CCS Contingent Labour One agreement, told us that the agreement rates do not adequately reflect their investment in identifying suitable candidates. Some specialist agencies declined to join the agreement due to the absence of contract terms to restrict departments’ ability to re-employ temporary staff without paying agency fees. The CCS is currently reviewing the design of its consultancy and temporary staff agreements, which are due to be re-let in 2016.

Rates achieved through CCS agreements

3.11 Administrative and clerical grades account for around 52% of temporary staff appointed by departments through the main CCS agreements, but ICT and digital and project management staff account for higher proportions of the total cost (Figure 7). We analysed the rates paid by type of temporary staff employed through CCS agreements, as there is limited management information available on pay rates for staff employed through other mechanisms.

3.12 Comparing total employment costs of temporary and permanent staff is difficult and they can vary significantly for individual posts. Although most temporary workers do not come with the pension costs, sick pay and paid leave of permanent staff, increased costs arise from agency fees. These are typically between 2% and 8% of the daily rate under the Contingent Labour One agreement, but can be as high as 20% outside the agreement. Where departments cannot recruit experienced specialist staff, using temporary staff avoids the recruitment and training costs involved in developing a cadre of specialists within the civil service. Also, many temporary staff (including 94% of specialists), in 2014-15, are contracted through personal service companies. Unlike permanent staff, the employing department cannot easily verify whether the right amount of tax and national insurance is being paid for off-payroll staff. In 2012, the Committee of Public Accounts expressed concern that too many public sector staff were paid off-payroll for too long.14 Most departments now seek assurance from these staff that tax has been paid.

3.13 Once holiday, sick leave and pension entitlements are included, temporary administrative staff procured through CCS agreements cost departments a similar amount per day to the equivalent newly recruited civil servant (Figure 16). Specialist temporary staff do not equate easily to standard Civil Service grades, as specialist permanent staff may attract pay allowances. However, based on the 8 most common specialist job titles procured through the agreements in 2014-15, we estimate that specialist temporary staff cost around twice as much as their nearest permanent equivalent, and that departments could save up to £26 million a year by filling these 379 posts with permanent staff (Figure 17). The difference between specialists and administrative staff costs may reflect the competitiveness of public sector pay compared with market rates for the relevant skills, and the Cabinet Office is therefore proposing to introduce new pay bands for staff with specialist skills.

3.14 From 2010 to March 2015, CCS monitored fee rates paid under its agreements for C&TS compared with the rates paid for the same grades in 2009-10 adjusted for inflation. It estimated that departments had saved £79 million in 2014-15 from reductions in C&TS fee rates, and a further £47 million by wider public sector clients who chose to use the agreements. The CCS methodology does not take into account changes in the mix of grades or departments’ spending outside the CCS agreements (see paragraphs 3.8 to 3.9). Our analysis of CCS agreements for temporary staff found a 22% reduction in the average daily rate paid since 2011-12, due to an increase in the use of CCS agreements to appoint administrative and clerical grades. However, our review of the Cabinet Office’s published workforce management statistics, which covers all temporary staff, suggested that there had been an 18% increase in the same period, from £48,000 per full-time equivalent per year to £56,500 per year. This increase was due to increases in the proportion of expensive interim managers and technical contractors and increases in market rates for these skills.15

Monitoring the ongoing use of senior temporary staff

3.15 CCS infrequently monitors temporary staff occupying senior roles who are paid more than £1,000 a day, which is a higher equivalent salary than all 17 main permanent secretaries (although 5 of them have a higher-value package) (Figure 18). Departments are also expected to explain how they plan to replace these staff with permanent employees. As at 1 May 2015, 47 temporary staff were engaged on a daily rate of more than £1,000, compared with 30 senior civil servants and heads of arm’s-length bodies with comparable pay (Figure 19). However, neither CCS nor the Cabinet Office or Defra monitor temporary staff who have been in post for extended periods. In the Home Office, a temporary staff member has cost around £1.4 million over 7 years of continuous employment. The department now challenges the use of temporary staff across the group (Figure 10).

Reducing dependency on consultants and temporary staff

3.16 The Civil Service Reform programme, which began in 2012, is a series of actions to strengthen the Civil Service. These actions have included appointing heads of professions with responsibility for improving the recruitment and development of staff with specialist skills, and their deployment across government. In time, the professions could reduce the need for C&TS. However, it is relatively early in the programme and we have seen limited evidence so far of departments reducing their dependence on C&TS. In 2015, the Cabinet Office set up 10 core functions to lead cross-departmental corporate functions and it expects this programme to help in the recruitment, development and retention of specialists. Also in 2015, the Cabinet Office launched a pilot scheme to evaluate the re-employment of former civil servants on an ad hoc or rostered basis to help departments to meet peaks in workload.

3.17 The centre of government also includes Civil Service Resourcing, a unit which provides internal and external recruitment services to help departments obtain the skills they need either from elsewhere within the Civil Service or by recruitment from outside. The Cabinet Office itself makes extensive use of staff on loan (representing more than 20% of its workforce) and there are some examples of civil servants being deployed flexibly between departments; in particular, the HMRC ‘surge team’ of 200 staff with managers has supported several departments faced with large administrative tasks.

3.18 The role of HM Treasury in supporting departments to get better value for money from C&TS has been limited. However, its public spending teams can give departments additional ‘pay bill flexibility’ that makes it possible for them to increase pay packages as necessary to recruit or retain staff with scarce skills. Additional costs resulting from this have to be met by making savings elsewhere in the pay bill. This scheme has been in the piloting stage since 2014-15.

13 Comptroller and Auditor General, Early review of the Common Agricultural Policy Delivery Programme, Session 2015-16, HC 606, National Audit Office, December 2015.

14 HC Committee of Public Accounts, Off-payroll arrangements in the public sector, Twelfth Report of Session 2012-13, HC 532, October 2012.

15 See The digital skills gap in government, National Audit Office, December 2015. Available at: www.nao.org.uk/
wp-content/uploads/2015/12/The-digital-skills-gap-in-government-Survey-findings-December-2015.pdf

Appendix One

Our audit approach

1 This report provides our independent opinion on whether the government’s use of consultants and temporary staff (C&TS) delivers value for money. To do this we reviewed whether:

the government’s costs for C&TS have fallen since our last report in 2010;

departments secure adequate competition and manage C&TS assignments to ensure that their requirements are delivered cost-effectively; and

the centre of government effectively manages and supports the use of C&TS by central government.

2 Our audit approach is summarised in Figure 20. Our evidence base is described in Appendix Two.

Appendix Two

Our evidence base

1 We came to our conclusions using evidence collected between May 2015 and November 2015. Our fieldwork is described below.

Data analysis

2 Since 2010, Cabinet Office bodies have run three reporting systems that capture information on spending on consultancy and temporary staff (C&TS).

The Cabinet Office Spend Analytic reviews all invoices received by departments. Spend is automatically analysed into a number of standard procurement categories based on data from departments’ financial information systems. These are reconciled monthly by departments with their overall spending.

The Efficiency and Reform Group (ERG) is responsible for increasing efficiency in central government. This includes aiming to achieve £20 billion of procurement savings during the 2010 to 2015 Parliament. Until March 2015, departments submitted monthly returns to ERG, which calculated their savings on C&TS spending compared with a 2009-10 baseline of spending.

Since 2011, workforce management returns have been published monthly by departments’ human resource teams. These show permanent staff numbers and spending as well as estimates of temporary staff and consultancy resources.

3 We carried out a time series analysis of the Cabinet Office Spend Analytic and data systems for both contingent labour and consultancy spend (Figure 3 and Figure 4). We also analysed data from departments’ audited accounts.

4 We obtained data from the Crown Commercial Service (CCS) on C&TS assignments let through frameworks, contracts and other procurement agreements. These arrangements allow departments to let contracts at agreed rates with a supplier or to hold an additional competition.

5 We also analysed:

the results of a survey of members of the Management Consultancies Association (MCA), examining the progress made by departments since 2010 (Appendix Four); and

Cabinet Office contract approval decisions during 2014-15 (Figure 12 and Figure 13).

6 We compared data from the CCS temporary staff agreements for 2014-15 with the civil service pay scales in 2014. We did this by assigning temporary staff job roles an equivalent civil service grade and comparing daily costs. Further details of the methodology are given in Figure 17.

Interviews

7 We interviewed staff responsible for operating spending controls, procurement and management of C&TS at CCS and 3 case study departments (Cabinet Office, the Department for Environment, Food & Rural Affairs (Defra) and the Home Office). We interviewed representatives of the MCA, the Recruitment & Employment Confederation and the Interim Management Association. We also participated in a workshop attended by representatives of 9 public bodies and 22 consultancy suppliers arranged jointly by CCS and the MCA.

Contract reviews

8 We reviewed a sample of contracts, drawn to reflect the different types of assignments approved in 2014-15, to understand why C&TS were needed. We confirmed that each placement had been formally approved following submission of a business case to an appropriate board (or senior official for smaller assignments) and that actual spend was within the approved budget for the assignment. We reviewed the case files for evidence that departments required teams to search for skilled staff within the department and within the civil service before applying for temporary staff.

Publications review

9 We reviewed relevant publications and reports. The main sources were our back catalogue of reports on staff costs and strategic workforce planning, and internal reports on human resources relating to our case study departments. We also reviewed third-party reports on the use of consultants.

Appendix Three

Progress made on previous recommendations by the Committee of Public Accounts on Central government’s use of consultants and interims, and Cabinet Office’s comments

1 In December 2010, the Committee of Public Accounts made 8 recommendations relating to the use of consultants and temporary staff (C&TS).16 The government agreed with 3 of the Committee’s recommendations and partially agreed with the remaining 5. In December 2012, the government reported to Parliament that it had taken action on all relevant aspects of recommendations and so considered those implemented.17 We assessed that the Cabinet Office and other departments had partly implemented 5 of these recommendations by October 2015, limited progress had been made with 2 recommendations, and 1 recommendation had not been implemented (Figure 21).

2 The Cabinet Office considers that:

of the 3 recommendations (4, 6 and 8) with which the government agreed, the government has taken action on all 3 but should do more on recommendations 4 and 6 to implement them fully; and

of the 5 recommendations with which the government partially agreed (1, 2, 3, 5 and 7), the government has taken action on all 5 but had not yet taken the right action on 2 of the recommendations (2 and 3). For instance, the Committee had recommended that the Cabinet Office require departments to prepare an annual assessment of their C&TS needs and report how they managed to reduce spending. The Cabinet Office responded that it is good practice for departments to consider their future consultancy needs as part of their annual business planning process and that it would be recommending this approach to departments, as part of the spending controls. However, the government also noted that it believes it is for departments to evaluate their spending against plans.

16 HC Committee of Public Accounts, Central government’s use of consultants and interims, Twelfth Report of Session 2010-11, HC 610, December 2010.

17 HM Treasury, Treasury Minute, Government responses on the Third to the Thirteenth Reports from the Committee of Public Accounts, Session 2010-11, Cm 8014, February 2011; and Progress on implementing recommendations from the Committee of Public Accounts: Session 2010–2012 and the National Audit Office, Cm 8271, January 2012.

Appendix Four

Industry views on government’s progress made on use of consultants since 2010

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