Government spending on outside help from contractors and consultants is a long-standing political football. And while stories of waste and eye-watering fees are perennial, they come into sharp focus in an election campaign.

In the
2021-22 fiscal year – the most recent for which the Public Service Commission has published data – spending on contractors and consultants by core public service departments and ministries rose to $1.2 billion, an increase of $303.7m or 32 per cent over the previous year.

While the Public Service Commission (PSC) publishes totals for each public agency, there is no data which aggregates how much each firm made across the public service – or indeed, across the wider public sector.

The Herald has made a limited tally. It looked at the 10 core public service agencies* with the highest contractor and consultant spending and totalled the 10 most highly-paid providers of consultant and contractor services to those agencies.

The largest amounts were paid to staffing agencies that provide fixed-term contractors, an army of thousands, possibly tens of thousands, of people across the wider public sector. They are so numerous in central Wellington that any talk of cutting their ranks quickly raises concern about the financial health of the central city’s bars and cafes.

The rates paid to contractors vary significantly; contractors the Herald spoke to said they expect to make a top-line figure of anywhere from 35 per cent to more than 100 per cent greater than they would earn in a similar permanent position with the public sector.

Those on the lower end of that scale say they aren’t that much further ahead, once they take into account missing out on benefits such as sick and annual leave and paid public holidays.

Others say they earn significantly more contracting, especially so in recent years amid a very tight labour market and the explosion of public sector work that was partly related to the pandemic.

Most describe contracting as a different balance of risk and reward: the pay is higher; the risk of sitting on the sidelines when the work dries up is greater.

Many, including Opposition parties National and Act, say the current Government has been too willing to rely on this huge pool of temporary labour, the majority of which is likely to be made up of former permanent public sector staffers.

But there is some important context for understanding the spending. The staffing agencies represent and broker the work of those self-employed individuals who bounce from gig to gig. The public money that flows to these agencies, in large measure, flows through them to the contract workers they represent.

The agency typically levies a fee, which is a percentage of the hourly wage earned by its contractors. In addition, many act as payroll agents. For a much lower fee, they handle invoicing and payroll for contractors found, not by them, but by the public sector agency itself.

Consulting firms have a different business model, and their services generally centre on the provision of expert knowledge and work that is linked to a defined outcome, typically with pay tied to agreed milestones or deliverables. Their pricing is generally much more opaque.

National and Act – and even Labour – are, in varying measures, promising to slash spending on consultants and contractors after the election.

For the most part, the agencies and consultancies involved are keeping mum. Some quietly suggest that they do not wish to fan an incendiary conversation about their work and its cost in the midst of an election campaign. They acknowledge that there is much political sound and fury, but what it signifies remains to be seen. After all, Wellington is a notoriously windy city, and this isn’t their first blustery campaign season.

1) Robert Walters: $64.7m

Robert Walters Group is a publicly traded UK-based global recruitment consultancy. Its New Zealand branch most recently made the news for hiring disgraced former Labour Cabinet Minister Stuart Nash. While in politics, Nash fell foul of his very considerable little black book of business contacts – news that he’d leaked confidential Cabinet discussions to donors Troy Bowker and Greg Loveridge spelled his demise. But in the private sector, such contacts may serve him better.

Nash starts work as commercial director based in the firm’s Wellington office next month. The chief executive of Robert Walters Australia and New Zealand, Shay Peters, said Nash “will be working with senior leaders across the state sector to alleviate challenges they are experiencing as they overcome the current skills shortage. He will provide solutions that will enable them to hit their productivity targets, ensuring the delivery of services NZ Inc. needs”. He said Nash will work with both public sector and private clients.

The company provides permanent, temporary and volume recruitment, executive search, payroll-only services, market intelligence, and recruitment campaigns and events. Its largest chunk of public work in the year was worth $19m for the Ministry of Health, and over $10m came from the Department of Internal Affairs.

Of the political climate, the Wellington-based Peters said that the workforce was changing, and “the trend towards a more contingent or contract-led workforce is real, and will only increase over time”.

He noted that there “seems to be a growing misalignment between what the labour force is telling us (and it’s still a scarce resource), and what a number of political parties seem to want to do with the contingent labour force”.

2) H2R Consulting: $24.88m

H2R Consulting was founded in 2004, and includes the IT recruitment subsidiary H2R Technology. Katerina Makarios is the home-grown company’s Wellington regional manager, and oversees the bulk of H2R’s public sector work. Makarios declined to speak to the Herald.

H2R also benefitted from massive Ministry of Health spending on contractors and consultants in the 2021-22 year: H2R billed the ministry for $12m. The ministry’s contractor and consultant spending more than doubled from $63.4m in 2020-21 to $154m in 2021-22.

The ministry was not able to answer detailed questions about the spending outside the Official Information Act process. But a spokesperson said the huge increase was largely due to “additional unique, time-limited contractor/consultant spend pertaining to the Covid-19 response, including the vaccination programme coupled with expenditure for the health and disability system reform”.

3) Inside Executive Recruitment: $24.7m

The agency was founded by Dale Gray and Troy Turner in 2009. Gray leads the executive search business from the Auckland office, while managing partner Turner runs Wellington and oversees the lion’s share of the company’s public sector work.

Turner was on annual leave, but Gray told the Herald that, as a private entity, the company doesn’t disclose information related to revenue; its main areas of business are contract and permanent recruiting, as well as payroll services.

Among the public agencies the Herald considered, Inside’s largest volume of work was with the Ministry of Education ($9m). The ministry’s spending on consultants and contractors rose 35 per cent from 2020-21 to 2021-22, to reach $237m.

Zoe Griffiths, leader of corporate, said ministry spending on contractors had been affected by the tight labour market “driving up rates and conditions”.

She said a slew of “one-off or time-limited” programmes also drove the higher spending. These included: implementing the school equity index; the NCEA review; the Covid response; the Future Education organisational change programme; and education workforce pay equity reviews.

4) Momentum Consulting Group: $23.6m

Momentum is a Wellington-based recruitment agency controlled by directors Peter Kane and Nicholas Roberts. Ownership is shared across the two directors (Kane holds the majority) and other staff including Bernadette Sharkey-Burns, who specialises in marketing communications and engagement, Auckland general manager Jon Israel and Coalan Keegan, focused on IT and business transformation.

Roberts told the Herald the $23.6m total needed to be put in context: “Of that $23.6m, 90 per cent of that dollar value is passed through straight to the people we work with performing these functions.”

He declined to give the exact percentage his agency levies for recruitment. Roberts confirmed that in the instances where Momentum finds contractors and connects them with clients, it charges those clients a fee that is a percentage levied on the contractor’s hourly wage.

In contrast, a “not insignificant proportion” of contractors are actually found by the client, in which case Momentum acts as a “pay agent” and provides a consolidated payroll service, whereby the client gets the simplicity of consolidated invoicing for the work of many individual contractors, and Momentum handles the remittances to the contractors, as well as “quality control” such as reference and police checks.

In these instances, Momentum charges a fixed dollar-per-hour charge, which works out to a much lower total than a percentage take. The company also acts as a recruiter, filling permanent positions.

Roberts declined to comment specifically on what he expects after the election, but he said, “There will still be a lot of change that needs to happen in Government, and it will take people to make that change.” That’s where he comes in.

5) PwC: $21.8m

Jeroen Bouman is a managing partner for the consulting practice and a Wellington market managing partner for PwC NZ. He is travelling and declined to speak to the Herald.

Of the agencies the Herald considered, PwC did its single largest chunk of public sector work for the Ministry of Health, worth $9m. In the second half of 2020 and in 2021, the ministry leaned heavily on embedded PwC consultants, who filled many new roles thrown up by the pandemic, including work in a variety of areas related to vaccination.

More recently, PwC was called in by the Department of Conservation to help find cost savings in the face of its contracting overall budget: it’s important to have something to sell in all phases of the cycle.

PwC – like its peers Deloitte, EY (Ernst & Young) and KPMG – is a huge, global accounting firm, which in addition has extensive consulting services in areas including: finance; project and operations management; economic analysis; marketing; risk management; policy and procurement; and IT. The firms’ top daily rates run upwards of $3500.

6) Beyond Recruitment: $21m

Beyond is owned and controlled by its eight directors, including chief executive Liza Viz and executive general manager Ben Pearson.

The staffing agency provided $7m worth of contract staff to the Ministry of Education, its single largest piece of work across the agencies the Herald’s tally considered. The ministry’s Annual Review described the work covered by Beyond’s contractors as: resource to support project delivery; resource to provide temporary back-fill vacancy; specialist skills services; and resource to provide professional services.

The ministry’s Zoe Griffiths said that among the drivers for the spending was special-project work which “required short-term specialist expertise for the duration of the work so that Government priorities could be progressed quickly while maintaining critical front-line services”.

7) Accenture, $20.8m

Lori Hand is managing director for Accenture’s Government client accounts in New Zealand. In a statement, she told the Herald the company had been fortunate “to partner with the New Zealand public service on numerous occasions over the past 30 years”. The firm’s work had helped “modernise national technology systems and create more accessible and efficient citizen services for New Zealanders”.

In 2021-22, Accenture continued the extensive work it has undertaken over much of the past decade for the Inland Revenue Department (IRD) on its IT overhaul and business transformation programme. The IRD paid Accenture $3.7m in the year for system design, implementation and support. Work for the Ministry of Social Development reached $9m, much of it related to the ministry’s plan for transforming service delivery called Te Pae Tawhiti. In addition, the company’s IT-related work for Oranga Tamariki brought in $5.6m in the year.

Accenture bought Kiwi SAP consultancy Zag in 2020, which helped the New Zealand division pull in record revenue of some $200m in the 2022 financial year.

Globally, Accenture has grown rapidly since the ignominious days of Enron and Arthur Andersen; in 2001, Andersen Consulting cut ties with the wider firm’s disgraced accounting arm and reinvented itself as Accenture.

This historic split has been given fresh relevance in Australia recently, where the leaking of confidential Government information related to corporate tax by both PwC and EY partners remains a major scandal.

8) EY (Ernst & Young): $20.3m

Stephen McKernan is EY’s New Zealand public sector lead and a health system specialist. He was Director-General of Health and the Ministry of Health’s chief executive from 2006 to 2010, working closely with Helen Clark’s Labour-led Government of the time.

The Health and Disability Review Transition Unit was established in the dying days of the Labour-New Zealand First Government in September 2020, and McKernan and EY were hired to lead it. The work led to the establishment of Te Whatu Ora (Health NZ, which replaced 20 local DHBs) and Te Aka Whai Ora – the Māori Health Authority. The transition unit work was funded by the Department of Prime Minister and Cabinet (not part of the Herald’s tally) and across 2020-21 and 2021-22. EY’s work for it totalled $11.5m.

In the same year, the Ministry of Health paid EY $5.6m for “consultancy services”. A spokesperson said the ministry could not say, outside the OIA process, whether these services related to the health transition unit work.

EY also provided the Ministry of Business, Innovation and Employment (MBIE) the better part of a million dollars worth of “support and advice” on the New Zealand Battery Project, aimed at bolstering electricity supply in dry years. This work may itself dry up if there is a change of Government, as National and Act have promised to scrap its centrepiece, the multi-billion-dollar pumped hydro scheme for Lake Onslow, now in the detailed planning stage.

MBIE chief people officer Jennifer Nathan said spending on contractors and consultants dropped in 2022-23 due to decreased Covid-19 expenditure, especially on managed isolation and quarantine.

9) Deloitte: $17.33m

Deloitte’s work for the sector included $2.5m of consulting for the Ministry for Primary Industries, and included change management, general corporate support, an early business case for farm review emission pricing, and the review of various spending and grant management, IT general controls review, ETS compliance review and a sensitive expenditure review (typically officials’ credit card spending).

It also entailed work on the plan to get cameras on fishing boats, a programme memorable because it was funded with “reallocated” money from the Covid Response and Recovery Fund.

Deloitte also did considerable work for Oranga Tamariki (the Ministry for Children). The company provided some $4.3m of work to the agency, consulting on and implementing fiscal management information systems; the agency had been roundly criticised for very poor fiscal controls.

As a small aside, it’s quite gutsy, given the current disgruntlement among campaigning politicians, that Wellington-based consulting partner James Clarke (who works on all things public sector) has hung on to his X (formerly Twitter) handle: @ministryofjames.

10) KPMG: $10.7m

KPMG was among the dozens of consultancies to work on the Department of Internal Affairs’ Three Waters reforms, later renamed, seemingly without irony, as Affordable Water Reform.

KPMG provided financial due diligence advice in the year for $350,000, but it was the outlay of millions of dollars on policy work and management, and the secondment to the department of MartinJenkins’ consultants, that raised many eyebrows – such work is considered something that bureaucrats should be equipped to do in the ordinary course of their work.

Most recently, the water reform costs have blown out by $1b. And the Opposition parties are promising to scrap the plan and replace it with their own reforms if given the chance.

Other work for DIA included independent audit work, specialist advisery services for the anti-money-laundering budget review, and climate change work related to the Future of Local Government review. KPMG also provided the Ministry of Health with $4.5m in “specialist expertise”.

Jack Carroll is Wellington-based and oversees considerable public sector work as national managing partner, advisery.

*The public sector agencies for which the Herald tallied spending are: the Ministry of Education ($237m); the Ministry of Health (154m); the Ministry of Social Development ($116m); the Department of Internal Affairs ($112m); the Ministry of Business, Innovation and Employment ($109m); the Inland Revenue Department ($96.6m); the Ministry for Primary Industries ($43.7m); the Department of Corrections ($41.8m); Oranga Tamariki – Ministry for Children ($37.1m); and the Ministry for the Environment ($28.6m).

The tally does not include spending on engineering and infrastructure design and architecture firms, which is usually tied to infrastructure projects.

All the agencies and consultancies on the list provide services under MBIE’s all-of-government panels of suppliers to the sector. This streamlines procurement and broadly means that each firm contracts across the sector on the same terms, conditions and fee structure.

Outsourced services – where a whole business function or parts of it are contracted out – are not included in the PSC’s definition of consultant and contractor spending.

Kate MacNamara is a South Island-based journalist with a focus on policy, public spending and investigations. She spent a decade at the Canadian Broadcasting Corporation before moving to New Zealand. She joined the Herald in 2020.