Central government is spending less on consultants, but is not getting value for money because it cannot manage them effectively, according to a National Audit Office (NAO) report published today.

The report, which found that 17 central government departments spent over £1bn on consultants and interim managers in 2009-10, criticises poor procurement and management of these services and says departments have made “limited and inconsistent progress" against  previous NAO and Public Accounts Committee recommendations.

It also highlights a failure to address underlying causes of consultancy use, saying “departments have not done enough to identify and plug core skill gaps by using more cost effective alternatives to consultants and interims”.  In 2009, departments were still reliant on consultants for the same expertise as in 2005-06 and demand for the top two services – programme and project management and IT – had increased as proportion of all consultancy.

The amount departments spend on consultancy has fallen from £904m in 2006-07 to £789m in 2009-10, but the report says this fall may be due to increased accuracy in reporting, rather than improved management.

Amyas Morse, head of the National Audit Office, said: “Departments need better information and skills in order to achieve good value for money from their use of consultants.

“They need to do more to integrate their decisions to use consultants within their wider workforce planning; define the services required; know how the consultants’ work is contributing to departmental objectives; and evaluate performance during projects and assess what benefits, if any, have been delivered.”

Departments do not clearly define the service required from consultants, according to the report, with many paying a price based on time spent on a project, rather than one fixed in advance or related to the achievement of specific objectives. Departments do not assess the benefits of the work, and do not hold suppliers to account throughout the length of their contract, the report says.

It also draws a distinction between spend on consultants and the use of interims, as substitutes for full-time staff, a move welcomed by the Management Consultancy Association (MCA) which says confusion between the two has contributed to increased costs and reduced effectiveness.

Alan Leaman, CEO of the MCA, said: “Both buyers and consultancies must maintain a disciplined focus on delivering value. This will require a clearer distinction between consultancy and interim managers, who are often doing work that should be done by full-time employees. And it should mean a more rigorous approach to using consultancies by departments.

The report commends changes introduced in May 2010 when the Cabinet Office took over central responsibility for the procurement of consultants and interims, and began to collect monthly data on the use of consultants, but says these controls can only be a short term measure as it could hile the measures were having “could lead to the displacement of costs elsewhere”. Cabinet Office controls “cannot be an effective ongoing approach to managing spending”, it said.

It suggsts departments  should broaden controls over the use of professional services: “The principles of good management control apply equally to other professional services, such as administrative staff, clerical staff and specialist contractors, and to all public sector organisations."

It also recommends better co-operation between HR and procurement teams within departments to find cost-effective ways to fill skills gaps, and closer working  “between cross government procurement and human resource initiatives to align approaches designed to improve the use of consultants and interims.”

Written by CSW