Use of Consultants.

Comptroller and Auditor General Use of Consultants

13 October 2016

R.107/2016

Use of Consultants

Introduction

1. Consultancy is big business and one of the fastest growing sectors within the service economy. In the UK estimates suggest it is worth around £9bn, employs more than 80,000 people and is growing faster than the UK economy as a whole[1]. It is lucrative for its practitioners but, unlike other professional services provided by accountants and lawyers for example, it is not bound by professional regulation.
2. Between 2011 and 2015 the States of Jersey (the States) recorded expenditure on consultants averaging £3.9m per annum, representing approximately 0.5% of Consolidated Fund expenditure (see Exhibit 1).

Exhibit 1: Expenditure on consultancy 2011 to 2015

£6,000,000 £5,000,000 £4,000,000 £3,000,000 £2,000,000 £1,000,000 £0

2011 2012 2013 2014 2015

Capital Revenue

Source: States of Jersey accounting system

Note (1): Excludes expenditure on the Jersey Independent Care Inquiry

Note (2): Capital expenditure in 2014 and 2015 includes expenditure on consultancy services connected with the Future Hospital project

3. Four departments account for over 80% of the expenditure incurred over a five-year period (see Exhibit 2).

Exhibit 2: Expenditure on consultancy by Department 2011 to 2015

Other Departments, £4,100,000

Environment,  

£1,500,000  Infrastructure,

£10,500,000

Chief Minister's,  £1,600,000  

Health & Social Services, £2,000,000

Source: States of Jersey accounting system

Note (1): Excludes expenditure on the Jersey Independent Care Inquiry

Note (2): Infrastructure Department was Transport and Technical Services Department prior to 2016

4. When used effectively consultants can help organisations grow, improve efficiency and effectiveness and achieve their strategic objectives. Consultants are valuable because they can provide specialist and scarce resources together with objectiveness and rigour[2]. Consultants, used well, can support the States' ambitious plans for change.
5. However, buying consultancy services is not straightforward. Organisations need to think carefully about what type of consultants they wish to use and why. Success relies on a good relationship between the client and the consultant, ensuring there are clearly defined roles and effective management from inception through to final delivery of a project, implementing agreed recommendations and measuring the results. The ultimate test is whether the value derived from the consultant is higher than the fees paid.

Objectives and scope of the review

6. The review evaluated the effectiveness of the States' overall arrangements for use of consultants. It did so by drawing on best practice comparing both the theory' – the written policies and procedures – and actual practice' for a sample of consultancy projects against that best practice (see Exhibit 3).
7. The review focussed on consultant expenditure where there was a defined end-point to the work and the responsibility for the final outcome of the work rested with the States. It did not extend to:

• outsourcing; and
• staff substitution; or
• in relation to Information Technology (IT) consultants, the implementation of arrangements in practice or the evaluation of whether value for money has been secured.

Exhibit 3: Objectives and scope of the review

Overall

arrange- Beforeprojec at  Duringprojec ta  projAfteer cat

ments

Arrangements in theory Arrangements in practice

Source: Jersey Audit Office

Approach

8. I evaluated the arrangements put in place by the States against best practice identified by the UK National Audit Office[3] and other experts in the field[4].

9. Best practice involves:

• giving careful consideration to why the consultant is needed and choosing the right consultant to meet those needs;
• skilful management of the project and the supplier through to delivery; and
• effective evaluation of the consultant's findings, implementation of agreed recommendations and sharing of experiences.

10. Following this best practice for these critical steps ensures that the States only uses consultants when they are needed, gets good value for money when they are used and that the desired outcomes are achieved (Exhibit 4).

Exhibit 4: Best practice framework for engaging with consultants

OVERALL ARRANGEMENTS

1: Assessing need

8:

Improvement  2: Planning  BEFORE A AFTER A  PROJECT PROJECT

3:

7: Evaluation  Procurement

6: Skills

transfer  4: Managing

5: Reporting

DURING A PROJECT

Source: Jersey Audit Office

Overall arrangements

2.1  Effective overall arrangements should include:

1. active use of a comprehensive skills inventory, to ensure that consultants are only engaged when in-house skills are not available; and
2. a clear framework of rules' applicable to the use of consultants;
3. clarity as to the expenditure falling within the scope of those rules; and
4. consistent recording of expenditure to facilitate monitoring.

3. A high performing organisation maintains a skills database' which:
   1. records at a high level the skills and competencies available within the current workforce;
   2. identifies and categorises skills required for the future as the organisation changes;
   3. is used to identify endemic skills gaps within the organisation; and
   4. is used to drive training and recruitment, inform the engagement of consultants and prioritise the transfer of skills from consultants to the current workforce.

3. The availability and use of such a database is even more important for organisations facing significant change and requiring new and different skills within their workforce.
4. But no corporate skills database is in place within the States. In consequence there is an increased risk that:

• consultants are being used at additional cost where the requisite skills, such as project management skills necessary to manage many smaller projects, exist within the States, including in a different department; and
• the States fails to develop and maintain core skills and expertise required going forward, such as skills in client management of outsourced services.

5. This finding echoes my previous concerns about the lack of developed corporate planning for skills which I highlighted in myReview of Financial Management – Part 2 and, in the context of the skills needed to drive change, in my review ofeGovernment.
6. The States defines consultancy as:

'any individual or organisation engaged on behalf of the States of Jersey to provide independent intellectual input into decision making[5]'

7. This definition is supplemented with further clarification and guidance within the relevant Financial Direction, on the States intranet and through separate departmental guidance (Exhibit 5).

Exhibit 5: Directions and guidance for recruiting consultants

Financial  Financial Direction 5.6U Management of Consultants contains Directions  definition, permitted use, planning, engagement, supplier

selection, contract management, project closure and post contract review.

It refers to Financial Directions 5.1 Purchase of Goods and Services and 5.2 Travel and Accommodation and to the We All Count' website.

Corporate  MyStates intranet pages How to buy goods and services' contain guidance  general information on how to buy services.

We All Count' intranet pages contain copies of Financial Directions and separate guidance on accounting for consultants.

Corporate Procurement staff offer advice.

Departmental  Many departments supplement Financial Directions and corporate guidance  guidance, providing interpretation and examples for departmental

staff.

Departmental finance and procurement staff offer advice.

Source: States of Jersey

8. Although the definition and guidance on use of consultants is broadly consistent, the information is not easy to access and the guidance available expands what constitutes consultancy services. For example, in explanations the terms professional' or expert advice or services' are used, which remain open to further interpretation.
9. Consequently, there is ambiguity in the definition of consultancy services and a risk of:

• confusion as to whether expenditure falls within the scope of the Financial Direction; and
• staff substitution being recorded as consultancy expenditure. This has the potential to negate the effectiveness of the corporate staff reduction measures which are a key component of the States' Medium Term Financial Plan.

10. My review identified a number of cases where expenditure has been coded as consultancy' but appears to fall outside the definition within the Financial Direction (see Exhibit 6).

Exhibit 6: Examples of expenditure coded as consultancy services 2011-2015 Legal fees relating to the Independent Jersey Care Inquiry

Six month contract for IT development, migration and team leading services

Project management services

Provision of services for research, feasibility studies, contract and project management relating to waste and transport, delivered for a period in excess of five years

Provision of services for explosives ordnance disposal, delivered for a period in excess of five years (subsequently re-categorised as Hire of Services)

Secondment fees for covering the role of a Finance Director

11. There is also the risk that expenditure has been treated as hired services' or professional fees' when it meets the definition of consultancy and should have been coded as such. Over a five-year period, expenditure on consultants has reduced whereas expenditure on both hired services and professional fees has increased (see Exhibit 7).

Exhibit 7: Expenditure on consultancy, professional fees and hire of services 2011-15

£20,000,000 £18,000,000 £16,000,000 £14,000,000 £12,000,000 £10,000,000 £8,000,000 £6,000,000 £4,000,000 £2,000,000 £0

2011 2012 2013 2014 2015

Consultancy fees Hired services Professional fees

Source: States of Jersey accounting system

Note: Excludes expenditure on the Jersey Independent Care Inquiry

12. If the nature of expenditure is not accurately identified, good management information is not available. That in turn inhibits the States' ability to demonstrate that it secures value from the use of consultants and to make savings, invest and reform.
13. Each department monitors expenditure on consultants as part of operational budget monitoring and, for larger projects, through departmental project management arrangements. However, the level of financial information available on consultancy is basic (Exhibit 8).

Exhibit 8: Monitoring consultancy expenditure – weaknesses

Expenditure by consultancy type not  Information to inform development of captured.  knowledge and skills across the States

not captured.

Information to inform development of States-wide framework arrangements not captured.

No structured corporate monitoring of  Inability to demonstrate States-wide consultancy expenditure.  value for money secured from

consultancy expenditure.

Recommendations

R1  Implement a corporate framework for recording current skills within the States'

workforce and those skills identified as needed as the organisation changes.

R2  Use the corporate skills framework to drive training, recruitment and skills

transfer.

R3  Check the availability of skills within the States' workforce before engaging

consultants.

R4  Adopt, communicate, implement and monitor compliance with a consistent

corporate framework for the use of consultants, including a less ambiguous definition.

R5  Enhance information for departmental monitoring, and introduce corporate

monitoring, of the use of consultants.

Before the project

1. Effective planning and procurement are important to ensure the right resource is identified and the project is carried out efficiently and effectively. The first step is to ensure that a consultant is really needed or whether there is a more effective way of fulfilling the requirement. Senior management should be involved from the beginning to ensure ownership and buy in from the outset. The choice of consultant partner is essential for the same reason, partnering with the wrong organisation can be time consuming, costly and result in project failure.
2. My evaluation of the design and operation of the States' arrangements has identified weaknesses (see Exhibit 9) but also an example of well-developed needs assessment and project planning (see Case Study 1).

Exhibit 9: Before the project: evaluation of arrangements

Assessment of in- house capacity and ongoing requirements.

Links to organisational resource planning.

Assessing if benefits justify the cost.

Financial Directions  In only 17% of state that  cases tested some consultants may  form of needs

only be engaged  assessment was when professional,  documented independent,  considering

expert or specialist  whether in-house knowledge is  staff had the skills needed and are not  or capacity to do available in-house.  the job. None

considered if

Howno exepvliecit r, there is  expertise was requirement to:  required on an

ongoing basis.

• document a  One made some needs  reference to assessment;  organisational
• link the  resource planning assessment to  and one organisational  considered benefit resource  justifying cost.

planning;

Risk of incurring unnecessary cost.

Ineffective resource planning.

• assess if benefits justify the costs; and
• consider the

option of employing staff if there is an ongoing need.

Stage 2: Planning

Business case prepared.

Reasons for a consultant identified.

Expectations of consultant identified.

Senior management involved from the outset.

Documented  In 56% of cases a  Potential failure to arrangements meet  business case or  demonstrate need best practice.  brief was prepared. for or expectations

72% of cases  of consultant prior Finaand npcialrocuDirerectmeniont  s  outlined the  to procurement.

guidance require:  reasons for

• An engagement  requiring a

consultant.

brief for

contracts >  58% cases clearly

£25,000.  specified their

• A procurement  expectations of

consultants.

strategy for

contracts  58% of cases

>£100,000.  demonstrated that

senior

These documents  management had

are required to  been involved in

contain justification  the appointment

for the engagement  when they should

and include details  have been.

of required

outcomes.

Engagements >£50,000 require Accounting Officer approval.

Stage 3: Procurement

Guiding policy.  An overarching  92% of contracts  Risk of non- Involvement of  procurement  included clear  implementation of procurement  strategy has been  expectations of the  underlying policy professionals.  developed.  consultant.  as a result of delay

Financial Directions  29% of contracts  in updating Corpprocuoreratement  sepet rmouittt ethdeuse of  incorporated  and supporting

Financial Directions aforrllaonwgeedm. ents  consultants,  inceoutlinentivde ins, te4n0d% ed  guidance.

tendering  benefits and 52%  Risk of

Contracts include clear expectations of the consultant.

Contracts include incentives.

Consultants paid on outcomes.

Intended benefits outlined.

Use of range of purchasing mechanisms to secure best value e.g. framework contracts, rate cards (lists of price ranges for professional services).

Charges transparent.

Senior manager involvement.

requirements and  were fixed price the involvement of  contracts. procurement  In 36% of cases professionals for  the consultant was projects  paid on outcomes >£250,000.  and in 76% of

However, relevant  cases charges Financial Directions  were transparent. need to be  In 100% of cases redrafted to reflect  there was

the new policy.  appropriate

There is  Accounting Officer departmental  or Ministerial sign guidance to  off of the project. support the

Financial

Directions.

Framework contracts are used for large suppliers.

Rate cards are not used.

Financial Directions relating to procurement need to be reviewed in context of new procurement policy.

inconsistency in practice as a result of departmental as opposed to corporate guidance.

Risk of failure to secure value for money through limited use of framework contracts and absence of rate cards.

3. My 2014 review of procurement made a number of recommendations that are applicable to the weaknesses identified in Exhibit 9 above. Since then a number of recommendations have been implemented, strengthening the procurement process. However, there is more to do.

Recommendations

R6  Require a documented, structured needs assessment, proportionate to the

expenditure involved, prior to the use of consultants:

• linked to organisational resource planning;
• assessing whether benefits justify the costs; and
• considering the option of employing staff if there is an ongoing need.

R7  Ensure, including through effective monitoring, that corporate requirements for

business cases are prepared prior to the use of consultants.

R8  Align relevant Financial Directions to the new procurement strategy.

R9 Liaise with departments to identify areas where corporate guidance on

matters that are relevant across the States should be prepared and prepare such guidance.

R10 Develop procurement arrangements for consultants through the increased

use of framework contracts and the adoption of rate cards.

During a project

1. The core purpose of good management during the course of a project is to ensure the desired outcomes are achieved. For projects to be successful the client and the consultant need to be able to work in partnership, sharing expertise, information and resources. Skilful management of the project and the supplier not only increases the likelihood of achieving desired outcomes and obtaining value for money, but also helps to overcome problems, for example when policy priorities change or unexpected circumstances arise.
2. Both parties need to be clear about the management framework, responsibilities and accountabilities, how risks are to be managed and the arrangements for dealing with operational issues as they arise. Arrangements will vary according to the size and nature of the project, but,for larger projects, best practice involves a project committee, including a senior person tasked with providing information and resolving operational difficulties, that meets regularly to review progress and highlight problem areas.
3. I have identified weaknesses in the arrangements in place in this area (see Exhibit 10). Case Study 2 highlights a consultancy assignment focussed on skills transfer which has been successful in many ways but where there is still room for improvement.

Exhibit 10: During a project: evaluation of arrangements

Project controls in  There is  In 68% of cases  Non-compliance place.  appropriate  controls were in  with corporate

guidance on  place to manage  arrangements in Expenditure is  managing  spending on  practice increases

categorised.  individual  consultants but in  risk of not securing There is a  consultant projects.  26% of cases  value for money

maximum contract  However, the  expenditure was  from consultants. period.  ability to manage  posted to the

and obtain value  wrong category.

Conextetractnsions are  limited through the  4a0 max% dimemuomn strtermated

for money overall is

controlled.  lack of  for the contract had

management  been applied.

Project  information

management  outlined in the  17% demonstrated

arrangements are  sections above.  extensions

in place.  Financial  appropriate.

authorised were

Outputs are  Directions cover

monitored.  contract  60% specified

management,  project

There is guidance  expenditure  management

for managers.

There are regular progress reports from the consultant.

analysis, budgetary  arrangements. control  64% required arrangements,  regular updates extension of

contracts,  fcoronmsu thltea nt. performance

monitoring

including key

milestones.

Standard contracts for services include maximum contract periods.

There is a standard approvals process for contract extensions.

Guidance on the intranet includes recently introduced corporate guidance on performance indicators.

Regular progress reports from consultants are required.

Stage 5: Reporting

Findings and  There are no  72% required  Information, conclusions are  specific  consultants to  intelligence and summarised and  requirements for  report their findings  recommendations reported.  consultants to  in a report or  are not captured or

report.  presentation.  actioned.

Client and consultant efforts may not be captured.

Stage 6: Skills transfer

Consultants are not  There is no  4% used  Unnecessary used for commonly  corporate  consultants for  expense. required skills.  requirement for  commonly required  Becoming over

Plans include transfer of skills.

Outcomes on skills transfer measured.

consideration and measurement of skills transfer.

skills.  reliant on

In 19% of cases  consultants. procurement plans  Skills and capacity

included mention of  of workforce not the transfer of skills  increased.

to internal staff.  Outcomes of

In 10% expected  expected skills outcomes on skills  transfer not known. transfer were

assessed and

measured.

Recommendations

R11  Ensure, including through effective monitoring, compliance with existing

requirements for managing consultant contracts.

R12  Require all consultants to provide a formal output.

R13  Develop and implement a framework for ensuring that skills transfer is

considered as an integral part of consultancy contracts.

After a project

1. Conducting an evaluation is considered good practice in managing a project. End of project evaluation enables a judgement to be made about the success of the project, an assessment of the return on investment and demonstrates accountability to management. Learning is identified and shared, helping departments, and government as a whole, operate more effectively and efficiently.
2. I have identified weaknesses in the arrangements the States have in place both to evaluate consultancy projects and to implement the recommendations made (see Exhibit 11). That is not to say that there were not examples of good practice: I identified a highly developed evaluation of a project at its completion (see Case Study 3). But the absence of effective arrangements for implementing recommendations means that there are instances where the States cannot demonstrate that value for money has been secured from consultancy projects (see Case Study 4).

Exhibit 11 After the project: evaluation of the States' arrangements

Post completion performance assessment including value assessment, benefit delivery, knowledge transfer, lessons learnt, outcomes and processes.

Financial  In 13% of cases a  Performance of Directions require  post  consultant not the establishment  implementation  assessed.

of processes to  review was carried  Learning not ensure consultancy  out. Only one of  identified and engagements end  those cases  shared.

in a controlled  included a full

manner.  assessment  Improvements not Contracts  including  made.

>£25,000, require  performance of the  Return on

a consultancy  consultant,  investment not performance  benefits and value  assessed. review to compare  of the project,

output and  outcomes and

outcomes to the  processes and

terms of reference.  lessons learnt (see

Case Study 3

There is no  below).

requirement or

guidance on value

assessments,

knowledge

transfer, lessons

learnt and sharing

experiences with

other departments.

Arrangements to ensure recommendations and outcomes applied.

Difficulties in application identified.

Results measured.

Performance information shared with other departments and corporately.

There are no  33% of cases tests  Efficiencies and formal  demonstrated  effectiveness may requirements to  arrangements to  not be achieved. monitor the  ensure  Poor value for implementation of  recommendations  money. recommendations.  and outcomes

Many consultant  were properly

reports are  applied.

published on the  28% identified

States website and  some difficulties in

are available to  implementing

other departments.  recommendations.

21% measured achievements.

45% shared information with other departments.

Recommendations

R14  Develop post consultant engagement evaluation processes, including:

• value assessment;
• benefit delivery;
• knowledge transfer;
• assessment of outcomes and processes;
• lessons learnt; and
• sharing lessons with other departments.

R15  Develop requirements and guidance for the consideration, implementation

and monitoring of agreed consultant recommendations.

Conclusion

1. Use of consultants is a key means of the States securing skills. However, the States does not have effective arrangements for identifying the skills it has and will need in the future. As a result, there is an increased risk that consultants are used when they are not needed or that insufficient consideration is given to the transfer of skills into the organisation and value for money is not secured.
2. The States recognise that buying consultancy services is different from buying other goods and services and separate procedures have been put in place to accommodate these differences. However, there are some key weaknesses within the arrangements, both in the arrangements as documented and as operated in practice. In particular:

• there is a lack of clarity on what constitutes consultancy;
• monitoring of expenditure on consultants is undeveloped;
• documentation of the need for the use of consultants is often not in place;
• there is insufficient focus on transfer of valuable skills from consultants to States employees;
• effective evaluation of consultancy projects at their completion is rare; and
• arrangements for acting on the results and conclusions from consultancy projects are inconsistent.

3. Although there are good examples of how consultants have been used, the inherent weaknesses in systems and processes mean that the States cannot demonstrate that it consistently secures value for money from the use of consultants.
4. My findings echo many of the issues highlighted in previous reports: weaknesses in controls, poor management information, lack of corporate learning and departmentalism. Addressing those issues, as well as the specific weaknesses in respect of the use of consultants, will enhance the ability of the States to secure – and demonstrate that it has secured – value for money from the use of consultants.

Appendix I: Summary of Recommendations

Overall arrangements

R1 Implement a corporate framework for recording current skills within the States'

workforce and those skills identified as needed as the organisation changes.

R2  Use the corporate skills framework to drive training, recruitment and skills

transfer.

R3 Check the availability of skills within the States' workforce before engaging

consultants.

R4 Adopt, communicate, implement and monitor compliance with a consistent

corporate framework for the use of consultants, including a less ambiguous definition.

R5 Enhance information for departmental monitoring, and introduce corporate

monitoring, of the use of consultants.

Before the project

R6 Require a documented, structured needs assessment, proportionate to the

expenditure involved, prior to the use of consultants:

• linked to organisational resource planning;
• assessing whether benefits justify the costs; and
• considering the option of employing staff if there is an ongoing need.

R7 Ensure, including through effective monitoring, that corporate requirements for

business cases are prepared prior to the use of consultants.

R8 Align relevant Financial Directions to the new procurement strategy.

R9 Liaise with departments to identify areas where corporate guidance on

matters that are relevant across the States should be prepared and prepare such guidance.

R10 Develop procurement arrangements for consultants through the increased

use of framework contracts and the adoption of rate cards.

During a project

R11 Ensure, including through effective monitoring, compliance with existing

requirements for managing consultant contracts.

R12 Require all consultants to provide a formal output.

R13 Develop and implement a framework for ensuring that skills transfer is

considered as an integral part of consultancy contracts.

After a project

R14 Develop post consultant engagement evaluation processes, including:

• value assessment;
• benefit delivery;
• knowledge transfer;
• assessment of outcomes and processes;
• lessons learnt; and
• sharing lessons with other departments.

R15 Develop requirements and guidance for the consideration, implementation

and monitoring of agreed consultant recommendations.

KAREN McCONNELL COMPTROLLER and AUDITOR GENERAL

JERSEY AUDIT OFFICE, LINCOLN CHAMBERS (1ST FLOOR), 31 BROAD STREET, ST HELIER, JE2 3RR T: 00 44 1534 716800   E: enquiries@jerseyauditoffice.je  W: www.jerseyauditoffice.je