Boston Consulting Group has been accused in a submission to a Senate inquiry of relying on “cosy relations” and “verbal agreements” with senior bureaucrats to secure a lucrative contract extension that was found to have breached procurement rules and could not be assessed as to whether it represented value for money.
Emails accepted as part of a submission to the inquiry into consulting services provided to the Australian government show BCG suggested senior bureaucrats could amend an initial $1.8m contract to provide the firm with an extra $880,000 for research related to people with a partial capacity to work.
“Here is a suggestion on how you could describe the scope of the proposed research work for inclusion in the work order,” a BCG consultant wrote to a senior public servant.
According to the email chain, the former Department of Social Services secretary, Kathryn Campbell (referred to only by her initials or job title), subsequently provided a verbal agreement for the extension to BCG before a payment rate was agreed upon by officials.
“The secretary verbally agreed with BCG today to continue their work for an additional eight weeks,” a public servant wrote in an “urgent” request for the work to be approved.
That request suggested the consultants be paid $880,000, matching the rate BCG had been paid for an earlier eight weeks of research.
Another senior public servant then asked: “Did the secretary agree to the price? If not I’ll go back to [redacted] and ask for a better rate.”
The first replied: “No. KC only agreed to the extra time … we have money if they are going to front load it.”
The department eventually settled on the $880,000 figure. Months later, it again varied the contract to give BCG an extra $561,000 for a separate review of the employment services assessment tool.
The emails show the department’s director of procurement later complaining to colleagues that there was “no evidence of the business area seeking quotes from other providers before undertaking variations to the BCG contract”.
When the procurement team complained about the lack of explanation as to why another $880,000 was being spent on external research, some in the department questioned why that was necessary.
“[I] just want to check why we need to justify the use of departmental funds, noting that the $880,000 cost was agreed by [then deputy secretary] Nathan Williamson and the Secretary agreed to the research work being undertaken,” said one DSS employee, whose name was redacted.
The bulk of the research by BCG, which Guardian Australia sought under FoI laws, remains secret, in part because the department has ruled disclosure may harm the firm’s business interests.
The email exchange was attached to a Senate submission from a former senior public servant, Mark Warburton, who is now an honorary senior fellow at the University of Melbourne.
Warburton told the inquiry the contract appeared to him to meet the committee’s remit to consider allegedly “unethical behaviour by consultants” and “the management of risks to public sector integrity”.
“Based on material now in the public domain, it appears that this commissioned work was the result of BCG partners having cosy relations with senior departmental officers and reaching oral agreement to undertake ill-defined work,” Warburton’s submission to the Senate inquiry alleged.
Warburton’s submission did not specifically accuse Campbell of unethical behaviour or other wrongdoing. The Guardian has attempted to contact Campbell for comment.
In an official response to Warburton’s submission, BCG told the Senate inquiry that it rejected the “allegations and insinuations made against” the firm.
“BCG did not solicit or initiate the additional research request. The Department’s request was made verbally via a telephone call, and BCG confirmed in writing via e‐ mail, its understanding of the Department’s additional requirements, for inclusion in the work order,” BCG told the senate.
“At all times, BCG followed the guidance and direction of the department in relation to the procurement process.”
A formal investigation by the current department secretary, Ray Griggs, completed in March 2022, found the procurement “did not have sufficient formal documentation to support decision making for a contract of this value”.
Commonwealth procurement rules state “officials must maintain for each procurement a level of documentation commensurate with the scale, scope and risk of the procurement”.
“This gap in formal documentation means that I was not able to assess the considerations that I am advised were made at the time with respect to value for money and encouraging competition,” Griggs wrote.
A department spokesperson did not address questions from Guardian Australia but referred to a letter sent by Griggs to the then shadow finance minister, Katy Gallagher, in February 2022, which also outlined that aspects of the process associated with the BCG contract were “not consistent with the department’s procurement policy”.
A formal review of the BCG contract led to a number of changes within the department, including all senior staff being retrained to ensure value for taxpayers and to ensure documents outlining why outsourcing was necessary were produced and maintained.
Earlier this year, BCG “respectfully declined” to appear before a Senate inquiry into the government’s use of consultants. The firm changed its mind in late June, appearing at a hearing on Tuesday.