Published on the 24/06/2024 | Written by Heather Wright

Public sector contractors in firing line on both sides of Tasman…

The squeeze is going on public sector contractors and consultants on both sides of the Tasman, with New Zealand data showing declining spend versus FTE spend, while in Australia ‘conversions’ are underway to transfer contractor work to FTEs.

New Zealand data shows that for the year to 31 March, contractor and consultant expenditure is at its lowest share of total workforce spend since records began in 2018. The figures show a drop from 13.1 percent in 2022/23 to 8.5 percent.

“I expect to see the impact of the Budget start to flow through in the coming months.”

The drop comes as overall workforce numbers for the sector also decline, dropping 0.6 percent – or 416 FTEs – in the quarter to 31 March.

In 2022-23 Kiwi public service organisations spent $1.3 billion on contractors and consultants, up two percent on the 2021-22 figures. Workforce spending for the nine months to March was $700 million according to the Public Service Commission.

It comes a month after the Australian Budget showed the impact of the Australian government’s focus on reducing reliance on contractors, consultants and external labour hire.

The figures there show ‘conversions’ of more than 2,500 roles, bringing them back in-house in the 2024-25 financial year. That’s on top of 3,314 conversions this year, and 3,000 Services Australia roles now being done by public servants rather than outsourced arrangements.

Last year the Australian Public Service Commission issued guidelines stopping agencies from using consultants for core government work. Around $4 billion in savings is expected to be garnered over four years from bringing the contract and consulting positions in house.

Use of consultants has come under increasing pressure in Australia with revelations about the behaviour of some contractors, including the PwC tax leaks scandal involving misuse of confidential government information, and a Senate inquiry into consultants.

Last year analysis from the Centre for Public Integrity revealed Australian government spend on the big four consultancy firms of PwC, Deloitte, KPMG and EY was up more than 1,270 percent over the decade, with more than $605 million spent in the previous financial year.

In New Zealand, Public Service minister Nicola Willis says the full impact of Budget 2024 decisions is yet to be realised, hence the small net increase of 3.4 percent in FTE – to 65,283 FTEs ­– since June 2023.

“The recent increase in the number of back-office public service roles was unaffordable and needed to be reined in,” she says.

“I expect to see the impact of the Budget start to flow through in the coming months and continue into the next financial year with further decreases.”

It’s not just the Budget flow-on impacting Kiwi public sector consulting deals, however, with the cancellation of the Three Waters reforms, which was expected to include $532 million in IT spend, including the cornerstone $107.5 million contract for Infor.

Also canned was the $220 million Te Pūkenga New Zealand Institute of Skills and Technology digital transformation, with the agency disestablished. Te Pūkenga figures show the agency spent $5.8 million on the big four consultants in 2021, dropping back to $2.1 million in 2022 and $1.1 million in 2023. A further $2.2 million was spent on other consultancies in 2023, however, with $3.5 million spent on other consultancies in 2022.

The Public Service Commission figures show spend on one-off IT projects was ‘roughly comparable’ to spend last year, with improvement projects and system upgrades for online access to government services, and migrating legacy systems to cloud requiring contractor expertise.

Also featuring among the contractor spend was the New Zealand Traveller Declaration programme, and backfill to address labour shortages and high turnover in some agencies.

Meanwhile data from New Zealand’s Ministry of Business, Innovation and Employment (MBIE) shows the IT sector has seen job ads drop 11 percent in the quarter to March and down 37 percent year on year. The sector recorded the biggest quarterly, and annual declines.

Overall, online job advertising was down 5.4 percent.

The decline for IT was felt across all regions.