Private contractors and consultants are doing well out of government spending propelled by the pandemic and big IT projects.

No captionPhoto: 123rf 

Thousands of them were collectively paid more than a billion last year by 17 of the largest departments or agencies.

The Covid-19 response has forced spending up, and there’s more to come, say several agencies in their annual reviews.

Caught in the crosshairs, the Social Development Ministry expects its spending on contractors to rocket up 50 percent this year, to $93 million, as it starts up IT projects delayed by the pandemic.

Public Services Minister Chris Hipkins is forecasting greater demand for contractors for the next 12 months, due to the pandemic and one-off capital projects like building classrooms, but says overall the trend is down.

Yet, even as Inland Revenue has managed to drop its outlay on contractors by $20m as it winds down its billion IT upgrade, the Transport Agency and Internal Affairs are winding theirs up, pushing their bills upwards.

On top of that, comes high and rising spending by three of the biggest agencies which are not bound by the government’s three-year-old directive to the core public sector to rein things in:

  • Police, where contractor spending rose 38 percent to $61m
  • The Defence Force, up 15 percent to $60m
  • The Transport Agency, up 24 percent, cracking $100m for the first time

Each of the agencies spoke of having more on their plate, including Covid-19 work for police, and Auckland light rail for NZTA, as well as rectifying the longstanding problem of “some aged” IT systems.

The Waka Kotahi review shows its communications team now numbers 72, up four, with a salary bill leaping from $2.2m to $4.6m.

Meanwhile, the 34 organisations that make up the core public sector are on a rollercoaster ride, with some departments cutting spending but several going the opposite direction and one, the Transport Ministry, almost doubling spending (up 93 percent to $16m), due it says to a wide range of projects its undertaking.

The government vowed in 2018 to “reduce reliance on consultants”, cut the spending and invest any savings in permanent staff.

But that only applies to the core public sector where, slowly, operational spending has been reined in, though capital spending on contractors is proving harder to tame.

The overall contractor and consultant spend was six percent up in 2020, though this must be weighed against the fact that both the public sector overall budget and headcount, and the country’s population, are expanding.

Both in the core, and at the agencies outside the sway of the Public Service Commission, warnings about Covid-19’s impacts are beginning to crystallise, according to several of the annual reviews presented to Parliament.

Police say the pandemic is one reason their spend on contractors rose 38 percent to $61m in 2020, the other being the firearms buy-back.

So too the Health Ministry, which said its 68 percent jump to $42m “reflects the fact that the ministry was required to quickly mobilise resources” due to Covid-19.

Social Development Ministry, Ministry of Education, and NZTA say something similar – though for Education, it was hiring architects and project managers to build new schools that was the biggest driver.

Several agencies said pandemic uncertainty meant they had to build in more of a buffer of backfill staff under contract.

Ministry of Business, Innovation and Employment is meanwhile facing a deficit of $228m this year.

Covid-19 has cut back MBIE’s revenue streams, such as by 10 percent from immigration levies, even as business-as-usual costs rise and contractor costs remain stubbornly high, up 11 percent to $109m.

The annual reviews show the biggest risers in contractor and consultant spending were the Ministry of Transport (up 93 percent), Health (68 percent), Police (39), MSD (35) and Internal Affairs (32).

The biggest falls were at IRD (down 11 percent), Oranga Tamariki (15), MFAT (19) and Corrections (down 23 percent).

Oranga Tamariki’s review shows its communications team exploded, from 16 staff to 35, with the salary bill doubling to $3.6m.

However, Oranga Tamariki told RNZ this was due to roles being shifted into communications, not new hires.

The other big factor is IT spending.

The number one contractor spender for years, Inland Revenue, is scaling back, but others are scaling up.

IRD has cut its contractor spend by 11 percent, a turnaround from last year’s peak of $206m.

Internal Affairs is going the other way, leading a $90m overhaul on all-of-government digital services so people can do more business online using RealMe.

Even though it said it was “committed to reducing its reliance on contractors and consultants”, its spend rose 30 percent to $76m.

Minister Hipkins made the vow in 2018 to cut reliance on contractors.

Many agencies had managed this and operational spending was dropping as a percentage of total core costs, he said in a statement to RNZ.

Contractor millions

  • IRD $184m down 11 percent
  • Education $167m up 7 percent
  • MBIE $109m up 11 percent
  • NZTA $108m up 24 percent
  • DIA $76m up 32 percent
  • Police $61m up 38 percent
  • MSD $61m up 35 percent
  • NZDF $60m up 15 percent
  • MPI $53m down 4 percent
  • EQC $50m up 4 percent
  • Corrections $46m down 23 percent
  • Health $42m up 68 percent
  • Justice $28m down 14 percent
  • Oranga Tamariki $22m down 15 percent
  • Customs $20m up 15 percent
  • MFAT $19m down 19 percent
  • MOT $16m up 93 percent
  • Conservation $12m down 14 percent

Spending comparisons focus on operational spending because large one-off capital investments are more volatile and use “a different mix of public servants and contractors/ consultants”, according to the Public Service Commission.

Capital spending of this nature was up 13 percent to $346m in 2020, though the previous year’s spend had been slightly less than 2018’s figure of $312m. Operational spending on contractors and consultants is typically twice that amount.