Pyne to help E&Y catch up in the race for military cash

Here’s the reason why Christopher Pyne is joining consulting firm Ernst & Young to provide “strategic advice to EY, as the firm looks to expand its footprint in the defence industry.” E&Y is badly trailing the other big four consulting firms in getting contracts with the Department of Defence — the biggest area of growth in contract revenue in the Australian Public Service.

In the current, nearly completed financial year, E&Y has only obtained around $31 million in contracts from Defence, according to the Austender website. PWC has secured over $45 million in contracts. Deloitte has $76.6 million, while KPMG has over $159 million. As Michael West, the best scrutineer of the activities of the big Four in Australia, has said, KPMG is the big four darling of defence.

As recently as 2014, E&Y was the second most successful big four tenderer for government contracts across the public service. But with the huge expansion in public service contracting under the Coalition, it has slipped behind its rivals. Its underperformance in defence has been particularly critical as the money available to consultants in that portfolio has surged. What better way to address that than to secure the services of the recently departed defence minister, even if he is constrained from lobbying his former colleagues by the limp restrictions of the ministerial code of conduct?

If you’re wondering what kind of services the big four provide to defence, it’s everything short of guns and tanks. Apart from a myriad of generic “defence support services” and “professional services” contracts, E&Y was given a $17 million contract for “organisational change management partner services”. PWC is getting $14 million to oversee Defence’s major intelligence and surveillance data integration project — not actually provide the services itself — that’s Leidos — but just run the office that manages it. PWC is getting a couple of million for “business intelligence consulting”. The contracts are plentiful and in defence, come with an extra zero on the end compared to normal public service contracts.

The emergence of the big four as major service providers to the Commonwealth — along with other, smaller consulting firms like BCG and McKinsey — has coincided with their emergence as the dominant political donors in Australia. E&Y donated nearly $230,000 to the major parties in 2017-18, the most recent year for which data is available, including over $17,000 to Christopher Pyne’s home division, the South Australian Liberal Party.

Whether Pyne, as minister for defence, or minister for defence industry before that, ever met with E&Y is unknown due to the lack of publicly available ministerial meeting diaries of the kind available in some states. The expectation that Labor would win the election might have limited his appeal to firms prior to May 18, but Pyne’s longevity in politics and relationships across the political divide might have made him appealing no matter what the outcome, especially in a relatively bipartisan area like defence.

Defence in Australia — as in the US, where the problem is even more egregious — is particularly prone to the revolving door phenomenon of former politicians and officials leaving a public sector job one day and putting their feet under the desk in a private sector job the next. Beyond that, many big four staff work in a twilight world where they are private sector employees who spend long periods working with public servants and, in Defence, uniformed staff.

The almost seamless links between the public and private sectors here isn’t merely a kind of flaw in governance around public sector officials, elected and otherwise — it’s a design feature of contemporary capitalism. In an influential 2017 paper, economist Luigi Zingales explained how large corporations had developed, and continued to expand, a power to achieve favourable outcomes from government by offering jobs in the future: “a company’s ability to obtain what it wants from the political system is highly dependent upon: 1) its ability to make credible long-term promises (for example, future employment opportunities for politicians and regulators)…”

Ministers and senior bureaucrats serve in their portfolios conscious that a lucrative post-political career awaits them in the sectors they are overseeing.

The big four firms have an advantage even over most other large corporations such as the major defence contractors they rub shoulders with in Defence: they are now, across the Commonwealth, deeply embedded in the public sector: they not merely have a rich understanding of how government works, in many cases they are how government works. In an important sense, employing a former minister is simply an organic extension of our economic-governmental system c.2019.