Contractors and Consultants in the Victorian Public Service: Spending

Use of contractor and consultants vs. staff growth

Public spending has increased across the Victorian Public Service over the last 4 years.

In the period from 2018–19 to 2021–22, spending on public service staff increased by 29 per cent, while contractors and consultants use increased by 47 per cent. This may lead to fewer opportunities for the public service to develop and maintain in-house skills and knowledge. 

Figure 4 shows how growth in expenditure on staff has increased. Figure 5 shows the growth of the public service use of contractors and consultants.

Figure 4: Whole-of-government growth for spending on public service staff (between 2018–19 and 2021–22) 

Note: Figures and percentages are rounded. Current department names are used. Figures include all costs related to employment, including wages and salaries, fringe benefits tax, leave entitlements, termination payments and WorkCover premiums. *DE's figure is higher than other departments because it includes teaching and nursing staff. They account for approximately 95 per cent of the department's staff. **DH and DFFH are consolidated for 2021–22 for consistency. ***DJSIR (as DJPR) was only operational for 6 months in 2018–19. This figure reflects an estimate for 2018–19, which was achieved by doubling DJSIR's spending from its 6 months of operation.
Source: VAGO based on departments annual report data from 2018–19 to 2021–22.

While overall spending on contractors and consultants increased between 2018–19 and 2021–22, each department’s performance varied.

Five departments – DTP, DJSIR, DTF, DH/DFFH and DPC – increased their spending on contractors and consultants. Three – DEECA, DE and DJCS – reduced spending in these areas (see Figure 5).

Figure 5: Public service use of contractors and consultants between 2018–19 and 2021–22

Note: Figures and percentages are rounded. Includes all contractor spending, regardless of contract size. For consultant spending, only engagements valued over $10,000 are counted. Figures and percentages are rounded. *DH and DFFH are consolidated for 2021–22 for consistency. **DJSIR (as DJPR) was only operational for 6 months in 2018–19. This figure reflects an estimate for 2018–19, which was achieved by doubling DJSIR's spending from its 6 months of operation.
Source: VAGO based on departments annual report data from 2018–19 to 2021–22 and additional information we requested from departments.

Consultant spending 2022–23

Departments released their annual reports for 2022–23 in late October 2023. They showed that total spending on consultants for that year was $150.1 million, which is a decrease of 10 per cent from the previous year. We have included public service spending on consultants from 2017-18 to 2022-23 in our online dashboard, using data published in the departments' annual reports.

The spending reduction targets ended in 2021–22 so we have not included 2022-23 consultancy expenditure data in this report.

Departments are not required to include contractor spending in their annual reports. 

The 2018 spending reduction targets

In 2018, the government made an election commitment to reduce spending on contractors and consultants in 10 specific categories.

It identified 10 'enduring public service functions' that should be done by public service staff rather than external firms (see Figure 2). It then directed the public service to reduce spending on professional services by 50 per cent and spending on labour hire by 25 per cent by 2022.

To achieve this, in 2019 the Victorian Secretaries’ Board (VSB) set individual targets for each department to reduce their spending by using the departments’ 2018–19 spending data as a baseline.

Spending on professional services

By the end of the 4-year spending reduction period, the public service had increased spending by 40 per cent in the specified professional services categories. This was despite having a target to reduce this spend by 50 per cent by the end of 2021–22.

Figure 7 shows that only DPC achieved its targets. The overall public service continued to rely on contractors and consultants and was not able to meet the spending reduction targets.

Figure 7: Departments' performance against the 50% spending reduction targets for professional services

Note: Figures and percentages are rounded. *DH and DFFH are consolidated for 2021–22 for consistency. **DJSIR (as DJPR) was only operational for 6 months in 2018–19. This figure reflects an estimate for 2018–19, which was achieved by doubling DJSIR's spending from its 6 months of operation.
Source: VPSC activity reports data from 2018–19 to 2021–22 for labour hire and professional services. 

Spending on labour hire

In the case of labour hire, by the end of the 4-year target period, the departments had made an overall reduction of 17 per cent on the specified enduring services. However, the reduction was not enough to meet the committed target of 25 per cent over 4 years.

As shown in Figure 8, at the end of the 4-year period DE, DJCS, DPC, DTF and DTP had all achieved their individual spending reduction targets. But increased spending from DH/DFFH and DJSIR meant the public service did not meet the overall target.

Figure 8: Departments' performance against the 25% labour hire spending reduction targets

Note: Figures are rounded. *DH and DFFH are consolidated for 2021–22 for consistency. **This figure reflects the VPSC's estimate for 2018–19, which was achieved by doubling DJSIR's spending from its 6 months of operation.
Source: VPSC activity reports data from 2018–19 to 2021–22 for labour hire and professional services. 

Factors impacting spending

Departments did face challenges that affected their ability to meet their spending reduction targets.

VPSC activity reports for 2018–21 show that external factors were leading to increased spending on contractors and consultants at that time.

For example, departments needed additional help to respond to emergency events and meet existing public service priorities due to:

• the COVID-19 pandemic
• bushfire response and recovery.

Why departments need to monitor their spending

Departments need to regularly and proactively monitor their spending on contractors and consultants.

The public expects to be informed about how departments use public money and whether election commitments have been met – in this case, the commitment to reduce spending on professional services and labour hire.

To understand if they were on track to meeting their spending reduction targets, departments needed to monitor their use of the 10 specific professional services and labour hire roles. This should have been done at regular intervals – at least quarterly throughout the year so the departments could adjust their spending if necessary.

Aside from tracking progress against specific targets, monitoring allows departments to understand their spending more broadly, including being able to analyse trends and identify areas that could be better serviced internally.

Which departments monitor spending

Only DE, DJCS, DPC and DJSIR regularly monitor and analyse their spending on contractors and consultants across the department (see Figure 9). Other departments do some form of monitoring but this was not regular or detailed enough to help them track progress against the spending reduction targets.

Figure 9: Departments’ monitoring of their spending

Note: Red means the department did not give us evidence that it reviews and monitors its spending. Amber means the department gave us some evidence that it reviews and monitors its spending but this is not regular or detailed enough. Green means the department gave us evidence that it adequately and regularly reviews and monitors its spending.
Source: VAGO.

Reporting requirements under Financial Reporting Direction 22

Financial Reporting Direction 22 sets out what information departments need to publish on their use of contractors and consultants. It requires departments to publish information about consultants but not contractors.

Figure 10 outlines these requirements.

Figure 10: What and how departments must report their contractor and consultant information

Source: VAGO, based on Financial Reporting Direction 22.

Accessing data through FoI requests

The departments must keep records of spending on contractors, and a member of the public can ask for this information. However, this must be done through a formal FoI request.

This requirement limits public transparency. Some people may not know how, or want, to complete a formal FoI request. In some instances under the Freedom of Information Act 1982 departments may not give out all information.

Also, to gain a full picture of spending on contractors, an interested person would have to repeat the FoI process for each department.

Compliance with reporting requirements

he departments have clear guidelines on what they must publish in their annual reports (see Figure 10).

However, we found varying levels of compliance for the 2021–22 period, with 4 departments not including all the required information. Figure 11 outlines what departments did and did not include.

Importance of tracking spending over time

Being able to look at how spending changes over time, both at a department level and across the public service, is essential to planning. This includes identifying risks and opportunities.

DGS procurement analysis

DGS's government procurement team, which was previously part of DTF, collates and analyses procurement data from all departments to identify:

• commonly used vendors
• opportunities for potential new state purchase contracts 
• where departments do not use appropriate state purchase contracts.

DGS has also developed dashboards to enable departments to analyse their own data. 

However, this procurement data does not include all contractor and consultant spending and is not publicly available. This means departments and the public cannot easily use it to monitor spending on contractors and consultants.

Challenges to tracking spending over time

Although the departments publish spending data on consultants, there is no collated information for whole-of-government spending. This makes it difficult to analyse total spending or spending over time.

Each year, departments report their consultant spending in their annual reports. But this is data for one year only. There is no comparison to previous years.

To see how departments' spending has changed over time, users need to collate the relevant data from each department's annual report across multiple years. This is time-consuming and limits the transparency of the whole picture of public service spending.

VAGO dashboard: spending on consultants

In the absence of a multi-year comparison across departments, we developed an online dashboard on public service spending on consultants from 2017–18 to 2022–23 using data published in the departments' annual reports.

The dashboard shows data relating to the spending of the 9 Victorian Government departments that were in place in 2021–22 (noting that the Department of Transport includes spending by the Major Transport Infrastructure Authority and Suburban Rail Loop Authority). It also shows the departments’ spending on individual vendors across this period.

In building this dashboard, we faced some challenges.

While we were able to use our auditing powers and resources to manage these challenges, this illustrates the extent of barriers to public transparency around this information.

Annual reporting to the Minister for Government Services

While the spending reduction targets were made as part of an election commitment, reporting on progress in achieving them is not publicly available.

The VPSC collected departments' data on the spending reduction targets. At the end of each financial year it prepared an activity report showing what departments spent on contractors and consultants in each of the identified enduring public service categories. This report showed progress against the spending reduction targets, which were tied specifically to those categories. 

However, this report only went to the Minister for Government Services (as the responsible minister). It was not available to the public.

Lack of analysis on department performance

While the VPSC collected data each year, the annual summaries it provided to the Minister for Government Services did not analyse or enquire further about departments’ performance against their professional services and labour hire spending targets.

We found that the VPSC had limited assurance the data it received from departments was accurate because:

• there were no clear guidelines on how much detail departments needed to give about their spending performance
• the VPSC does not validate what departments report, such as comparing it to other whole of government datasets.

The VPSC's final report outlined factors that resulted in increased public service spending. These were:

• unprecedented external events, such as the COVID-19 pandemic and bushfires
• major projects
• economic recovery.

Need for reliable data

Financial Reporting Direction 22 requires departments to:

• report how much they spend on consultants each year in their annual report
• make information on contractor spending available upon request. 

To comply with this, departments need to collect accurate and reliable data on what they spend on contractors and consultants. 

Collecting reliable data

For reliable data, departments need to:

• record the details of all of their purchases and note if they were for contractors or consultants 
• collate this information across the department and ensure they have consistently applied the definitions of ‘contractor’ and ‘consultant’ from Financial Reporting Direction 22
• keep documentation, such as invoices, contracts and purchase orders, so they can check or validate their overall reporting. 

Data on spending

We looked at invoices from 2021–22 for DE, DH and DTP to understand the reliability of their contractor and consultant spending data. We looked at these 3 departments because they spent more than other departments that year on contractors and consultants. We looked at the top 50 per cent (by monetary value) of their invoices from 2021–22 for the 5 largest consultancy firms.

Limitation in guidance for Financial Reporting Direction 22

Our testing showed that the guidance in Financial Reporting Direction 22 allows room for users to make a judgement between classifying a transaction as ‘consultant’ or ‘contractor’. We saw this in complex contracts that covered a range of functions for both contractor and consultant work. 

Financial Reporting Direction 22 only requires consultant spending to be published in departments’ annual reports. If departments incorrectly record consultant spending as contractor spending, this spending may not be captured in their annual report.

As discussed in Section 2, transparency of contractor and consultancy expenditure will improve if Financial Reporting Direction 22 requires departments to publicly report contractor spending in their annual reports.