The National Audit Office (NAO) recently issued a report, written by the Cabinet Office, on lessons learned from the government’s use of management consultants.
It’s an insightful and concise piece of work, and one that all consultants that work with government should pay attention to in light of the long-term pressure on government spending and the irreversible impact of Artificial Intelligence (AI) on knowledge-based sectors such as consultancy.
The report identified several lessons that need to be addressed to improve the value of consultancy:
- Upskilling civil servants to avoid the dependency on consultants.
- Sharing knowledge routinely by capturing lessons from consultants’ work and spreading them across government.
- Focussing on value-creation during procurement.
- Shifting towards outcome specifications and outputs rather than inputs
- Stronger contract management.
- Setting clear expectations on targets and timelines.
- Removing the long-term dependency trap where external consultants are repeatedly used for the same tasks.
These lessons may appear to be obvious since many should ‘just happen’. But several of them highlight something that is often overlooked.
The transfer of knowledge from consultants to clients and development of client capability as part of an assignment is often not even considered. When setting up new contracts, industry habits and norms mean that little or no attention is given to increasing a client’s internal capability to reduce the future client dependency on consultants. This can lead to frustration on behalf of the clients when they feel locked-in to a dependency on consultants.
This problem is partly one of the consultancy industry’s own making.
Ironically, the same management consultancies that advise on strategic planning may themselves pay the price for their lack of foresight about the pressures on government spending and the political and economic importance of delivering value to the taxpayer. These pressures are increasing so one of the easiest decisions that clients can make to provide a fast short-term payback is to just reduce the expenditure and external consultants. This may or may not be a good decision but it comes about as a direct consequence of a lack of clarity about value-add. Hence the affordability and value-creation from consultancy expenditure will continue to be under greater scrutiny as government budgets are increasingly constrained in the current environment. It is inevitable that public sector consultancy market volumes will be in decline for some time.
The importance of capturing ‘what next’ after a consultancy assignment is complete by asking three questions:
- What knowledge and capabilities must be embedded within the client at the end of the contract?
- How will the contract contribute to the development of client capability and the transfer of knowledge?
- How can the internalisation of capability and knowledge within the client be used to increase the value created from future procurement?
It may well be that buying-in capability from consultants is the right approach, but an exit strategy and future options once a contract is complete must be looked at from the outset. As with any make-or-buy decision, a procurement strategy needs to developed that avoids the client drifting into a dependency trap and long-term unplanned supplier-lock-in.
Unfortunately, consultancy business models that rely on increasing billable hours and consultant utilisation have incentivised increasing consultancy activity (inputs), often without any clear link to value creation (outcomes). And where outputs are delivered, such as reviews and reports, the most important material can be lost in the noise of lengthy documents where the volume of activity, rather than insights or impact, has been used to justify the size of consultancy fees and client expenditure.
This disfunction is a systems challenge for both clients and consultants and it comes at a time when the productivity gains available from Generative AI (GenAI) systems are already disrupting the time-and-materials business model and its incentives. Internal use of GenAI is already reducing the need for consultancy activity previously paid for by clients. While GenAI outputs need to be checked by someone with a sufficient level of expertise, the review of information in terms of errors, omissions and bias, is a much shorter process than starting with a blank page.
This means there is a here-and-now need to develop a new model of consultancy engagement focussed on outcomes, value creation, and knowledge transfer. A new approach is needed to avoid accepting the current ways of working, identified as unsustainable practices in the NAO’s report.
An environment where consultancies chase contract extensions to maximise sales revenue, and clients focus on reducing hourly charge-out rates in an attempt to drive down costs, misses the opportunity to extract greater value during the consultancy process. It undermines the value-add of consultants and overlooks the need to develop the knowledge and capabilities needed by clients in the future. It is a lose-lose scenario.
Thankfully for those consultants whose priority is delivering value to their clients and recognise the importance of knowledge transfer and client capability development, all is not lost.
There is, just now, a window for the consultancy industry to initiate change, and here are five ways clients and consultants could work together to deliver greater value:
- Use outcome-based specifications with clear, measurable outputs and outcomes.
- Build knowledge transfer and capability development outcomes into contracts.
- Adopt fixed-price or target-price contract models as the default type, supported by disciplined contract variation management.
- Include a structured assessment of the performance of consultants and the achievement of outcomes at the end of contract; then use the learning in future procurement decisions.
- Evaluate the alternatives to external consultancy before future procurement through objective make-or-buy assessments that consider not just cost, but current client capability, its development, and the need for knowledge transfer.
With continued pressure on public finances, the consultancy sector has an opportunity to redefine and increase the value it provides. Success should no longer be measured simply by the billable hours or extension of consultancy engagements, but by the extent to which consultants strengthen the capability, knowledge, and resilience of the client organisations they support.
Perhaps the defining question for consultants working in the public sector should be: What have we done to leave our client more capable and knowledgeable?
Success might mean there is no immediate continuation or repetition of the same work, but the outcome can be developed as a unique selling point to beat the competition.
You can read the full report by following the link below:
https://www.nao.org.uk/wp-content/uploads/2025/11/governments-use-of-external-consultants.pdf
