Outsourcing of Professional Services
Newfoundland and Labrador

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Newfoundland and Labrador regularly outsources routine professional services at three times the cost of doing it internally. For example, a senior engineer working for the government makes about $80,000/yr. while the professional engineering fee in the province is approximately $180/hour ($360,000 a year). Similarly, for information technology, rates range from about $60/hr for programming work up to $640/hr for a senior manager from one of the big accounting firms (like Deloitte).

For unusual and seldom needed skils sets, this makes sense -- in which case you should assign a government employees to work with each expert and arrange continuous knowledge transfer. Unfortunately, departments are full of unfilled positions and inadequate budgets make it impossible to do the work internally -- yet consultants continue to get appointed to do the same work. This outsourcing is a form of corporate welfare.

A Real, Ongoing Example:

There exists a list of engineering companies which all get turns at assignments. Some are local firms, others are international corporations with an office on the island. Three names are recommended on a sheet of paper with a two sentence comment. The minister chooses one of the three, but could write in someone else if he/she wanted. A consultant appointment letter is sent out and the engineering firm which then supplies a fee proposal for an initial assessment. These are usually around $10,000. Once the assessment is performed, the department decides to go forward with a construction tender, and the engineering firm automatically gets the follow on business. This second fee is usually between 10% and 20% of the tender - and $100,000 is common.

In other words, a cabinet minister has the discretion to award $110,000 to a firm without tender. According to older engineers who worked in the 1960's, the perception was that while everyone got a turn, those that contributed more to the political party got a turn more often or the more lucrative assignments.

Note in the image above that salaries are $1.1 million while professional services are $5.9 million. This means that the province is spending almost 5 times more to outsource work that could have been done internally and with more accountability for 1/3 the price. This is a waste of $3.5 million a year in just one department.

Outsourcing of Information Technology was also a disaster. It was supposed to jump start the local IT industry but instead, it just fostered unaccountability and the profts left the province. This was remedied several years later with the recreation of OCIO.

The pie chart below groups consulting companies that account for more than 2% of the total expenditures. The larger slices belong to the established old boys club. Aside from the fact that many of these were untendered contracts, it begs the question: If there was 100 million dollars worth of engineering and technical work needed, why wouldn't the province have an engineering department for a savings of 60 million ?

You could argue that this supports local businesses however, syphoning off tax payer funds for the enrichment of local business interests is wrong.

 

Policy Items:

• Update the public tender act to disallow the use of change orders to increase ministerial assigned contracts over a threshold, perhaps a $3000 maximum. This eliminates a potential source of corruption since there is a human tendancy to preferentially award $100,000+ contracts to those that fund your campaign, promise you benefits once you leave the public service, or just old fashioned family favors.
• Do not outsource routine work. The vast majority of all work outsourced could be done in-house by public sector professional staff for one third the cost. Outsourcing is ok for unique, one time projects where the experience required isn't needed after project completion.
• Create a multidisciplinary engineering / architecture department and recruit the brightest and best of our graduates. Increase the pay scale modestly. Expect high performance and provide them with the tools they need. The offices can be spread across the island - there is no need for everything to be in the city. These engineers would design public buildings, sewage and water works, perform asbestos assessments, develop tender packages for construction, perform environmental assessments and most importantly -- be accountable.