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Company to watch - PA Consulting

By Guardian 'Public' writers
The Guardian
6 May 1008

It’s charged that the public sector spends too much on consultants and a recent reportfrom the National Audit Office suggestedthat £540m a year could be saved by usingthem more efficiently. In response the Treasury’s Office of Government Commerceembarked on a programme of valuing theiruse. All of which has made the consultingfirms sensitive to the charge that they aremaking too much money.

PA Consulting, which takes in some £150m a year from the public sector – 40% profits £374m turnover – has always robustly defended itself. Andrew Hooke, the firm’s chief operating officer, points to the returns for public bodies on their investment with PA, such as its work on the enforcement of fines for criminal convictions, which increased payment rates by 80%, resulting in an extra £24m being collected.

But that kind of clear return on investment is rare. For the rest, PA talks up the extras its work contributes: it transfers skills and knowledge to customers and provides coaching and leadership, says Hooke. It pioneered the Zanzibar procurement andpayments system and claims to have improved the way English schools buy goodsand services. It recently reported on traffic management in Northern Ireland and is a player in defence – it recruited the former chief of the defence staff, Sir Mike Jackson.

Hooke says his colleagues spend a lot of time measuring what they do with clients tomake sure that their work isn’t unnecessarily extended.“We do have to guard against the idea that consultants are into ‘scope creep’.”He is conscious of reputation. “If a brand is damaged in any way that very soon spreads, certainly in Whitehall and in local government.”Yet it’s not clear such worries are justified.The Treasury and Cabinet Office have resisted suggestions over the years that they maintain a log of consultant operations in Whitehall, annotated by their performance.

Consultants like PA have benefited from the Labour government’s desire for reform, but times are changing. The combination of a tighter spending regime and less apparent enthusiasm by ministers for “reform”(“still substantial, but less than it was,”notes Hooke) means more competition for less public sector money. This is happening at a time when consultancies are trying to assess how squeezed their private sector income will be, as the rate of economic growth slows and financial services firms, who are major clients for consultancies,retrench.

PA is different from other consultantsin that it owns venture capital subsidiaries which make products and software, for example for vehicle tracking. Its staff roster includes scientists as well as MBAs. Hooke says that gives PA a comparative advantage as government delivery chains get more complex. 

PA has faced tough times before. In the1980s, it did badly, made losses and almost went bust. Lately profits have been going up – last year, the firm’s 3,000 staff shared a £60m bonus, after the firm announced record consulting operating profits of £100m. 

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