National Audit Office NAO

Better scrutiny of proposals within government has helped to reduce spending on C&TS. Since 2010, departments must operate internal approval processes   and obtain Cabinet Office approval before they appoint consultants for assignments that extend beyond 9 months (and cost more than £ 20,000). Departments say that this process has encouraged them to assess their proposals more rigorously, including providing reasons for using C&TS rather than permanent staff. Although the Cabinet   Office refused only 1 application in 2014 - 15, a further 18 out of 162 (14% by value) were withdrawn by   departments, and 90 (70% by value) were approved with conditions. The   Cabinet   Office is not involved in any spending controls on temporary staff. Instead, approvals come from within the departments (In the full NAO report: paragraphs 3.2 to 3.4 and Figure 12).

Reported spending has, however, increased since 2011 ‑ 12 and there will continue to be upward pressure on C&TS spending. Departments spent around £ 700 million on C&TS in 2011 - 12. Since 2011 - 12, departments have increased their annual spend on C&TS by between £ 400 million and £ 600 million, while reducing their permanent workforce. Following the 2015 Spending Review, departments will have to invest further in transformation projects, which generally require support from C&TS, while cutting overall spending. Significant skills shortages remain in the areas needed to transform government, including project management and, ICT which are common specialisms of C&TS. Departments will need to address the risk that managers will increasingly use potentially higher-cost C&TS resources to bypass their department’s controls over recruitment as a way of paying market rates for the necessary skills. For   example, the Cabinet Office is proposing to introduce new pay bands for staff with   specialist skills   (paragraphs 1.8, 1.13, 3.13, Figure 3, Figure 4 and Figure 7).

Strategic workforce planning is critical in managing cost pressures, but is under‑developed in departments. This leads to short-term decision -making on the use of C&TS. In 2014 - 15, departments spent an average of 6% to 8% of the cost of their permanent staff on C&TS, with individual departments ranging from 1%   to 35%. To use these resources effectively alongside permanent staff, departments should use strategic workforce planning to determine how best to fill skills gaps and manage peaks in workload across the groups. However, in our recent report Central   government staff costs and the case study departments covered in this report, none of the 7   departments examined had plans that covered their entire organisation. The case study departments reviewed their workforce as part of the 2015 Spending Review, which   was completed in November 2015, and plan to develop improved strategic workforce plans in the light of the Review outcome. However, while departments often considered alternatives to the use of C&TS in individual cases, none had yet analysed their applications to assess their overall skills requirements and   identify common reasons why permanent staff could not be deployed or recruited   (paragraphs   1.7,   1. 9,   1. 11,   1. 14,   1. 15 and Figure 5, Figure 8 and Figure 9).

Compliance with departmental approval processes is weak in some departments. The Cabinet Office recommends that departments use ‘ resource boards’ to review requests for C&TS. However, Defra’s central function only set up this board in May 2015. The Cabinet Office, the department with policy responsibility, did not follow its own internal procedures: in 2 of the 10 cases we examined from 2014 - 15, the   Cabinet   Office’s resource board had not considered requests for C&TS as required   by its approvals systems. It has now developed simplified procedures that are intended to ensure compliance with its internal procedures and rules. In all 3   departments, requests for consultancy must be accompanied by a formal business case. In our sample of 10   Cabinet Office assignments, 5 cases had been approved without a formal   business case. There was little evidence in the 3 departments’ that their C&TS requests compared   in- house costs with the proposed external costs (paragraphs   2.2   to   2.4, 2.7 and   Figure 9).

Departments are generating limited competition for both consultancy and temporary staff assignments. Departments chose to use single tender action, or extend existing contracts for 43% of consultancy work in 2014 - 15. This is usually because of a lack of time or because they think only one supplier has the skills needed. The largest 6 consultancy firms win three-quarters of the work let through the CCS consultancy agreement, and 28% of all government consultancy work. The comparable share of CCS agreement business given to small and medium-sized enterprises (SMEs) rose to 9% in 2014 - 15, while across all consultancy work only 5% is won by SMEs. For   temporary staff appointed through CCS’s Contingent Labour One agreement, 41%   are appointed without competition as departments fill posts with their chosen appointee (paragraphs 2.12 and 2.14).

The cost of some C&TS can be significantly higher than for comparable in‑ house staff. CCS has reduced the daily rates paid to temporary staff and consultants through setting target daily rates below existing rates, which it estimates has saved £ 79   million in 2014 - 15. However, it does not compare these rates against the direct costs of equivalent permanent staff. While temporary administrative staff cost a similar amount on a daily basis to permanent staff, our analysis suggests that specialist staff are generally paid twice as much as their nearest permanent equivalent. Even so, departments sometimes have difficulty recruiting temporary specialists and go outside the CCS agreement to pay higher rates. Although average daily rates paid within CCS agreements have fallen since 2011 - 12, data suggest that rates paid by departments for temporary staff overall have increased by some 18% since then. This increase was due to increases in the proportion of expensive interim managers and technical contractors   and in market rates for these skills (paragraphs   1.13,   3.11,   3.12   and   3.14,   Figure 16 and Figure 17).

The Cabinet Office monitors temporary staff across government paid more than £ 1,000 per day. CCS infrequently monitors temporary staff paid more than £ 1,000 a day, which is a higher equivalent salary than all 17 main permanent secretaries (although 5 of them have a higher-value package). Departments are expected to explain how they plan to replace these staff with permanent employees. As   at 1 May   2015, 47 temporary staff were engaged on a daily rate of more than £ 1,000, compared with 30 senior civil servants with comparable pay. However, neither CCS nor 2 of our case study departments, the Cabinet Office and Defra, actively manage the numbers of other temporary staff who have been in post for extended periods. In   addition, 94%   of specialists engaged through the Contingent Labour One agreement are contracted through personal service companies. In 2012, the Committee of Public Accounts expressed concern that too many staff were paid off-payroll for too long. Most departments now report that they obtained assurance from these staff that tax   has   been   paid (paragraph 3.12, 3.15, Figure 18 and Figure 19).