The role, costs and value for money of external consultancies in the health sector: A study of New Zealand’s District Health Boards

by Erin Penno

Erin Penno

External consultants have long been a part of the public sector milieu. Brought in on a temporary basis to provide technical, policy or management skills, to offer an impartial perspective, or, more cynically, to legitimise existing proposals for action, public bodies routinely rely on consultants’ advice and expertise. However, public spending on external consultancies, particularly within the health sector, is highly controversial. Costing around twice as much as equivalent permanent staff, the large sums spent on consultancy services have been a key concern among policymakers and independent watchdogs in many countries.

International evidence suggests spending on consultants is rising rapidly. For example, recent figures from England show that spending on consultants by the National Health Service (NHS) doubled between 2010 and 2014, and there are indications that reliance on external advice is similarly increasing in health systems across the world. In addition to the potentially deleterious impact on health budgets, critics have queried why relevant expertise is not available in house and the potential for public sector dependency, as well whether the public sector is obtaining value for money.

New Zealand has not been immune to these debates. The extensive use of external consultants by District Health Boards (DHBs) has repeatedly been called in to question. Although DHBs have been quick to defend spending decisions, the millions of dollars spent on external consultancies across the DHB sector each year has been widely criticised by political and professional groups.

Yet, despite the apparently large sums of money involved, there is little analysis surrounding the scope of activities of consultants, either in New Zealand or internationally, meaning there is little understanding of how much is spent, for what purpose and with what result.

In a paper recently published in Health Policy, we sought to determine the amount spent on external consultancies across each of New Zealand’s 20 DHBs as well as the details of processes in place to ensure value for money.

We sent Official Information Act requests to each DHB requesting details on all external consultancies engaged over a three year period. We initially asked for comprehensive details of each consultancy, including information on consultants’ findings, outputs and how deliverables had been used by the organisation. However, we learnt that this level of detail could not readily be provided by DHBs, raising questions about process and accountability for public money in its own right.

Consequently, we narrowed the scope of our enquiry to include only those consultancies which cost in excess of NZ$10,000. We asked DHBs for details including who was contracted to provide consultancy services, the reason(s) why, the cost (of each consultancy and the total annual costs of all consultancies) and if they had undertaken a tendering process.

We also asked whether the DHB had current policies in place on the use of external consultants and for determining whether external consultancies provided value for money.

Most DHBs responded to our questions concerning policies on engaging external consultants and value for money; however, just over half provided expenditure information or details on the purpose of the consultancy.

Where DHBs refused to provide information on expenditure in response to our request we used the data provided to the Health Select Committee by that DHB as a proxy measure of expenditure on external consultants.

Based on responses to our request and, where necessary, Health Select Committee data, DHBs collectively appeared to spend anywhere between $10 million to upwards of $60 million annually on consultancy services but we found it was difficult to derive an accurate picture of the scope of activity throughout the DHB sector. In large part, this was due to many DHBs being unable to easily identify the extent or purpose of consultancy activity within their organisation.

Overall, we found that many DHBs did not have a good grasp of the extent of consultancy activity within their organisations. The process of obtaining information was also convoluted, with information difficult to obtain and often patchy, suggesting limited accountability throughout the DHB sector.

We also found there was limited evidence surrounding value for money. Few DHBs had policies in place governing when consultants should be engaged. Rather, they appeared to contact consultants on an ad hoc basis, albeit subject to managerial approval. Formal processes to determine value for money were also uncommon and, where present, rarely applied.

We have no doubt that, appropriately used, consultants provide valuable services to the health sector. However, our study highlights key challenges facing the health sector. These include the need for greater accountability for expenditure on consultancy services and better evidence of value for money. More broadly, we also pose a fundamental question for policymakers and healthcare providers: is there an alternative to using external consultants and what would that look like?

Penno E, Gauld R. The role, costs and value for money of external  consultancies in the health sector: A study of New Zealand’s District Health Boards. Health Policy (2017),

Bio: Following a background working in the health sector in both the United Kingdom and New Zealand, Erin recently completed a PhD in public health at the University of Otago. She is currently a Research Fellow in the Dean’s Office in the Otago Business School where her research focuses on health funding, policy and systems.