McKinsey bills the US government $3m a year for anodyne advice from 23-year-old college grads

McKinsey made more than $20m helping ICE design its gulags, advising them to skimp on medical care, food and supervision in a cost-savings measure. But if Uncle Sugar really wants to save some money, it should fire McKinsey, which is by far the most expensive consultancy with a US government contract.

Ordinary beltway bandits like the Boston Consulting Group charge $33,063.75/week for consulting from just-hired, recent college grads. But McKinsey bills out the same kind of consulting at $56,707/week ($2,948,764/year).

As Matt Stoller (previously) writes, the one thing McKinsey is really good at is figuring out how to bill its government clients at rates that vastly exceed the caps set by law and policy, which is how they've grossed $956.2m in US government contracts from 2006 until now, a figure so high that the General Services Administration’s Inspector General recommended that all McKinsey contracts with the US government should be canceled (they weren't) (yet).

Stoller explains how McKinsey used its insider contacts to overrule GSA managers who refused McKinsey's requests for a 10-14% hike on its IT services, finding a GSA Division Director who would lie to the inspector general, "manipulate pricing data, break rules on sole source contracting, and pitch various other government agencies, like the National Oceanic and Atmospheric Administration, to buy McKinsey services" (that director was quoted as saying, "My only interest is helping out my contractor").

The reason that federal officials are happy to see McKinsey gouge all of us is that their departmental budgets are partly set through the Industrial Funding Fee, a Clinton initiative that was supposed to encourage "entrepreneurship" in federal contracting by awarding the GSA 75% of the funds it spent on contractors as a bonus to its budget (this has led to widespread collusion between GSA officials and contractors to raise prices).

Does McKinsey do a good job? The answer is that it’s probably no better or worse than anyone else. I’m sure there are times when McKinsey is quite helpful, but it’s in all probability vastly overpriced for what it is, which is basically a group of smart people who know how to use powerpoint presentations and speak in soothing tones. You can just go through news clippings and find areas McKinsey did cookie cutter nonsense. For instance, McKinsey helped ruin an IT implementation for intelligence services. In the immigration story, MacDougall shows that the consulting firm encouraged ICE to give less food and medical care to detainees. That’s cruelty, not efficiency.

Still, it’s not all on McKinsey. The Industrial Funding Fee is one reason paying $3 million a year for a 23-year old McKinsey employee instead of hiring an experienced person directly to do IT management has some logic to a government procurement division head. The policy solution here is fairly simple - kill the IFF fee structure and finance government procurement agencies through Congressional appropriations directly. Also follow the IG’s recommendation and cancel McKinsey’s contracting schedule.

Why Taxpayers Pay McKinsey $3M a Year for a Recent College Graduate Contractor [Matt Stoller/Big]

(via Dan Hon)