A few years ago, the then-head of Australia’s Defence Department expressed his frustration to staff — he had discovered just how big his workforce had become.
Dennis Richardson warned his managers that, if they did not reel in their spending, he would step in and end contracts himself.
“Now, I don’t like being a mongrel but I have managed organisations for 20 years and, if I’m given no choice, that is precisely what I’ll do,” he said.
The trigger for that 2017 speech? The department had allowed its army of consultants and private contractors to outgrow its ranks of public servants.
Mr Richardson retired soon afterwards — but the situation did not improve.
Today, Defence employs about 17,400 public servants. However, its outsourced civilian workforce is far larger than that — documents published under freedom of information (FOI) law show it has about 28,600 contractors.
These extra employees often have the same titles as public servants and even sit next to them in the office — but they work for private businesses, not the government.
Several former senior officials are now questioning not only the costs and consequences of this trend, but whether it is legal.
‘Private servants’ the new norm in government staffing
Defence’s “private” workforce may be unusually large, but outsourcing is the norm in Canberra.
Most Australian Public Service (APS) agencies now employ people via labour-hire firms, a practice that allows them to stay within the government’s official staffing cap but still get their work done.
No-one knows how big this outsourced workforce is — not even the Finance Department, which exists to control how public money is spent.
However, an ABC analysis of about 120,000 federal government contracts — for services such as consulting, staffing and recruitment — suggests the Commonwealth’s market for “private” labour has doubled in the past five years, and is now worth more than $5 billion a year.
The biggest spenders are the biggest workplaces: Defence, the Australian Taxation Office and Services Australia (which runs Centrelink and Medicare offices).
And the biggest winners are similarly unsurprising: global firms such as Manpower, Serco and Datacom (which runs call centres).
Bureaucracy’s labour hire ‘may be unconstitutional’
A former senior Defence Department executive, Paddy Gourley, has warned against this trend for years, saying it allows corruption to flourish.
“The basic point is it opens up scope for nepotism and corruption in public service staffing,” he said.
Mr Gourley, a staffing policy specialist, told the ABC there was no way for government agencies to know how the firms had recruited their workers, who “may very well be sisters, cousins and aunts” of the business owners.
“So we have no assurances that they are the best people to do the jobs. In many instances, they almost certainly are not.”
He also said the legality of these work arrangements was highly questionable.
Section 67 of Australia’s constitution says federal public servants can only be employed under an act of Parliament.
In most cases that is the Public Service Act, which says the “usual basis” of hiring a government employee is “as an ongoing APS employee”. The act also allows agencies to hire APS staff temporarily and for “irregular or intermittent” jobs.
Yet agencies routinely bypass this act.
They instead “buy” staff as “goods and services” — even though the Commonwealth procurement rules explicitly warn that procurement “does not include the engagement of employees”.
When asked about the legal basis of using labour-hire firms, Public Service Commissioner Peter Woolcott’s office did not respond directly.
Instead, his spokeswoman said labour-hire workers were not public servants and so not the government’s responsibility.
“Labour-hire workers are generally the employee of the labour-hire company from which their services are contracted, meaning the employment relationship is between the labour-hire worker and the labour-hire company,” she said.
Staffing cap to blame, former APS chief says
One of Mr Woolcott’s predecessors, Andrew Podger, said he was surprised by the size of the government’s reliance on the private sector, warning “it might reflect the loss of expertise that ought to exist among APS employees”.
“I fear that the numbers [of private-sector workers] are partly due to the APS staffing cap,” he said.
“This is leading agencies to use contract staff when APS employees would offer better value for money.”
The Coalition imposed the staffing cap in 2015, saying the government workforce should not grow larger than it was at the end of John Howard’s prime ministership in 2007.
The independent Thodey review of the public service urged the Morrison government last year to abolish the cap in favour of other spending controls, but that recommendation was rejected.
Mr Podger, now an honorary professor at the Australian National University, said the cap represented “an ideological attack on the APS”.
“While there is a legitimate debate about the appropriate size of government and its resources for administration, surely, within the resources to be made available, we want the highest quality public service and value for money,” he said.
Mr Podger also said that, while he was not a legal expert, labour hire raised “important legal issues … which need to be addressed”.
He suggested a class action, brought on by a union or a labour-hire employee, might be the only way to resolve the legal uncertainty.
‘There is no way in to the public service anymore’
One former public servant considering his next steps is Melbourne lawyer Geordie Wilson.
Mr Wilson was a temporary junior officer at the Administrative Appeals Tribunal (AAT), where, by his count, “probably half or even more than half of the people at my level were on labour-hire contracts”.
“It was all casual employment, even though they were there for years in some cases,” he said.
“They were told they were getting more than the genuine public servants to compensate but … they weren’t getting paid more — that was false.”
A spokeswoman for the AAT said fewer than 10 per cent of the AAT’s total workforce “in our customer-facing, operational areas” were labour-hire employees.
However, she confirmed that one of the tribunal’s contractors had mistakenly underpaid 57 staff over six years, and said it had since corrected those errors.
But the experience sparked Mr Wilson to investigate why so many government workplaces had “segregated” workforces — some public, some private.
Earlier this year, he began to use FOI law to try to measure the extent of labour-hire use across government.
“Going into the APS, it hadn’t even occurred to me that you could just privately staff a department,” he said.
“In reality, the member of the public that’s dealing with [these staff] doesn’t realise that they’re not public servants in any sense.”
Mr Wilson, 25, said the outsourcing of government work had another effect: it had left young people like himself with far less hope of ever becoming a public servant.
“It’s kind of disappointing to realise that there really is no way in, aside from a tiny number of spots in the graduate program,” he said.
Contractors and consultants ‘can keep costs low’
The shift towards using private-sector labour while cutting government jobs divided the main parties during last year’s federal election campaign.
Labor and the Greens promised to slash spending on consultants, saying it cost taxpayers far more than employing public servants.
A parliamentary committee was also examining the trend, but the inquiry was abandoned when the election was called.
Yet while private contractors are often paid more than public servants — and the businesses that hire them profit, too — there is no clear evidence that using labour-hire staff is generally cheaper or more expensive.
Finance Minister Mathias Cormann has long argued the government saves money by buying skills when it needs them, rather than hiring specialists permanently.
His department also told the ABC that the use of contractors, “where appropriate”, was “an efficient way to keep the overall cost of government administration low when the business need to access relevant skills, expertise or additional support is temporary or the expertise and skills are more efficiently obtained and maintained in a dedicated private sector business.”
Over the past seven years, the federal government shed tens of thousands of staff and ramped-up spending on external labour — and its overall operational efficiency increased, albeit marginally.
Of course, the costs of a future High Court challenge to the government’s use of labour hire — if it ever happens — could change that.
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