McKinsey, Deloitte Charge Big Bucks to States for Botched Covid Projects

The Wall Street Journal has a solid report tonight on how state governments have been fleeced by major consulting firms like McKinsey and Deloitte.1 The question one winds up asking when reading about these fiascoes is whose bright idea was it to hire big name, and even if they discounted a bit, still very pricey consultants for engagements that weren’t in their wheelhouses. “Nobody ever got fired for hiring IBM” does not apply to hiring IBM to manage a construction site.

Mind you, the world is awash with outsourcing and consulting grifting,. It’s been so extensive in the UK that we’ve been negligent in chronicling it, since it’s hit the “dog bites man” level of predicability. Nevertheless, even the numbed UK press worked up some outrage over the costly fail of outsourced contract tracing. The BMA recently published an overview of the extent of government outsourcing of its Covid responses and why they performed poorly.

What is distressing about these US examples isn’t merely that they demonstrate the folly of hollowing governments and then expecting them to be able to add capacity or respond to emergencies by bringing in private sector mercenaries. It is that they also illustrate the general decline in what we’ve called organizational capacity. The consultants either have to have been utterly cynical and knew that they couldn’t deliver on the project specs and didn’t much care, or were so lacking in understanding what the required tasks were about that they arrogantly believed that simply being good at show and tell (aka PowerPoint) and recognized as smart was all it took. Nathan Tankus discussed the importance of organizational capacity in a post on the Greece bailout negotiations, explaining in some detail why the Greek government was not even remotely in a position to take over the Bank of Greece (which was really a node of the European Central Bank) or start its own central bank.

What I find impossible to fathom here is how the state governments in question here failed to understand that what they needed were cadres of middle managers and experienced lower level workers with relevant expertise, not pricey symbol manipulators. What was California smoking to hire Deloitte to run call centers, particularly when there actually are firms that specialize in running outsourced call centers? Admittedly, the call center outsourcing took place in parallel to a smaller contract on a related IT system.

But California was doubling down on failure. But documents obtained by Public Records Act requests suggest that Deloitte had performed poorly on its considerable work on the employment IT system over the years. From the Journal:

California turned to Deloitte to help handle a flood of claims engulfing its antiquated benefits system—a system Deloitte has billed the state millions for over the years, part of more than $250 million of work for the employment department. This spring, the firm was awarded a new $5 million contract to help upgrade systems to pay pandemic benefits. Deloitte also won an $11.1 million, two-month contract to supply call-center staff to quickly increase the employment department’s capacity. In August, the state increased the contract to $42.6 million.

It didn’t fix either problem. The department’s two call centers—including one partly staffed by Deloitte—are overwhelmed, an official state report in September found. And a huge backlog of unresolved claims, tallying more than a million, was growing by at least 10,000 every day, the report said….

Deloitte clearly has “not successfully resolved [the department’s] IT challenges or modernized its system,” a letter from dozens of local lawmakers this year said. David Chiu, a Democratic member of the state’s Assembly, said it is “incredibly concerning that [the employment department] has continued to go back to a contractor that has a well-documented history of bungling unemployment insurance work, not just for California but for other states.”…

Illinois and California are paying Deloitte $55 an hour—more than $100,000 a year on a full-time basis—for agents doing basic call-center work. That is more than double what the states pay agents they hire directly to do similar work, according to copies of the contracts and recent job advertisements. Permanent staff enjoy benefits. But the Deloitte rate is higher than at least one other contract for pandemic call-center work: Nevada is paying call-center operator Alorica Inc. $33.50 an hour for its agents, the contract shows.

But this level of client-fleecing is amateur hour compared to McKinsey. Get a load of this:

New York Gov. Andrew Cuomo’s office awarded McKinsey a $9.9 million contract in March to advise the state on issues related to Covid-19, the illness caused by the new coronavirus. That included 18 weeks of “leadership counseling” at $42,500 a week—the contract didn’t specify who would be counseled, or what that would entail.

The work was later reduced to seven weeks at $27,000 a week, as part of a cost-cutting effort that saw the overall fee approximately halved, according to a response to a public-records request. Representatives for Mr. Cuomo didn’t respond to requests for comment.

As Wall Street Journal reader eb mem pointed out:

You cannot teach leadership for any price per week. What consultants can do for $42,500/week is coach the official narrative for the abysmal decisions being made.

Funny we don’t know what the rest of the contract went to, but if McKinsey’s work in Massachusetts was any guide, it was sheer rent extraction:

McKinsey also did work for Massachusetts, some of which appeared to involve little more than forwarding others’ material along. Researchers at Harvard University prepared reports for the state’s health department tracking population movements. Consultants at McKinsey used the reports verbatim in material for the governor, according to a person familiar with the work.

While the researchers were grateful the governor received the data, they were puzzled why the paid consultants were needed to share data among state officials, this person said. The office of Gov. Charlie Baker didn’t return a request for comment.

There is no justification for either contracts or the end product related to public health services to be kept secret. The difficultly the Journal apparently had in getting more detail, as we have found again and again with CalPERS, smacks of stonewalling and footdragging to prevent embarrassment or worse. From what little we can see, the McKinsey engagements sound troublingly like an infamous South Sea bubble venture: “For carrying-on an undertaking of great advantage but no-one to know what it is!”

The Journal states that the engagements it has found so far for McKinsey and Deloitte total $182 million. Given how widely state public records laws vary, the number is likely to be higher given that the Journal would not get far in states with weak laws. And with states being in the midst of budget crises, $182 million would buy a lot in the way of PPE or first responder pay.

Sadly, after McKinsey being the subject of numerous critical articles on its role in propping up corrupt governments, it’s likely to regard a story like this as ankle-biting. As we pointed out in 2018:

The New York Times published a major story yesterday on how the consulting powerhouse McKinsey got itself eyeball-deep in a corruption scandal in South Africa that has become the focus of a major government investigation. It has led major multinationals operating in South Africa like Coca Cola to cease doing business with McKinsey there.

Among other things, as the Times explains, the firm got about $100 million in performance payments for performance that may not have even occurred from a state-controlled energy company Eksom. It got the assignment in connection with a local partner that was controlled by an Indian family, the Guptas. The Guptas in turn used their connections with then South African president Jacob Zuma to loot various state-owned entities. Oh, and on top of everything else, McKinsey’s contract was illegal….

McKinsey heretofore has managed to avoid being tainted by scandal even when it had its fingerprints all over the crime scene. McKinsey was the moving force being what may still stand as the biggest value-destroying acquisition of all time, Time Warner’s purchase of AOL. The board turned down McKinsey’s “dare to be great” speech in favor of the deal four times. Unfortunately, it relented on McKinsey’s fifth go. McKinsey was also deeply involved in Enron, to the degree that it was touting Enron as a model. Many alumni have remarked to me that they don’t understand how McKinsey escaped being dragged into investigations. More recently, McKinsey has tried to shrug off important stories by Pulitzer Prize winner Gretchen Morgenson, now at the Wall Street Journal, and Tom Corrigan, on how McKinsey has become heavily involved in advising parties to major corporate bankruptcies, yet has routinely flouted legal requirements to disclose conflicts of interest, including investments by its in-house retirement funds.

McKinsey got more bad press for restructurings at the intelligence agencies that managed to worsen their performance, identifying key Twitter critics of the Saudi government, leading to their arrest and helping Purdue Pharma combat addiction concerns and focus on high-prescribing doctors so as to boost sales of OxyContin.

McKinsey, which once was vigilant about protecting its vaunted reputation, has gone the Goldman Sachs route of prioritizing sucking money out of its clients. So sadly, this Wall Street Journal report is unlikely to ruffle any feathers at the Firm. But it might give state officials reason to worry that getting taken by McKinsey could tarnish their political futures.


1 We are charitably assuming that the governments really were interested in receiving the services they contracted for.

Print Friendly, PDF & Email


  1. ambrit

    Just wow. There is a call centre that does work for the Social Security Administration and the ACA gatekeepers located in an older mall in our half horse town. It was originally a division of General Dynamics. It pays about $11.50 per hour to its workers. This is an improvement from previous years. After a union organizing attempt a year ago, the company was suddenly “bought out” by another “concern.” The wages rose some twenty percent. Nothing else changed in the organization except the name is the information I heard from some workers there. This being a ‘sub-contractor’ outfit, the workers were jerked around big time. Most of the workers there that I observed closely, usually in the parking lot that I transit regularly, (it’s a short cut around here,) fell into either the category of “aspirational” or “downwardly mobile PMC.” A lot of “well dressed office worker” outfits to be seen. Two or three year old “upper income” automobiles in the parking lots (there are two!)

      1. LaRuse

        I am SO thrilled Despair.Com is still around. To this day, nearly 16 years later, I still cherish my “Mistakes” coffee mug from that site – a gift for my birthday, which also coincided with the day I was laid off from a state job back in 2005. “It could be that the only purpose of your life is to serve as a warning to others.” A grim time for me back then but the cup still makes me smile today.

      2. Kirk Seidenbecker

        Thanks for this; I had found that site years ago but forgot about it…
        Making me think of Graeber’s ‘Bullshit Jobs..’

      3. Yves Smith Post author

        No, that is not the correct rendering.

        “The problem wit consulting is you are hired by the problem.” The corollary is “The most profitable clients are the most diseased.”

    1. Minalin

      No, after they have your watch (now theirs) they charge for the time, prices will vary depending on the format you want it, etc.,. Really anything more than daytime or nighttime is going to be costly.

    2. TMoney

      I’ve noticed that sometimes consultants can tell the General Staff & Officers what the other ranks have been saying for years “the guns don’t shoot straight” but with considerably more effect.

      Why the Officer class can’t hear the ranks complaints is another discussion altogether.

      As one of the other ranks, sometimes I don’t know whether to hate (some) highly paid consultants for getting paid the big bucks or welcome them, since long standing issues sometimes get addressed.
      I default to resentment, since most of them are highly paid useless bags of sh*t.

  2. The Rev Kev

    Would it be too crass to mention the possibility that a major reason that State governments give companies lucrative contracts like this is that there are kick-backs involved? Kickbacks in the form of political “donations” perhaps to the party that runs that State Government to get themselves re-elected with? And furthermore, the reason that corporations like McKinsey and Deloite are chosen is that they have the resources to give very large donations unlike a smaller, local company? Just sayin’.

    1. the guy who made oracle pay up once

      have worked on and fought back on several of these state projects. they are not about kickbacks. the truth is MUCH stupider: because the project is large, the contractor must be well-vetted. the only guys who can get across the credentialling bar are major consulting groups. these consulting groups are consequently only competing on price with each other – not anyone smaller or more agile. then deloitte swans in, makes the project leadership feel important and big time. these are usually all people who have only worked in government and mostly in their agency’s field – transportation guys, SNAP guys, revenue guys. no gov pays enough to get really good technology guys in their fold. there are then federal and state requirements … and federal stakeholders. the feds insist that the project needs to be done by date X in order to get fed funding contributions.

      so if you’re keeping up so far, that means the project never has a realistic timeline, is never realistically bid on, is overseen by people who are inexperienced in technology project management, and then worked on by a consultant who has no reason to finish it.

      the last part is usually because the contract was written by people who don’t know how to write contracts to shut up people like deloitte.

      it’s not as simple as state “incompetence.” how can anyone seriously expect that state governments, 100% of which are cash-strapped and usually just trying to get services and benefits to their constitutients, should cut into those non-existent budges to carve out new tech expertise in order to do these projects… that are themselves usually driven by fed requirements and paid for with fed money?

      in short, i think the feds get kickbacks, and not in cash but in nice executive sinecures. state execs just get shuffled to other states. state governments only get familyblogged, please trust.

    2. shinola

      Yep – I thought the article would get around to mentioning kickbacks. That it didn’t is rather, er, curious.

      1. ChrisPacific

        The discussion assumes good faith, as noted in footnote 1 (which also describes that assumption as “charitable”).

    3. Minalin

      With the exception of Illinois, it my experience ‘bribery’ doesn’t quite work that way. Trips aboard, speaking fees, buying up books, using obscure relatives on other projects for high fees. And often a guaranteed job with guaranteed benefits is how it’s done. Best to setup a couple of LLCs to make a paper trail impossible.

  3. Colonel Smithers

    Thank you, Yves.

    It won’t surprise the NC community and you that the same happens in dear old Blighty. Such is the scale, incompetence and corruption that my civil servant mum, doctor dad and I wonder if the British government’s (mis)handling of covid is deliberate as there’s so much money to be made. Plus, the Johnson government knows Sir Keir Starmer and his Blairite Labour Party won’t say much or do anything different as the Labour leadership and many of the MPs are funded and advised by the same firms, including the USA’s United Health.

    McKinsey is embedded in the British government. For the past decade, Charles Roxburgh has been one of the Treasury’s top officials. He is now number 2. James Kelly (Mr Laura Kuenssberg for UK readers)works at the Cabinet Office on Downing Street and has done so for at least five years. Junior health minister Helen Whately and Tory baroness and “head of improvement” and head of track and trace at the NHS, so civil service posts, Dido Harding worked at McKinsey after Oxford. Harding is also an administrator at the Jockey Club and director of Cheltenham racecourse. She prevailed on the sport to go ahead with the festival that became a notorious super spreader event in March. In addition to ruining the NHS, Harding, a friend of Cameron at Oxford and married to Tory MP John Penrose, is ruining the sport of kings.

    KPMG are also in the mix, as much as McKinsey and Deloitte, but PWC is less so.

    The thieving is well in excess of the billions officially reported. Like the royal budget, the money is spread in different ministries and agencies, so more difficult to look. As the money is not being shared widely, often going to friends, business partners and family of Dominic Cummings, e.g. his brother in law, Tory MPs are nursing an additional grievance.

    1. Red

      The most successful corruption makes sure that the money is spread around. It’s why the Daleys ran Chicago for something close to 40 years (with a short non-Daley period in the early 80s). Everyone got a taste. You could get a response from the powers that be if you went through the right channels… And Maggie Daley liked flowers and parks – so that worked at least OK.

      These Cummings circle idiots don’t even know how to long-term scam a system…You don’t destroy it. You milk it slowly and make sure everyone is in on the scam.

    2. Edward

      Does BREXIT threaten this status quo?

      Has Britain changed quite a bit? Would this dodgy behavior been tolerated 40 years ago? The public discussions in Britain seem as daft as the American ones these days.

  4. Edward

    The U.S. government seems to be full of these bureaucratic train wrecks like the Department of Homeland Security or “testing” that will magically solve America’s educational problems. Testing is such a simple solution. Why didn’t anyone think of it before? No hard work required (for you) and “poof”– all your educational problems are gone.

    The “leadership training” reminds me of the much ballyhooed “democracy training”.

  5. Shiloh1

    They should take a bow for selling the open office concept to Corp America.
    Friday Afternoon Beer Pong anyone?

  6. PeasantParty

    WOW! Just wow! We sure do have more than our share of Grifters, and Carpet Baggers. Too bad there is no corporate oversight, or anyone checking on charters, fiduciary responsibilities, or even business ethics anymore. Thanks for the links. A real eye opener.

Comments are closed.