KPMG UK has been providing free or discounted
consultancy services to the government in an effort to
boost their work in the public sector.

The move by the Big Four firm comes as the
government dramatically reduces the number of new consultancy
contracts and existing contracts are renegotiated at heavily
discounted prices.

“In order to continue to be competitive and to
help the government with some of its important policy initiatives
we have been doing a certain amount of work for free and certain
amount of work at more then usual levels of discount,” KPMG public
sector head Alan Downey told the International Accounting
Bulletin.

“We are not making a lot of money in [the
public sector] market at the moment and we are working hard to stay
in it.”

The firm bidded £1 ($1.50) for one
particularly ‘important’ project. According to Downey, the total
value of free work KPMG has undertaken since the election and all
of the additional discounts given over and above existing framework
rates amount to about £3m.

Downey said the firm has also made the
government an offer to carry out more free work and some further
discount work to the value of £1m. This takes the value of its work
up to a total of £4m, which is about 10% of the public sector work
revenue KPMG expected to earn between October 2010 and March
2011.

Downey said KPMG is apportioning the costs of these
services as part of the its annual CSR work, which
often includes pro bono services to
charities.

Unsustainable

The market is reacting to the government
reducing its spending on work, according to Downey, who thinks the
current situation is unsustainable.

“Before the market accustoms itself to that
new level of business, in order to keep people busy, firms will
inevitably cut their prices, bid at heavy discounts and in some
cases do some work for free or virtually free and that is what has
been happening in certain cases,” Downey explained.

“We’ll then get back to a position where
companies are bidding at rates that are the new acceptable norm
rather then rates which cause companies to loose money because none
of us can afford to loose money indefinitely.”

Downey said prices should start to pick up in
the second half of 2011. However, if the government does not want
to eventually buy services at a reasonable rate, KPMG staff will be
redeployed into business in the private sector, which the firm has
already begun to do, he said.