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.
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.