McKinsey contract could cost taxpayers an extra $69M

A new inspector general report is renewing questions about powerhouse consulting firm McKinsey’s tight grasp on federal contracts — and how much it is costing taxpayers.

The report, which the General Services Administration’s internal watchdog released on Tuesday, accused a GSA employee of improperly awarding McKinsey an unnecessarily expensive contract. According to the report, the contract could eventually cost taxpayers an additional $69 million.

The report also revealed that McKinsey got a GSA employee to intervene when the agency initially rejected the consulting firm’s bid for the contract.

According to the report, an employee within GSA’s Federal Acquisition Service, which provides products and services across the government, initially found McKinsey’s rates for management consulting services and information technology professional services to be “ridiculous” and decided to pass.

So McKinsey asked GSA’s division director to step in. He removed the original employee from working on the McKinsey contract negotiations and then “performed invalid price comparisons and relied on unsupported information to justify McKinsey’s high contract pricing,” according to the report, resulting in the unnecessary price hike.

The report also found that the person who awarded the contract “violated standards of conduct by advocating for McKinsey to other procurement officials.”

A GSA spokesperson said the agency agreed with the concerns the IG raised and “has taken swift action to implement the IG’s recommendations, ensure taxpayers are protected, and preserve the integrity of GSA’s procurement process.” FAS has also reassigned the McKinsey contract to a new contracting team.

A McKinsey spokesperson said: "We have received the OIG’s report and are in discussions with GSA."

The episode highlights long-standing concerns about the wide reach of McKinsey’s work for the federal government.

Government officials and experts say it’s become increasingly common for McKinsey and other well-known consulting firms to be awarded contracts without a competitive bidding process, what’s known as a “no-bid” or “sole source” contract.

In particular, McKinsey’s work for the intelligence community has come under scrutiny, with current and former officials accusing the firm of charging top dollar without delivering effective reform or competing for contracts.

Article originally published on POLITICO Magazine