What is happening in the European Union, the European Commission and the European Council? What are their aims and ambitions, and where does the EU money go to? Read more
What is happening in the European Union, the European Commission and the European Council? What are their aims and ambitions, and where does the EU money go to?
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Consultancies profit handsomely from the EU recovery fund
Large commercial consultancy firms are doing good business thanks to the European Recovery and Resilience Facility, a fund meant to get economies back on their feet after the Covid-19 crisis. Several Member States enlisted the help of consultants to submit their recovery plans. The same firms are often helping to implement the reforms promised in those plans. Conflicts of interest are looming.
- In 2020, the European Union set up an unprecedentedly large fund to help Member States emerge economically stronger from the corona crisis: the Recovery & Resilience Facility (RRF). All in all, Member States can claim over 700 billion euros in grants and cheap loans in exchange for economic reforms.
- Member States must make plans for how they will reform and on what they want to spend the money. These plans go to the European Commission for approval. According to investigations by Follow the Money, in cooperation with European investigative journalists, several Member States have enlisted the help of consultants in drafting these plans. Perceived conflicts of interest lie in wait.
- For example, the Spanish government hired Deloitte to provide the information it needed to write up its energy plans. But during the same period, Deloitte also worked for the Spanish oil company Cepsa to help it win subsidies from the recovery fund.
- The Greek government engaged PwC to work on its digitalisation plan. Then, as a consortium member, PwC managed to win a contract for a major digitisation project in Greece.
- The Commission has earmarked money to help Member States implement recovery fund reforms: the technical support instrument. Often, the European Commission uses the services of consultancies instead of in-house expertise of its civil servants. Those are usually the Big Four: PwC, Deloitte, KPMG and EY.
- This does not always pan out: the Commission signed eleven contracts with Italy’s KPMG Advisory SpA in the first half of 2021. But in July of that same year, the Commission decided to blacklist the firm for ‘grave professional misconduct’
- This article is part of the international #RecoveryFiles project, led by Follow the Money.
Nothing ventured, nothing gained, someone at consultancy firm McKinsey must have thought in early 2021. In an email to the Ministry of Economic Affairs and Climate, the consultant suggested that they should discuss the European Recovery & Resilience Facility (RRF).
McKinsey would like to discuss the national plans that Member States must submit to the Commission in order to receive money from the fund, which was set up in 2020 to repair the economic damage caused by the lockdowns.
In those plans, Member States must detail what they will spend the billions on and how they will make their economies more resilient. The Netherlands still had to submit its plan, and according to this email, that became public after a Freedom of Information request by Follow the Money, McKinsey wanted to contribute input. ‘If you are interested, we can gladly set up a call to share some of our observations from other EU countries.’ As it happens, McKinsey is already ‘helping some EU countries’ with their recovery plans.
The civil servant forwards the email to a colleague – names blacked out, which is standard for FOIA documents – who then also forwards the email. ‘It’s ultimately a classic acquisition meeting, of course, but it might be interesting to see if we can learn something useful from them,’ the civil servant wrote.
In the end, the meeting with McKinsey did not materialise. But the consultant’s email shows that the consultancy actively approached Member States to offer its services in the context of the recovery fund.
‘Committed to help’
Either way, this billion-euro fund is a potential goldmine for consultants. Some 500 billion euros will flow to Member States through the recovery fund until 2026. That money is then made available by national governments in the form of grants or public contracts.
‘Deloitte can help you through every stage of your transformational journey. From funding requests, to project implementation’
But to seize those opportunities, entrepreneurs must work through the bureaucratic grant conditions. Consultancies are eager to lend a hand, as demonstrated by this advertising video from Deloitte UK: ‘Deloitte can help you through every stage of your transformational journey. From funding requests, to project implementation. We are committed to help Member States and companies seize this unrepeatable opportunity.’ Deloitte also released a short film about the recovery fund, made by Michele Placido, who has won numerous awards as a director and actor. Apparently, the benefits from such commissions are worth a hefty investment.
Consultants secure yet more business via the recovery fund. Consultancies also profit from it directly, as the #RecoveryFiles shows, an investigation by a team of European journalists, led by Follow the Money. These agencies profit from both the preparation and the implementation of the recovery plans.
The European Union has a fund with a maximum of 723.8 billion euros at its disposal to get the European economy back on track after the corona crisis: the Recovery and Resilience Facility. Follow the Money has set up a cross-border collaborative project with journalists and media from twenty European Member States to monitor the implementation of the recovery fund: the #RecoveryFiles.
The following journalists contributed to this article:
- Ada Homolova, Follow the Money, The Netherlands
- Adrien Senecat, Le Monde, France
- Ante Pavić, Oštro, Croatia
- Attila Biro, Context Investigative Reporting Project Romania, Romania
- Beatriz Jimenez, Grupo Merca2, Spain
- Ben Weiser, ZackZack, Austria
- Carlotta Indiano, IRPI, Italy
- Emilia Garcia Morales, Grupo Merca2, Spain
- Giulio Rubino, IRPI, Italy
- Hans-Martin Tillack, Die Welt, Germany
- Janine Louloudi, Reporters United, Greece
- Karin Kőváry Sólymos, Investigatívne centrum Jána Kuciaka, Slovaia
- Lars Bové, De Tijd, Belgium
- Lise Witteman, Follow the Money, The Netherlands
- Marcos Garcia Rey, Grupo Merca2, Spain
- Matej Zwitter, Oštro, Slovenia
- Roberta Spiteri, Daphne Foundation, Malta
- Staffan Dahllöf, DEO.dk, Denmark/Sweden
- Steven Vanden Bussche, Apache, Belgium
Previous articles and the full team can be found on ftm.eu/recoveryfiles.
In the same month that McKinsey put out their feelers to the Dutch government in vain, the French weekly Le Canard Enchaîné revealed that the firm had been more successful in France. The French Ministry of Agriculture had hired them for consultancy services related to the Plan de Relance, a national post-corona recovery initiative, parts of which were later sent to the Commission as the official French recovery plan.
Consultancies Roland Berger, Capgemini, EY and PwC also assisted the French government to draft or implement its plans. A government report published on 10 October shows that in 2021, the French government signed as many as 200 consultancy contracts related to the French recovery plan, totalling 13 million euros.
Determining how much money consultancies made in total from the RRF is a difficult task. Individual consulting contracts for businesses do not always end up in annual reports, and consultants rarely disclose who their clients are. Nor are public contracts resulting from the fund easy to track, as most EU Member States have decided not to set up a central register of final beneficiaries.
We managed to ascertain that consultancy firms have already earned at least 75 million euros, either because national governments hired them to help write the recovery plans or because the European Commission hired them for assistance in implementing the promised reforms. The Commission further plans to hire 374 million euros worth of consultancy services over the next two years, primarily related to the recovery fund. Romania has also budgeted around 240 million euros for the next few years to hire consultants to implement the promised reforms.
That consultants profit from the recovery fund, is related to the fact that many traditional public tasks have now been privatised. This is part of a broader trend identified by the European Federation of Public Service Unions (EPSU) in early October 2022. ‘The past decade of austerity depleted the state sector of crucial in-house skills and expertise,’ EPSU secretary general Jan Willem Goudriaan stated in his foreword. Most of the time, consultants had pushed for those cuts – and because the work had to be done anyway, ‘these unfilled positions were [then] filled by consultants at a far higher price’.
The Commission does not always properly examine whether hiring external resources results in a better cost-benefit outcome than deploying in-house staff
A few months earlier, the European Court of Auditors (ECA) established in a report that the Commission does not always properly examine whether the hiring of external resources actually results in a better cost-benefit outcome than deploying in-house staff, and that there is no guarantee that the Commission will get ‘value for [its] money’ when using external consultants.
Moreover, the ECA found that the Commission is increasingly using external consultants. According to the auditors, that practice creates ‘potential risks of overdependence, competitive advantage, a concentration of suppliers and potential conflicts of interest’. According to the ECA, ‘the Commission does not sufficiently monitor, manage or mitigate these risks at the corporate level’.
Our investigation shows that these risks emerge not only at the Commission but also in the Member States, especially when consultancies are involved in different stages of the process.
The latter happened in Greece. Speaking at the International Economic Forum in April 2022 in Delphi, Greece, Marios Psaltis, the Managing Director of PwC Greece, described his firm’s dual involvement in the Greek implementation of the recovery plan. ‘We are proud that as PwC Greece, we had the opportunity to actively support the Greek government in the preparation of the Greek Recovery and Resilience Plan, one of the first to be submitted and positively evaluated by the European Commission.’ He continued: ‘At the same time, the opportunity we will have to cooperate with the state authorities and private sector bodies for the implementation of the plan is of particular importance to us [..].’
PwC Greece’s role in drawing up the Greek plan is evidenced by other sources. For instance, PwC consultant Paris Bayias reports on his LinkedIn profile that he ‘was team leader for the formulation’ of the digital projects in the Greek plan and a ‘member of the Plan’s writing team’. When asked, he stated that he fulfilled that role from October 2020 to May 2021. He emphasises that his team focused on fine-tuning formulations only.
The Commission’s response to a Freedom of Information request by Italian Alessandro Runci clearly reveals the close nature of PwC’s involvement. The Commission refused to give Runci the documents he requested on the grounds that they are ‘co-owned by the Government of Greece and the consultancy PriceWaterhouseCooper (PwC)’.
PwC communicated directly with the Commission about the Greek plan, on behalf of the Greek Ministry of Digital Governance
However, the Commission did release a document index. The description of the documents suggests that PwC communicated directly with the Commission about the Greek plan and did so on behalf of the Greek Ministry of Digital Governance. The rejected documents have titles such as ‘Email by PwC with the Ministry of Digital Governance in copy to clarify a specific question on draft measures’ and ‘Submission by PwC on updated fiches/material related to the draft RRP with the Ministry of Digital Governance in copy. Attachments (six files in total): files concern measures under discussion under the draft RRP.’
One of the emails concerns ‘Gov-ERP’; Government Enterprise Resource Planning. That is the name of a new IT system for public finance management. In the plan that Greece submitted to the Commission in April 2021, the government proposes this project to be funded from Greece’s allocation of RRF money.
In May 2022, more than a year later, the Greek government announced that it had sourced a consortium of companies to implement this project. ‘Today is a milestone for the digital transformation of the government,’ Kyriakos Pierrakakis, Minister of Digital Governance, said according to a press release. That consortium may execute a government contract worth more than 50 million euros over the next four years, three quarters of which will come from the EU fund. The press release does not name the companies in question, but they announced themselves shortly afterwards. They are Uni Systems, Real Consulting and... PwC Greece.
Thus, PwC was involved in talks between Athens and the Commission on draft versions of the digital chapter of the Greek recovery plan, and a year later, they were part of the consortium that was awarded the contract to implement one of the measures in that chapter.
PwC states that it never comments on specific client assignments. ‘As is the case with all of PwC’s engagements, all relevant standards, laws, regulations and internal policies, including those relating to conflict-of-interest considerations as well as EU public procurement requirements, have been adhered to.’
According to the Greek Ministry of Finance, there was no conflict of interest because PwC only helped to fine-tune the text after the selection of projects had already taken place. The Ministry of Digital Governance responded with a letter. It emphasised that the plan for Gov-ERP was conceived ‘years earlier’, in September 2010, but was postponed several times. Therefore, PwC was not involved in the selection of this project for money from the recovery fund, the Ministry stated. Moreover, the consortium signed a declaration on avoiding conflict of interest, and the tendering process proceeded in a ‘normal and legal’ manner.
However, the EU has set a goal of not only preventing actual conflicts of interest but also possible or perceived conflicts of interest. According to the Commission’s guidelines, a perceived conflict of interest may notably occur, regardless of a person’s intentions and ‘even if the person does not actually benefit from the situation’. According to the Commission, such a situation can ‘affect trust and confidence in a person’s or entity’s independence and impartiality’.
The question of independence and impartiality also arises in Malta, where the Ministry of Foreign and European Affairs and Trade used consultancy firm EMCS Tax Advisory. Exactly what service that company provided is unclear, but the Ministry emphasised in a response that the Maltese recovery plan was prepared by the Ministry for EU funds. At the same time, EMCS Tax Advisory profiles itself as an agency that can help Maltese companies win EU grants, including those financed by the recovery plan.
A similar situation may have occurred in Spain. The government awarded Deloitte España SL a non-publicly tendered public contract of 280 thousand euros in January 2021, for performing ‘all those tasks related to the preparation and due justification of the content of the energy proposals’ in the Spanish recovery plan. According to the contract, one of these tasks was to suggest improvements to the draft text.
But the Spanish government is not Deloitte’s only client. During the same period, the firm was also hired by the Spanish oil company Cepsa. The brief: to help Cepsa secure grants from the recovery fund. The Spanish association of wind energy companies, for whom Deloitte writes an annual macroeconomic report, is another long-standing client. Deloitte also actively participates in the debate on the use of green hydrogen.
According to Kenneth Haar of lobby watchdog Corporate Europe Observatory, it is not a foregone conclusion that the world must switch to green hydrogen. ‘The prospect of green hydrogen is often used as a pretext to boost the use of natural gas and for that not green. To pick a strong proponent and an important organisation in the campaign for green hydrogen as an energy consultant is ridiculous at best.’
‘Deloitte did not participate in the drafting of the plan but provided technical assistance in the compilation of the information’
Deloitte said it would not comment on contracts or clients. The Institute for Diversification and Saving of Energy (IDAE), an agency that falls under the Ministry of Ecological Transition, awarded the contract. IDAE said in an email that the Spanish plan was ‘drafted entirely by the staff of the Secretary of State for Energy, in particular IDAE staff’. A spokesperson added: ‘This company [Deloitte] did not participate in the drafting of the PRTR but provided technical assistance in the compilation of the information.’
But that can also be a way to exert influence. In 2020, the European Ombudsman investigated the Commission’s decision to award a contract for a study on European banking rules to BlackRock, one of the world’s largest asset management companies. This while ‘the company manifestly has an interest in the development of future EU regulation that will impact on itself and on its clients’, the Ombudsman wrote.
The mere fact that the research carried out by BlackRock may have an impact on the market in which BlackRock has financial interests is, in the view of the Ombudsman, sufficient to conclude that there is a risk of a conflict of interest.
A contributing factor, in this case, was that BlackRock had offered its services at a relatively low price. Perhaps the revenues from the contract were not BlackRock’s main motive for bidding, but rather the ‘opportunity to influence and gain understanding, from the inside, of the Commission’s policy-making in areas that affect its interests,’ the Ombudsman concluded.
Bearing those insights from the Ombudsman in mind, the engagement of McKinsey in Slovakia is equally questionable. In October 2020, the firm signed a contract with the Slovak Ministry of Finance for services ‘in relation to the resilience and recovery program’. The Ministry emphasised that the ‘final version of the material was the responsibility of the Ministry of Finance’.
McKinsey did not ask for money because it wanted to ‘help the client solve one of the most serious humanitarian challenges’
McKinsey provided its services pro bono. The contract mentions that McKinsey is not asking for money because, ‘for altruistic reasons’, it wants to ‘help the client solve one of the most serious humanitarian challenges’. The contract explicitly states that McKinsey does not expect ‘to receive any benefit or preferential treatment of any kind [..] in return’.
Lobby analyst Kenneth Haar does not think McKinsey’s offer was based on altruism. ‘What exactly their agenda was is hard to tell, but getting the possibility to work closely with governments has so many dimensions that I am sure the job fitted well into their overall Slovak strategy.’
The Italian government, too, engaged McKinsey. After Ilsole24ore published about this in March 2021, the Ministry of Finance released a statement insisting that McKinsey was not involved in the selection of grant projects. However, the task that McKinsey did perform raises a new question.
Italy asked McKinsey to compare other countries’ national plans, even though Member States had in fact agreed that they could ask the Commission for ‘an exchange of good practices in order to allow the requesting Member States to benefit from the experience of other Member States’. But instead of submitting such a free request to the Commission, Italy decided to task McKinsey with the job – and paid them 25 thousand euros.
Even the Commission is making a habit of hiring consultancies rather than utilising its own experts.
The EU has made another fund available related to the recovery facility, the so-called Technical Support Instrument (TSI). This is a continuation of an earlier programme designed to help Member States with reforms, called SRSS. For the period 2021-2027, 864 million euros have been earmarked for the TSI.
Such aid is not a luxury: Member States are required to draft detailed plans and report the progress of their reforms to the Commission. In early 2021, Mariya Gabriel, the European Commissioner for Innovation, acknowledged that the fund has a rather bureaucratic structure, albeit in diplomatic terms: ‘The Recovery and Resilience Facility offers unprecedented support for reforms and investments, but will be a massive administrative challenge, a challenge requiring strong project management skills and robust administrative capacity.’
TSI is not exclusively intended for the implementation of the coronavirus recovery fund, although a significant part of it is.
Here’s how it works: Member States apply to the Commission for support, and then the Commission decides how it will provide that. The Commission can send its own experts to Member States but can also hire companies to go and help. Our research shows that the Commission is increasingly opting for the latter. In 2016, during the Structural Reform Support Service (SRSS) programme, only 9 per cent of the budget went to external consultancies. By 2021, it had risen to 40 per cent (51 million). Of the 23 Member States that asked the Commission for help last year, 19 got assisted by a commercial consultancy firm at least once.
The selection of these agencies also raises questions. For instance, the Belgian federal Ministry of Finance asked for help for the project ‘Improving compliance and tax certainty by building on international exchanged information and co-operative compliance’. The Commission awarded that assignment to PwC, to the tune of 258,808 euros.
Remarkably, at the same time, PwC sometimes helps its other clients to pay as little tax as possible. But according to a spokesperson for Belgian Finance, PwC is ‘bound by specific confidentiality rules’, and the Ministry ‘only shares general information about our working methods required for PwC to complete the assignment successfully’.
The Commission often ends up with the same firms. PwC was awarded contracts for projects in 17 Member States in 2021, totalling almost 10 million euros. The so-called Big Four – PwC, Deloitte, KPMG and EY – received 55 per cent of the consultancy contracts in 2021.
The privatisation of technical support poses another risk. For instance, the Commission hired KPMG Advisory SpA – the Italian division of the international accountancy firm – 13 times in 2021. The contracts totalled 3.7 million euros, and were all signed in the first half of 2021. One of the institutions for which KPMG is executing an EU contract is the Italian tax authority.
In the summer of that year, the Commission suddenly changed its mind about KPMG Advisory SpA. That was revealed on 13 July 2021, 25 days after the company had embarked on a new project in Italy: digitising insolvency cases. That day, the Commission decided to exclude the firm from EU contracts for 18 months. The reason: ‘grave professional misconduct’.
What mistake KPMG Advisory had made is unclear. The blacklist to which the firm was added refers only to Article 136(1)(c) of the regulation on EU financial rules. It states that such professional misconduct can be anything from ‘violating intellectual property rights’ to ‘attempting to obtain confidential information that may confer upon it undue advantages in the award procedure’.
The Milan-based firm would not comment on the issue; however, KPMG has filed a lawsuit at the Court of Justice to have the Commission’s decision annulled.
Three governments are stuck with a company selected by the Commission to implement reforms in their countries, while the same Commission now says that company is guilty of ‘grave misconduct’
In the meantime, KPMG continues to work on the earlier projects, some of which run until 2023. When a company is blacklisted, ongoing contracts are in fact not automatically cancelled. In such cases, the Commission has to decide whether it is ‘appropriate’ to terminate ongoing contracts, a spokesperson said. In this case, the Commission decided to maintain the contracts ‘due to compelling reasons of business continuity’.
Since the Commission decides how it provides the requested support – either in-house or outsourced – the Member States have no say in the matter. Consequently, the Italian, Croatian and Cypriot governments are now stuck with a company selected by the Commission to implement reforms in their countries, while the same Commission says the company is guilty of ‘grave misconduct’.
Perhaps some of the situations described here will soon be a thing of the past. On Tuesday, October 18, the French Senate will vote on a bill to curb government hiring of consultants. And in Brussels, a review of the financial rules on spending EU money is on the agenda. At the insistence of the European Parliament, the European Commission has proposed tighter controls on conflicts of interest for tenders. But that plan needs to be debated and approved by Member States before anything will change.
Written with the cooperation of Ada Homolová and Lise Witteman. Translation: Delia Durggraaf.
In response to our questions, PwC Greece sent this statement:
‘As a member of the PwC network PwC Greece operates within a formal and robust framework of ethical and professional standards, in full compliance with laws, regulations and internal policies. PwC Greece has processes in place to identify and address real and potential conflicts of interests and compliance with these standards and policies is a key component of how we approach our work.
Furthermore, in all of its work in the public sector, PwC Greece follows the applicable rules and obligations of the public procurement process, which generally include safeguards for identifying conflicts of interest. In addition, any public sector work undertaken is a matter of public record.
In relation to the engagements your article refers to, it is PwC’s policy not to comment publicly on specific client engagements. However, as is the case with all of PwC’s engagements, all relevant standards, laws, regulations and internal policies, including those relating to conflict of interest considerations as well as EU public procurement requirements have been adhered to.’