ACN Accenture Plc

By Jean Eaglesham and Kirsten Grind 

State governments struggling with the coronavirus pandemic have paid tens of millions of dollars to big consulting firms for help.

The consultants promised to help the states tackle a range of problems, including delivering medical equipment and staffing call centers that handle worker benefits. In some cases, states have seen only modest benefits, if any at all, for the extra cost, The Wall Street Journal found through interviews and public-records requests.

Two major consulting firms, McKinsey & Co. and Deloitte Consulting LLP, together have won coronavirus-related contracts worth at least $182 million from states, more than double their tally of federal coronavirus contracts, according to a Journal analysis of public records and news releases.

The full amount of money received by the firms is likely even higher -- comprehensive data on states' spending isn't yet available.

"They're seeing this massive economic opportunity arising from a grave public health problem and they're stepping in to take advantage," said Caroline Buckee, an associate professor of epidemiology at Harvard University's T.H. Chan School of Public Health.

Consulting firms say they are responding to state governments' requests for help. Boston Consulting Group, for example, said that when the pandemic hit, the firm "rapidly mobilized substantial expertise and resources to help states manage the crisis."

States have been largely left alone by the federal government to tackle the pandemic and related issues. Their continuing struggles to enlist consultants to help them -- at a high price to taxpayers -- shows how challenging that autonomy has been.

"When you're trying to secure a global supply chain, that's not something a state emergency department normally deals with," said Jeffrey Stern, who led Virginia's department of emergency management until June.

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.

Jamie Anderson, a 25-year-old single mom and former call-center worker in Palmdale, Calif., near Los Angeles, said she has spent hundreds of hours on the phone with the employment department since losing her job in April. She said she had to wait until September to get thousands of dollars of benefits she was owed. "I called and called for weeks and all they did was put me on the call-back list," she said. "I have no income, I have a child, and I live in a small city where all the jobs are taken."

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."

A Deloitte spokesman said the firm has been "proud to help stand up, scale and support," state and federal support programs during the pandemic. The spokesman referenced a September response to California lawmakers, which said there had been a solid improvement in the numbers of claimants paid over the past few months.

A spokeswoman for California's employment development department said it has processed more than 15.2 million claims so far during the pandemic -- far more than the 3.8 million during 2010, the year with the highest number of claims during the previous recession.

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.

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.

A McKinsey spokesman declined to respond to specific questions and pointed to its website, where the firm details its Covid-19 work across the U.S. The company says it is supporting leaders and public servants "with management and organizational expertise, and analytical capabilities to help inform their decisions."

Consulting firms have been hit hard by a loss of work from corporate clients because of the pandemic.

For coronavirus work, Deloitte offered a discount on its usual rates -- 15% on a contract with Ohio, for example -- while McKinsey in the spring introduced reduced philanthropic fees, according to contracts.

The costs still appear to be high. 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.

A spokeswoman for Illinois said the Deloitte rate was negotiated downward to $55 an hour, adding that "the priority was increasing capacity as quickly as possible."

In Massachusetts, Gov. Baker said in April that the state would hire Accenture PLC for $28 million to track residents infected with the virus, a process known as contact tracing.

The consultants produced their own reports, while also attempting to incorporate a tracking system by San Francisco-based Salesforce.com Inc. with an existing database used by state health agencies, according to people familiar with the efforts.

The combination of the different systems initially resulted in a mess, with some researchers and state officials concerned that patients' personal medical data could be lost or accessed improperly, one of these people said.

By July, the contact-tracing effort had been scaled back, although it has since picked back up again as cases have risen in Massachusetts, people familiar with the effort said. A spokeswoman for the governor's office said the state has worked with McKinsey for several months, "including in helping to develop and refine our robust public data reporting and strategically increasing our testing capacity."

An Accenture spokesman said in a written statement the firm was "proud to be supporting" Massachusetts' contact-tracing effort. The state agency in charge of contact tracing "continues to work effectively with local health departments," a spokesman said, using its own systems complemented by "data-management" services from Accenture.

Lisa Schwartz and Andrea Fuller contributed to this article.

Write to Jean Eaglesham at jean.eaglesham@wsj.com and Kirsten Grind at kirsten.grind@wsj.com

(END) Dow Jones Newswires

November 02, 2020 05:44 ET (10:44 GMT)

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