Angry in the Great White North

As many readers are aware, there are serious problems at eHealth:

The top executive at eHealth Ontario, removed from her job after the agency was embroiled in a spending scandal involving untendered contracts and rich consultancy fees, will pocket almost $317,000 in compensation.

But opposition critics said yesterday the removal of CEO Sarah Kramer is not enough, and they will not be satisfied until Health Minister David Caplan is fired.

"This is only half the puzzle. The other is the removal of the health minister who has been unable to handle this scandal," New Democrat Leader Andrea Horwath told the Star. "He is incapable of being decisive and to take firm action."

I want to zero in on one of the problems in particular:

An eHealth consultant billed for tea and a dessert square while earning $2,700 a day.

Another consultant, being paid $2,750 a day, collected $75 a day for expenses and flew home to Edmonton 31 times in five months at a cost to taxpayers of $21,000.

Wow, $2,750 a day?  That's outrageous!

Actually, it isn't.  It's very reasonable.  Here's why.

At a lot of consultancy firms, there is a large staff.  Office staff, researchers, managers, interns, and so on.  Only a small number of staff are actual on-site consultants.

This small group is collectively labelled billable.  On the books, the customer is paying this this person to do the work.  But it's not just this person.  He doesn't get $2,750 a day.  The $2,750 a day goes to the company.  That money then gets redistributed to pay bills and salaries.

Including the salary of the consultant, by the way.  He never sees $2,750 a day, or anything remotely close to it.  He sees a far more reasonable amount, as do all the unbillable people back at the office.  So when he sees his weekly paycheque consistent with someone who makes, say, $80,000 a year, then charging for food (as long as it is under the per diem guidelines) is perfectly appropriate.

I'm not trying to minimize the problems at eHealth, because clearly there are serious problems.  But when I see consultancy fees of $2,750 a day, I'm not at all shocked, because I've done this sort of work at these sorts of rates.  The media needs to confirm that these consultants are part of a larger consultancy firm with a large unbillable staff to support.  If there is not a firm behind the consultant to justify these rates, then of course there is a problem, and if there are questions about the value of work delivered (large firm or not) then the media and opposition politicians needs to pursue them.

But let's not throw up what seems to be an outlandishly large consultancy fee and says that this is proof that things are out of control.

Why consultants?  Who would pay $2,750 a day for a consultant?  If he only sees the equivalent of $350 a day ($90,000 a year), why not just give him a raise to $110,000 and hire him permanently?  That would be less than $450 a day.   The reason is that the cost of hiring, maintaining, and firing a permanent employee is prohibitive.  Blame the social safety net, with employer paying EI and CPP and other employment taxes, plus benefits of different kinds.  For many employers, it actually costs less to pay $27,500 a day for six months than the true cost (salary plus all the other stuff) of hiring a permanent employee for several years.  You can fire the consultant at any time, and certainly at the end of the contract.  A full-time permanent employee doesn't disappear that easily.

When you combine all those hidden costs of hiring permanent employees, paying for a consultant to fly home on the weekends (again, not at all unusual in this line of work) is a bargain by comparison.