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Legislative panel endorses contract with McKinsey to improve Arkansas government efficiency

Arkansas Department of Finance and Administration building in Little Rock.
John Sykes
Arkansas Advocate
Arkansas Department of Finance and Administration building in Little Rock.

From the Arkansas Advocate:

Arkansas is poised to hire a prominent consulting firm from Washington D.C. to help the executive branch identify ways to make state government more efficient.

State lawmakers on Tuesday gave preliminary approval for the $5.5 million contract with McKinsey & Company. The Arkansas Legislative Council must give final approval for the contract and funding on Friday.

The three-year contract will be paid with $4.2 million in state reserve funds; the rest will come from the Department of Transformation and Shared Services budget.

McKinsey’s proposal said the firm has identified more than $500 million in annual savings and “10-30% effectiveness improvements,” based on a review of state data and consulting experience in other states.

Department of Transportation and Shared Services Secretary Leslie Fisken told lawmakers Tuesday that the bulk of the projected savings would come through changes to state procurement processes and better management of the state’s fleet of vehicles, which she called “low-hanging fruit.”

Other areas that state officials and McKinsey will closely examine include state real estate, information technology and personnel, though Fisken quickly noted that the review wouldn’t look to eliminate jobs.

“This is really, for us, it is about savings but also about updating our internal and external processes and really creating a better experience for our customers — the taxpayers — and also creating better processes internally for our employees…” Fisken said.

“We’re not changing any jobs, we’re not losing any jobs, but looking overall within our personnel and pay plan structure.”

McKinsey was chosen out of eight proposals after its pitch scored the highest while also coming in at the cheapest price tag.

If approved Friday, the contract would take effect Monday, with work expected to begin immediately.

Fisken said one of McKinsey’s first priorities will be to deliver recommendations for the state’s employee pay and performance evaluation plan by June. Lawmakers and state officials have expressed interest in restructuring the state’s pay and employee evaluation system during the 2025 regular session.

Since Gov. Sarah Huckabee Sanders authorized pay increases for only about a quarter of the state’s highest performing employees last year, lawmakers and employees alike have complained about the merit raise system, which was last overhauled in 2017.

In addition to the immediate pay plan review, McKinsey will also spend the next year in strategic planning and coaching sessions with leaders in Arkansas’ 15 cabinet-level agencies, culminating in a “Final Strategic Plan” with implementation guidance and timelines, according to the proposal.

“As the Governor promised to Arkansans, her goal is to deliver better, more efficient state government services at less cost,” said Sanders’ communications director, Alexa Henning. “This effort, Arkansas Forward, will streamline state government, modernize, and improve the quality of service to Arkansans, as well as produce an estimated millions in savings to the state.”

As for real estate, McKinsey noted that roughly 40% of state government office-space leases expire over the next two years, presenting an ideal time to reconsider the state’s office footprint.

Procurement, office space, fleet management and personnel were all areas executive branch leaders were supposed to study for efficiencies following the reorganization of state government from 42 agencies to 15 cabinet-level departments under former Gov. Asa Hutchinson in 2019.

“We are committed to delivering a tailored ‘Arkansas Answer’ to realize Governor Sanders’ vision for this project,” McKinsey’s proposal states. “…we will help move the state toward a renewed culture of performance, accountability, and continuous improvement. Throughout, Governor Sanders’ clear compass will steer the project: better state government services at less cost for all the citizens and communities of Arkansas.”

McKinsey disclosed in the contract its cooperation with state and federal investigations into its affiliation and work for opioid manufacturers as well as its status as a defendant in multiple lawsuits related to that work.

McKinsey in 2021 reached settlements totaling nearly $600 million with 49 state attorneys general related to its work in the opioid industry. Arkansas received $5.4 million in the McKinsey settlement.

Deputy Editor of Arkansas Advocate, which is part of States Newsroom, a national nonprofit news organization, supported by grants and a coalition of donors and readers. The Advocate retains full editorial independence.