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Arkansas’ $5.5 million contract with McKinsey & Company begins

Steps leading up the Arkansas Senate chamber.
Jacob Kauffman
Little Rock Public Radio
McKinsey & Company, a controversial consulting firm, will serve as a contractor for the Arkansas Department of Transformation and Shared Services.

A contract the Arkansas Legislature entered into with a consultant, McKinsey & Company, began February 19. McKinsey is an international consulting firm hired by companies and governments to improve outcomes; but, the group is controversial because of several clients it has chosen to represent.

The contract with the state of Arkansas will cost over $5.5 million. The application is vague on what the specific plans for the money will go to. It says it will “help the State facilitate Governor Sanders’ goals by providing more efficient and effective services to Arkansans.”

McKinsey said in the application that it believes it can save the state up to $500 million in tax money. The application repeats the phrase “bold transformation” often used by the governor, saying they want to “assist the Department of Transformation and Shared Services in the delivery of such a bold transformation.”

The Department of Transformation and Shared Services works to cut back on government spending. The department was initially created through a law signed by then-governor Asa Hutchinson, a Republican, in 2019. The law went on to consolidate government departments, reduce rental space in government buildings and cutting taxpayer-funded jobs. TSS estimates that within the first nine months, they had saved tens of millions of dollars.

McKinsey plans to work with the department to cut costs. Their application detailed a two-step plan. The first step is to team up with the department for a “12-month period of strategic planning across statewide executive branch agencies.” The second is to provide “ongoing coaching and support to senior leaders.” The contract says it wants to provide an “Arkansas Answer” but doesn't clarify what that term means.

The contract describes how the millions of dollars will be divided up into tiers. About 14 items go to “draft strategic management plans” or “interim draft strategic management plans” totaling over $465,000 each.

The state of Arkansas already made a deal with McKinsey in 2011 for a $3 million emergency contract, this time with the Department of Human Services to change its system of healthcare payments.

The Arkansas Healthcare Payment Improvement Initiative was set to be updated to a model the report called “new and sustainable.” This contract was amended twice, bringing the price tag up to $13.7 million. By May of 2015, the state had completed three more contracts with the consulting firm. This means over four years, the state gave $108 million to McKinsey.

A report by the Department of Human Services and presented to lawmakers in June 2015 describes problems with the contracts.

“Valuable state resources were wasted,” it says.

The report details how the contracts did not give legislative budget committees a chance to review, as is required by state law. The contracts were not approved by then-Gov. Hutchinson, which is also legally mandated.

“Vendors,” the report said, were not “held accountable.”

Medicaid director Andy Allison, who signed several of the contracts, resigned from state government in 2014 to work for McKinsey. He is still employed there today.

McKinsey & Company

Founded in 1926, the massive firm says they do business in 67 countries. The chances of an applicant securing employment at the company are 1%. This is less than the admission rate of any Ivy League college. Over time, McKinsey has garnered a reputation for being competitive, elite and selective.

The firm has come under fire for its work with several controversial clients. Under the Trump Administration, McKinsey contracted with ICE or Immigrations and Customs Enforcement (Gov. Sanders worked as Trump's White House Press Secretary). This was after the president had implemented his “Family Separation Policy” meaning children were detained in different facilities from their parents.

A ProPublica investigation said, during the Trump presidency, the firm fired many career employees and aimed to save money by degrading the quality of detainee life. This included cutting costs of food and decreasing the quality of prison life. A 2022 book, "When McKinsey Comes to Town," explains this further. McKinsey consultants felt that ICE’s food standards were “too high.” They worked to save money from detention centers by decreasing the quality of inmate food. The firm examined the “daily bed rate” moving many detainees into cheaper and worse managed facilities.

The firm has also worked with Johnson & Johnson to increase opioid sales and working with tobacco companies to boost product sales. On Feb. 5, 2021, McKinsey settled a lawsuit with the state of Arkansas after it promoted opioids. The company was forced to pay $5.4 million to the state.

Around 2015, McKinsey consulted with China on a plan called “Made in China 2025.” The initiative hoped to make China the “world's factory” by 2025. The plan brought condemnation from several international leaders including President Joe Biden. They partnered with the country again for the “Belt and Road” initiative, a massive global infrastructure project. The firm still performs services for about 19 Chinese state-owned companies.

Alexa Henning, a spokeswoman for Gov. Sarah Sanders, says she plans to "streamline state government, modernize, and improve the quality of service to Arkansans, as well as produce an estimated millions in savings to the state."

McKinsey did not respond to Little Rock Public Radio's request for comment.

Josie Lenora is the Politics/Government Reporter for Little Rock Public Radio.