Here’s a story worth watching over the next few days if only for some excellent outrage: The MTA Board has approved a five-year deal with the management consulting firm — and Jay Walder’s former employer — McKinsey & Co. As part of the contract, McKinsey, earning a nine percent fee, will assess $879.6 million in spending in ten categories identified by Accenture during its 2010 MTA treatment. The MTA believes McKinsey can help identify $20 million in annual savings, and if so, the company would receive less than $2 million. McKinsey thinks it can achieve “significantly greater savings” and could earn as much as $11.7 million if it identifies savings of $130 million or more.
So why will this be a story? Well, for one, people do not take kindly to the threat of consultants because it means job losses and consolidations are usually on the horizon. The public too looks at these contracts warily. As Brian Lehrer’s radio show proved in November, the average person thinks consulting treatments cost far more than they do and realize far less in savings than they do. The P.R. blowback then can be problematic. When coupled with the fact that McKinsey is Walder’s former employer, it’s easy to see a potential firestorm on the horizon.
Yet, in the Board PDF announcing the deal — check out pages 40-41 of this PDF — the MTA explains the justification for the treatment. McKinsey’s rate is actually a percentage point lower than what Accenture charged, and the MTA won’t have to pay much at all if the company fails to realize significant annual savings. The MTA, in its words, called the contract “fair and reasonable,” and it’s clear that it costs money to save even more. So I submit this to you for consideration: A deal such as this one should initially raise an eyebrow, but it seems as though this is not an improper contract for the MTA to approve.