McKinsey & Company’s revenue from major US federal contracts in fiscal year 2023 fell to its lowest level since 2014, the Financial Times reported on Sunday.
The consulting firm’s revenue from work as a prime contractor for the federal government fell to $54.9 million in the fiscal year ended Sept. 30, 2023, from $71.1 million the year before, according to a government database.
The New York-based firm reached a peak revenue as a prime contractor of $142 million, before allegations of conflict of interest and misconduct in its work for opioid maker Purdue Pharma.
The U.S. Food and Drug Administration (FDA), formerly McKinsey’s largest federal client, has barred the consultancy from contracts for the past three years.
In 2021, McKinsey agreed to pay $641 million to settle claims from state attorneys general who said it helped fuel the opioid epidemic through its marketing work for Purdue and other opioid makers. In 2022, the firm agreed to pay $230 million to settle similar claims from local governments and school districts.
In 2022, a House committee questioned McKinsey CEO Bob Sternfels about an alleged conflict of interest in advising opioid manufacturers while working with the FDA. A preliminary committee report found 37 FDA contracts served by at least one McKinsey consultant who had simultaneously or previously worked for Purdue.
McKinsey’s federal work was also negatively impacted by the 2020 termination of its multiple-award contract with the General Services Administration (GSA). The GSA inspector general determined that the contract vehicle, which facilitates multiple departments to contract with preferred vendors at predetermined rates, had prices that were 10% higher than initially proposed.
McKinsey negotiated a new GSA multiple-award contract shortly before the start of fiscal year 2023, but it generated just $10 million. The multiple-award contract previously accounted for the bulk of the firm’s federal business.
Although prime contractor work has declined, McKinsey has taken on subcontracting work with big tech companies like IBM. McKinsey’s combined prime and subcontractor work increased in 2023 for the first time in five years, reaching more than $100 million.
Meanwhile, rival strategy consultancy Boston Consulting Group has increased its federal contracts from $104 million in 2018 to $343 million in 2023.
Source Global Research expects the US public sector consulting market to grow 4% in 2024 on the back of defense contracts, up from 7% in 2023.
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