McKinsey's prime US federal contracts drop to nine-year low

16 January 2024 Consulting.us 2 min. read

McKinsey & Company’s revenue from prime US federal contracts in FY2023 fell to its lowest level since 2014, the Financial Times reported on Sunday.

The consulting firm’s revenue from prime contractor work for the federal government dropped to $54.9 million in the fiscal year ended September 30, 2023 – down from $71.1 million in the prior year, according to a government database.

The New York-based firm reached a prime contractor revenue peak of $142 million, prior to accusations of conflict of interest and misconduct in its work for opioid maker Purdue Pharma.

The US Food and Drug Administration (FDA), previously McKinsey’s largest federal client, has frozen the consultancy out of contracts for the last three years.

McKinsey in 2021 agreed to pay $641 million to settle claims from state attorneys general that it helped fuel the opioid epidemic through its marketing work for Purdue and other opioid manufacturers. The firm in 2022 agreed to pay $230 million to resolve similar claims by local governments and school districts.

In 2022, a House committee questioned McKinsey CEO Bob Sternfels about the perceived conflict of interest of advising opioid makers at the same time it was working with the FDA. A preliminary report from the committee found 37 FDA contracts staffed by at least one McKinsey consultant who simultaneously or previously worked for Purdue.

McKinsey’s federal work has also been negatively impacted by the 2020 termination of its General Services Administration (GSA) multiple award schedule contract. The GSA’s inspector general determined the contract vehicle – which makes it easier for various departments to hire preferred suppliers with pre-determined rates – had prices that were 10% higher than initially proposed.

McKinsey negotiated a new GSA multiple award schedule contract shortly before the start of FY2023, but it generated just $10 million. The schedule contract previously accounted for most of the firm’s federal business.

Though its prime contractor work has declined, McKinsey has taken on subcontractor work with large technology firms such as IBM. McKinsey’s combined prime and subcontractor work increased in 2023 for the first time in five years, reaching over $100 million.

Rival strategy consultancy Boston Consulting Group, meanwhile, has grown its federal contracting from $104 million in 2018 to $343 million in 2023.

Source Global Research expects the US public sector consulting market to grow by 4% in 2024 on the back of defense contracts, down from 7% in 2023.