A few weeks after installing himself at City Hall, Deputy Mayor Dan Doctoroff called up an old friend at McKinsey & Company and asked for a favor: a few months of consulting services for absolutely no money.
The friend, Laurie Blitzer, who was running the nonprofit division for the firm at the time, obliged. Her team turned out a strategic plan for economic development—more office space and affordable housing, fewer tax incentives—that the Bloomberg administration is still following today.
Since then, McKinsey has obliged many more times, sometimes for pay, sometimes for free. The enigmatic consulting firm volunteered to troubleshoot the Police and Fire Departments’ responses on Sept. 11. McKinsey took part in the restructuring that followed the Mayor’s takeover of the Department of Education, and produced a $523,000 report on how the city could stand its ground against London in the struggle over global capital.
Most recently, it mined the data needed to drive PlaNYC, the seven-month process that led to Mr. Bloomberg proposing a congestion-pricing system and 126 other proposals to make the city more livable by 2030.
While previous Mayors have relied on McKinsey’s expertise—not to mention the veritable blessing that its name bestows upon any project it undertakes—it’s hard to imagine that any other Mayor has built up such a special relationship with the firm as Mr. Bloomberg has.
And why not? A C.E.O. Mayor and the consulting firm known for being a C.E.O.’s best friend. A leader who believes in looking at the cold hard data, and a company ready to provide it. Bloomberg’s “bullpen”; McKinsey’s “teams.” And so on and so forth.
“This is an administration that believes in strategic thinking, and they look for first-class support for that strategic thinking,” said John Alschuler, who, as president of Hamilton, Rabinovitz & Alschuler, sometimes competes with McKinsey for contracts. “They clearly have a high degree of respect for McKinsey, but they are hardly unique in that regard.”
Sometimes, McKinsey and the Bloomberg administration become one and the same: Mark Ricks, Mr. Doctoroff’s former chief of staff, is a McKinsey alum. He was the one who recruited a fellow McKinseyan, Rohit (Rit) Aggarwala, to become the director of the PlaNYC process last summer. Mr. Aggarwala, in turn, asked a partner at the firm, Asheet Mehta, to donate some services to help with establishing an advisory board of outside business, community and environmental leaders and to do other groundwork for the long-term plan. Mr. Mehta, like Laurie Blitzer, obliged, and a team of three started in September, later expanding to six.
But PlaNYC, which already had snowballed from a mere land-use plan into something much bigger, snowballed into something even bigger as the meetings got underway.
McKinsey was flying energy experts in from Houston and pressed 20 people into service at one time or other, Mr. Doctoroff said. By November, both client and firm decided that the pro bono thing just wasn’t cutting it.
“They did agree to do it on a pro bono basis, but it turned out to be infinitely more involved than we or they imagined, putting all of the strains of sustainability together,” Mr. Doctoroff told The Observer. “So, after several months of working essentially for free, they were so integral for what we were doing, and the burden we were imposing on them was so great, we needed a lot more help.”
Over the next four months, the board of the New York City Economic Development Corporation voted to start paying McKinsey, and has ended up so far awarding the company $1.525 million. While E.D.C.’s contracts are normally awarded through an open bidding process, this contract was not.
The process by which McKinsey moved from volunteer to high-grossing contractor raises questions about just how generous their pro bono work really is, and under what conditions the city should waive bidding requirements if someone has familiarity with the work.
“Caution needs to be provided when pro bono services serve as a stepping stone to the awarding of a sole-source contract,” said Dick Dadey, the executive director of the nonpartisan, better-government organization Citizens Union. “You don’t want to give unfair advantage to sole-source contracts, but you also don’t want to make government inefficient by requiring an R.F.P. [request for proposal] for work that may be justified through a sole-source contract.”
According to the City Comptroller’s office, the E.D.C. may award no-bid contracts as long as a deputy mayor signs off on the agreement and there is some compelling reason. In this case, the deputy mayor was Mr. Doctoroff, and the compelling reason was that a process was already underway.
“We found ourselves in a situation where we needed to get it done on an expeditious basis,” Mr. Doctoroff said. “Going out and rebidding it with someone who had no background, no degree of knowledge, getting it up to speed, would not have been possible.”
According to an E.D.C. spokesperson, McKinsey was awarded the first piece of the work in November for $100,000, or one-tenth the company’s normal rate; subsequent portions, voted on in February and March, were calculated at market rates, meaning that about $2.425 million worth of work was performed for 60 percent of the cost. In other words, despite the no-bid contract, McKinsey is still in the red when it comes to the city’s contracts, which is the way the city likes it.
Mr. Doctoroff contends that the Bloomberg administration uses plenty of other consultants. Indeed, many of the most lucrative contracts are for mundane traffic analyses or—God help us—rerouting school buses. Of the 14 economic-development studies that were outsourced since 2002, McKinsey has conducted just two of them. But, given the high price tag of PlaNYC, the firm has earned $2.05 million since the Bloomberg administration came into office in 2002, which is more than any other single strategic-consulting firm has received from the E.D.C.
More to the point, McKinsey tends to do the biggest of the big-think pieces, whether for a fee or pro bono. Troubleshooting the city’s emergency response led to a $17 million makeover of the Fire Department’s operations center. The $700,000 school study, underwritten by the Broad Foundation and the Robertson Foundation, provided the research for the city to distill 38 different school districts into 10 regional ones.
And that’s exactly the type of big thinking that McKinsey prides itself on. Founded in 1926, McKinsey was reinvented in the middle of the century by a man named Marvin Bower, who turned it from an accounting firm into an executive’s best friend. For a long time, McKinsey was so concerned with the big picture that it shunned providing industry specialists.
Now McKinsey appears like a cross between a business and a secret society. It doesn’t advertise itself—a spokesman refused to comment for this story—and yet manages to market itself admirably. Like the Masons, McKinsey alums pop up everywhere and form a lasting fraternity that can benefit their members admirably throughout their careers.
Slowly, McKinsey has developed a public-sector consulting practice. But, in some cases, their experts in private-sector industries, such as energy, can do double duty in advising governments how to manage the environment, as they did with PlaNYC.
But city officials dispel the notion that McKinsey’s help has set public policy, preferring instead the notion that it has informed it.
“They did not issue recommendations,” said Michele Cahill, a former senior education-policy advisor who worked with McKinsey on the school restructuring. “But they were very good at doing presentations: Should we keep this piece of it or that, and what are the consequences?”
Mr. Doctoroff said that the team didn’t play a role in setting policy on congestion pricing; the Mayor did that, he said. But McKinsey did do a lot of the research that the recommendation was based upon.
“They synthesized the district-by-district profiles, by Assembly district and community boards,” he said, “and they analyzed the census data to show how people actually got to work from each one of those.”
The conclusion is one of the more striking arguments in favor of Mr. Bloomberg’s plan: A mere 4.6 percent of New Yorkers who commute to Manhattan for work do so by car.
“They were integral to our analysis,” Mr. Doctoroff said.