How McKinsey & Co., best known for advising Fortune 500 corporations, played by its own rules as it expanded into assignments for government clients.
A bipartisan group of senators announced a bill this week aimed at curtailing the risk of improper influence when companies do work for both the federal government and businesses or other clients. Under the legislation, federal agencies would require prospective contractors to disclose business relationships with “public, private, domestic, and foreign entities” that might pose a conflict of interest.
Existing federal rules already require the disclosure of actual or potential conflicts, which U.S. government agencies rely on to determine whether the situation can be mitigated or should disqualify a company from working on a given project. But most attention has focused on conflicts arising from work on different federal government projects. The question of how the existing rules apply to a contractor’s corporate clients is an issue that has received scant attention until recently, experts in contracting law say, and the new legislation seeks to remove any ambiguity around whether companies have to disclose possible conflicts arising from private-sector work.
In a press release, the bill’s sponsors cited a ProPublica report on the consulting giant McKinsey & Company and its work for the Food and Drug Administration. For over a decade, starting in 2008, McKinsey brought in tens of millions of dollars advising the division of the FDA responsible for drug regulation on a range of matters that directly affected the pharmaceutical industry, such as overhauling drug-approval processes and assessing tools used to monitor drug safety.
Yet the consultancy, which is known for maintaining a veil of secrecy around its client list, never disclosed to the FDA that other McKinsey consulting teams were simultaneously working for some of the country’s largest pharmaceutical companies. McKinsey’s commercial clients at the time included companies, such as Purdue Pharma and Johnson & Johnson, that were responsible for manufacturing and distributing the opioids that decimated communities nationwide. In some instances, McKinsey consultants working for drugmakers even helped their clients ward off more robust FDA oversight. According to the sponsors of the new bill, “This has called into question whether consultants from McKinsey were providing biased advice to the FDA, and whether that advice was influenced by their relationship with the drug makers whose business practices are a root cause of the opioid epidemic.”
McKinsey’s extensive consulting for opioid makers began to emerge in 2019, when ProPublica first reported on it. Among the firm’s engagements was to help Purdue Pharma “turbocharge,” in McKinsey’s words, sales of the company’s flagship painkiller, the highly addictive OxyContin. Last year, McKinsey paid nearly $600 million to settle legal claims related to its opioid work, acknowledged in a statement that its efforts for Purdue “fell short” of the firm’s own standards and pledged not to take on opioid-related projects going forward. Also last year, the House Committee on Oversight and Reform launched an investigation into McKinsey’s role in the opioid epidemic and its potential conflicts of interest.
“We have directly seen the danger that conflicts of interest can pose in government contracting, such as when the consulting firm McKinsey worked for opioid manufacturers at the same time it was working for the FDA on opioid-related projects,” Sen. Maggie Hassan, D-N.H., one of the bill’s sponsors, said in the press release announcing the legislation. “Our bipartisan bill would help ensure that companies that enter into a contract with the government are acting in the best interest of the American people.”
The other sponsors of the legislation, which is titled the Preventing Organizational Conflicts of Interest in Federal Acquisition Act, are Sens. Joni Ernst, R-Iowa; Chuck Grassley, R-Iowa; and Gary Peters, D.-Mich., who chairs the Senate body considering the bill, the Homeland Security and Government Affairs Committee.
McKinsey spokesman Neil Grace contended in a statement to ProPublica that the firm was under no obligation to disclose its work for drug companies. (McKinsey is a sponsor of ProPublica events.) “Since McKinsey has not advised the FDA on regulatory policy or on specific pharmaceutical products, our consulting engagements with pharmaceutical companies did not create a conflict of interest with McKinsey’s consulting work for the FDA,” Grace said. “Given the absence of a conflict of interest, there was no requirement for any McKinsey disclosure.”
There’s no evidence that McKinsey consultants working at the FDA took steps to benefit the firm’s commercial clients. Yet existing federal procurement rules require contractors to disclose relationships that present not only actual but also potential conflicts of interest, as well as “the existence of any facts that may cause a reasonably prudent person to question the contractor’s impartiality because of the appearance or existence of bias.” Those rules were incorporated into McKinsey’s FDA contracts, which ProPublica obtained after filing a lawsuit under the Freedom of Information Act.
A spokeswoman for the FDA, Lauren-Jei McCarthy, declined to comment. The agency previously told ProPublica that it takes its “role awarding contracts seriously” and works “to ensure the agency maintains high standards of integrity” under federal procurement rules. Last fall, an FDA official wrote in a response to inquiries from Hassan that the agency was not aware of McKinsey’s work for opioid companies until news reports on the subject emerged.
Jessica Tillipman, an assistant dean and government procurement law expert at George Washington University Law School, called the legislation a welcome development. As government contractors have merged in recent decades, the industry has grown more concentrated, increasing the risk of conflicts of interest, and the federal contracting industry, Tillipman said, could use clearer guidance on disclosure requirements tied to the private-sector work of government contractors.
“Any attempt to address these growing problems is a good thing,” Tillipman said, “and important to ensuring that we reduce these risks in the government procurement system.”