KiwiRail’s recent decision to spend $8 million on a contract with McKinsey & Co. has drawn sharp criticism, as the consultancy was hired to help transform the rail company’s operations.
The deal was approved in late 2023, but the government was kept in the dark until February 2024. Rail Minister Winston Peters has expressed outrage, calling the spending “unacceptable.”
Ministerial Criticism Over Lack of Transparency
Winston Peters has expressed strong disapproval of KiwiRail’s handling of its $8 million deal with McKinsey & Co., pointing out the lack of government communication. Although the government backs KiwiRail’s growth, Peters made it clear that hiring consultants was not the right approach to address the company’s financial challenges.
“We want railways to succeed for this country, and we have provided KiwiRail with a rock-solid commercial foundation to do that,” Peters said. “The response to a difficult balance sheet should not be to bring in management consultants. This would not have happened had they told us their plans.”
Winston Peters was quick to clarify that his objection to KiwiRail’s $8 million contract with McKinsey & Co. did not extend to the consultancy firm. He confirmed that the firm had been contracted in a “lawful and competitive manner.”
KiwiRail Defends Hiring McKinsey
KiwiRail CEO Peter Reidy defended the $8 million McKinsey contract, asserting that the firm’s expertise was critical to the company’s goals. He explained that discussions with McKinsey began in October 2023, with the board—led by former Westpac CEO David McLean—approving the contract in November.
“By then, KiwiRail had a clear line of sight to its future potential, informed by international benchmarks from comparable railways and international expertise provided by McKinsey that otherwise would not have been available to KiwiRail,” Reidy said.
He also noted McKinsey’s contributions in “uplifting internal KiwiRail capability” and helping implement a structured process for long-term success. Reidy pointed out that McKinsey had previously worked with major New Zealand firms like Spark, The Warehouse, and Fonterra.
Financial Costs and Reported Benefits
The contract came at a fixed cost of $8 million, covering McKinsey’s six-month engagement with KiwiRail. While the price tag drew scrutiny, Reidy argued that the consultancy’s recommendations have already resulted in significant cost savings.
“In the six months to 28 February 2025, transformation initiatives, developed and implemented by KiwiRail as a result of the work with the consultants, have already achieved savings of $30m,” he said. “These initiatives are ongoing, and we are seeing positive changes in the way our people are working together to further improve services, grow value, and reduce costs.”
Reidy also reaffirmed KiwiRail’s commitment to continuous engagement with stakeholders, including employees, unions, and the government, as the company moves through its multi-year transformation plan.
KiwiRail’s Financial Challenges
The controversy over the McKinsey contract comes amid broader financial difficulties for KiwiRail. The company reported an operating surplus of $105.6 million for the 2024 financial year—a 33% decline from the previous year. This drop was partly due to a one-time $25.9 million expense.
Chair Rob Jager pointed to challenging macroeconomic conditions as a key factor affecting KiwiRail’s revenue.
“Although we maintained our market share, revenue from import and export freight was down 11% on the previous year,” Jager said.
“KiwiRail was able and willing to move more freight but too often it was not there to carry in a year in which consumer confidence fell and New Zealand’s imports shrank.”
Debate Over Spending Likely to Continue
KiwiRail’s transformation plan continues amid growing debate over the $8 million McKinsey contract. Government officials are still raising concerns about the transparency and fiscal responsibility of the deal, while the company argues that the investment will bring long-term benefits.
With increasing public scrutiny and financial pressures ahead, KiwiRail’s spending decisions are expected to be closely monitored in the months to come.