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The eyes of even the most passionate foreign aid advocate are likely to glaze if you raise the subject of “procurement reform.” But in the just-released transcript of remarks made November 12 to an audience of USAID contractors, Maura O'Neill, Chief Innovation Officer to USAID Administrator Shah, and Ari Alexander, a member of USAID’s procurement reform team, admit that USAID procurement practices have been so dysfunctional as to have caused “great difficulty” for in-country local partners.  According to Mr. Alexander:

“Historically, local partners have had great difficulty working with USAID. Our larger multimillion dollar projects exceeded their capabilities and our burden of paperwork and red tape exceeded their patience.”

Well, yes.  But then in the past this has not been viewed as a big problem, because USAID awarded multi-year, multi-million dollar “Indefinite Quantity Contracts” (IQCs) to large U.S.-based contractors and delegated to these large, competent, sophisticated enterprises the task of working with local partners.  The assumption was that the big US-based contractor would be able to fulfill all those onerous red-tape requirements and then implement programs in recipient countries through a combination of expensive itinerant international consulting teams, palatial country-based offices and sub-contracts with local partners.

But with the reform agenda posted on USAID’s “forward” web site, the winds of change are gusting through their corridors.  It seems that the IQC is out of favor. In a FAQ released by USAID’s “Implementation and Procurement Reform (IPR) Group,” they respond to the question, “Will USAID continue to use Indefinite Quantity Contracts (IQCs)?” by saying:

“Yes, we still use existing IQCs. The IQC contract mechanism will still be used in the future, but the Agency will put out policy guidance on when it is appropriate to use an IQC and when a stand alone contract is preferred. In addition, in some cases, the size, substantive scope and geographic coverage of IQCs will be more limited in the future in order to have more opportunities for different and smaller firms and NGOs to participate."

Wow.  This is bureaucratese for “get thee behind me Satan.”  In the future, USAID is resolved to increasingly resist the temptation to commit millions of dollars all at once – whoosh – through the easy and convenient mechanism of the IQC.  But why are they turning away from the procurement mechanism that has served them so well in the past?  And what will they do instead?

According to the “Implementation & Procurement” section of USAID’s reform agenda, the goal of this part of the reform is to “[create] the conditions where aid is no longer necessary in the countries where we work [… by] contracting with and providing grants to more and varied local partners.”

But USAID might have pursued this goal simply by requiring their U.S.-based or international contractors to spend a larger share of their resources on sub-contracts to local partners.  So why the shift away from IQCs?  The hint comes in objectives #3 and #4 further down the same page. Here, USAID says it intends to “[i]ncrease competition and broaden USAID’s partner base, by increasing the number of prime contract awards” and “[u]se USG resources more efficiently and effectively, by increasing the number of fixed price contracts [… and] decreasing the use of “high-risk” procurement methods.”

I’m not aware of any systematic study of IQCs, e.g. by the GAO, but the seeming success of the immense USAID contract with Management Sciences for Health in Afghanistan is counterbalanced in the press and more than offset in the public perception by the reputed misdeeds of Halliburton in Nigeria (in the infrastructure sector) and just today the Academy for Educational Development (in the education and training sectors).  Although they don’t actually say so, the implication of the language on the USAID reform website is that USAID has concluded that IQCs are relatively inefficient, ineffective, and high-risk. Ba-da-bing. They are suggesting that introducing more competition, in part by awarding fixed price contracts to the lowest bidder, might improve efficiency and effectiveness and might reduce the risk.

But during the conference call, Mr. Alexander goes even further.  He says that USAID will move away from financing inputs towards financing outputs and outcomes.  In his words,

“[I]instead of basing our grants on inputs, [such as] [h]ow many people you will employ or how many trucks or bags of cement you will need, [w]e are designing them around [outputs, such as h]ow many local health workers and nurses will your program train or [around outcomes such as h]ow much can you boost crop yields by teaching farmers to use more productive seeds and fertilizer.”

To accomplish this goal, he says:

We’ve dramatically expanded the funding ceiling on this outcome-based grants to half a million dollars per year for up to three years, so that USAID can be more engaged in these local results-based efforts.

This is radical stuff.  The proposed reforms promise to dramatically improve the development impact of U.S. foreign assistance, both by building local capacity and by squeezing more development outputs and outcomes out of each U.S. foreign assistance dollar.  But the skeptic will also ask whether USAID is being realistic.

After all, despite any associated "inefficiency, ineffectiveness, and risk”, the IQC shifts the effort and the transactions cost of contracting with local partners from USAID to the big contractors. The first question in the FAQ addresses this issue of practicality. To the question, “The reforms seem labor intensive. How will USAID take on this extra work without additional staffing?,” USAID says that they can greatly expand the number of contracts and grants and shift to increased use of results-based contracting by simply training their existing staff. They suggest that the expense of this staff improvement will be covered by a “financing scenario” worked out with the OMB.

USAID is going in the right direction but in the context of budget constraints it will never be able to achieve this goal unless the overhead that previously went to IQC contractors is shifted into USAID’s administrative budget to oversee all these new contracts spread all over the world.  My impression is that congressional earmarking of USAID appropriations leaves little such wiggle room. I hope that, because USAID’s proposed procurement reform strengthens local capacity and incentivizes development, the 112th Congress will like the idea of this move toward results-based procurement – enough to turn a deaf ear to pleas from the U.S.-based contractors to retain the less competitive traditional procedures -  and to allow this proposed USAID implementation reform to move “forward” with all deliberate speed.