is local spending better?

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Is Local Spending Better?

The Controversy over USAID Procurement Reform

By Casey Dunning November 2013


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Is Local Spending Better?The Controversy over USAID Procurement Reform

By Casey Dunning November 2013


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1 Introduction and summary

4 The evolution of USAIDs efforts

28 Tracking the results of USAIDs local procurement reform

31 Recommendations to cement

local procurement reform at USAID

36 Conclusion

37 About the author & Acknowledgements

38 Appendix: USAID country presence

39 Endnotes

Contents


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1 Center for American Progress | Is Local Spending Better?

Introduction and summary

Procuremen reorm is no a opic ha usually quickens he pulse. Bu effors a he

U.S. Agency or Inernaional Developmen, or USAID, o uilize oher counries

local governmens and organizaions o carry ou is programs on he ground have

riggered a debae ha will ulimaely affec millions o lives in he years o come.

Over he pas hree years, USAID has underaken an iniiaive o direc more o is

projecs around he globe o local parners in he counries in which i works. Te

agency has reerred o hese ongoing reorms under a series o differen names,including implemenaion and procuremen reorm, or IP; susainable parner-

ships; and local soluions. Despie he evolving nomenclaure, he basic premise

o he effor has remained he same: USAID is seeking o direcly work wih and

build he capaciy o local governmens, civil sociey, and he privae secor in he

counries in which i operaes. USAID mainains ha such a shif will make devel-

opmen effors more effecive, more enduring, and less cosly.

USAID began hese reorms afer recognizing ha i was exraordinarily depen-

den on large American or-profi conacors and nongovernmenal organi-

zaions, or NGOs, o carry ou is work. In fiscal year 2010, he firs year o

procuremen-reorm implemenaion, almos 65 percen o USAIDs grans

and conracs flowed o U.S.-based organizaions while less han 10 percen o

USAIDs developmen work was carried ou wih benefiing counry parners in a

op-line implemening role.

Given he levels o unding involved, i is no surprise ha rom is incepion,

procuremen reorm has been conenious and ha here have been a series o dis-

orions around is raionale, goals, and efficacy. Tis repor unpacks hese debaes

and beter siuaes USAIDs procuremen-reorm effors wihin he broader aimso aid effeciveness and developmen impac.

o dae, USAID has pursued differen approaches or is wo key parners in local

procuremen: naional governmens and local organizaions. Tis repor assesses

he sraegies employed or dealing wih boh groups and idenifies he poenial

benefis and challenges behind each o hem.


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Much o he debae o dae has predicably played ou as a ussle over unding

raher han a discussion o which approaches o developmen are mos effecive.

Criics o USAIDs reorm effors have claimed ha using local sysems more

exensively will increase risk and decrease levels o accounabiliy, bu have pro-

vided litle evidence o ha end. Te mos valid criicism has cenered upon he

inabiliy o he U.S. governmen o pursue legal acion agains non-U.S. organiza-ions should hey heoreically abscond wih unds. USAIDs due diligence in

repeaedly assessing he fiduciary capaciy o local insiuions, as well as effors

o build in muliple accounabiliy mechanisms, have helped ensure ha grans

and conracs direced o local organizaions have he same level o oversigh and

accounabiliy as hose direced o heir inernaional counerpars.

By FY 2015, USAID hopes o direc 30 percen o is annual grans and conracs

o local parners, in effec ripling USAIDs local procuremen effors rom FY

2009.1USAID should ocus on six disinc areas o urher insiuionalize is

reorm effor and ensure ha local procuremen reorm achieves developmenimpac beore 2015:

1. Clearly define the goals of local procurement reform. USAID needs a sronger

narraive around procuremen reorm. I USAIDs goal is o ulimaely have

every counry graduae rom he need or U.S. oreign assisance, developing

he capaciy o local governmens and organizaions is a logical sep in moving

away rom dependency oward sel-reliance. All o USAIDs unding sreams

should be held o a basic es: Are hey cos effecive? Are hey susainable? And

do hey make a lasing impac?

2. Make the data around local procurement-reform efforts more transparent.

As a par o is reorm effors, USAID has buil-in mechanisms ha give local

grans and conracs a high level o fiduciary scruiny, bu i has no ully shared

his analysis wih he public. o he urhes exen possible, USAID should

publicize inormaion abou is risk-assessmen processes or boh governmens

and local organizaions. USAID should also coninue o make disaggregaed

daa around is procuremen-reorm effors public, as i did or FY 2012.

3. Build local procurement plans into contracts with traditional donors.USAIDcurrenly has no way o racking he local subgranees o conracs awarded o

inernaional implemeners, and i needs o develop his capaciy. By demand-

ing hese daa and making hem public, USAID can encourage local capaciy-

building effors by inernaional conracors and NGOs.


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4. Ensure that staffing and training needs keep pace with reforms.USAID

requires a cadre o well-rained procuremen and conrac specialiss o work

effecively wih local parners. USAID needs o effecively prioriize is raining

and personnel developmen so ha field saff are as comorable working wih

local groups as hey are wih inernaional conracors.

5. Focus on the politics behind local procurement reform.Local procuremen

effors carry a number o benefis, including lower coss and greaer poenial

impac. Boh developmen expers and fiscal hawks should suppor procuremen

reorm because i conains a buil-in exi sraegy or successul programs. Ye

USAID sill needs o broaden poliical suppor or procuremen reorm. While

U.S. or-profi conracors will likely always resis procuremen reorm, USAID

and he U.S. NGO communiy should be able o find considerable common

ground on he opic, i U.S. NGOs are brough o he able as genuine parners.

6. Use local procurement reform to be more selective.Te screens applied duringhe risk-assessmen rameworks or procuremen reorm can also be effecive

in ideniying where he Unied Saes should direc assisance resources in he

firs place. USAID should uilize procuremen-reorm effors o help he agency

be more selecive and ocused on where aid dollars are direced.

By beter defining he raionale behind procuremen reorm, increasing rans-

parency, and using curren mechanisms o expand is parner base, USAID can

grealy increase is parnerships wih local insiuions while also building suppor

or his criical reorm wihin he U.S. developmen communiy.


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The evolution of USAIDs efforts

Te roos o he procuremen-reorm effor sprang rom wo major adminisra-

ion reviews o global developmen policy: he Presidenial Policy Direcive on

Global Developmen, or PPD, issued in Sepember 2010; and he Quadrennial

Diplomacy and Developmen eview, or QDD, released in December 2010. Te

PPD defined he ulimae goal o developmen as creaing he condiions where

developmen assisance is no longer needed, while he QDD pushed echnical

reorms designed o srenghen USAID. In response o he discussions ha hese

reviews generaed, USAID launched an ambiious se o reorms in November2010, known as USAID Forward.

Implemenaion and procuremen reorm emerged as a cenral pillar o USAID

Forward. Te raionale behind local procuremen resed on he ac ha USAID

could achieve beter and more susainable resuls i is assisance srenghened he

local insiuions and acors ha were ulimaely responsible or ransorming heir

own counries.

Iniial language rom he USAID Forward rollou idenified he specifics o pro-

curemen reorm as ollows:

USAID will change its business processescontracting with and providing

grants to more and varied local partners, and creating true partnerships to create

the conditions where aid is no longer necessary in the countries where the agency

works. o achieve this, USAID is streamlining its processes, increasing the use of

small businesses, building metrics into its implementation agreements to achieve

capacity building objectives and using host country systems where it makes sense.2

Te need or local procuremen reorm sprang rom he hugely unbalancednaure o USAIDs parner porolio. Afer deep budge cus in is operaing

expenses in he 1990s, USAID was essenially reduced o a conracing agency

wih limied in-house developmen experise. By FY 2010, 65 percen o program

unds wen o U.S.-based implemeners, and hese U.S.-based organizaions ofen

operaed wih high overheads.3


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o address his imbalance and offer specific goal merics or procuremen reorm,

USAID is aiming o direc 30 percen o USAID program unds o parner gov-

ernmens, local organizaions, and local civil sociey in he counries in which i

works by FY 2015. Tis goal would encourage a broadening o USAIDs parner

base and enhanced compeiion among inernaional and local parners.

Unorunaely, USAID did no manage he rollou o procuremen reorm paricu-

larly adroily, soking he ire o U.S.-based or-profi and nonprofi implemeners

alike by a ailure o consul on he conours o he effor. USAID would be spend-

ing is money differenly, and ha clearly would be conroversial wih he organiza-

ions ha received he larges amouns o unding rom USAID. ighly or wrongly,

American or-profi conracors and NGOs el ha hey were being disparaged.

In January 2011, USAID Adminisraor ajiv Shah was exceedingly blun in

arguing or reorm:

Tis agency is no longer satisfied with writing big checks to big contractors and

calling it development. Weve already accelerated our funding to local NGOs

and local entrepreneurs, change agents who have the cultural knowledge and

in-country expertise to ensure assistance leads to real local institutions and last-

ing, durable growth. All of this is part of the most aggressive procurement and

contracting reform our agency has ever seen.4

In he same speech, Adminisraor Shah also lamened a developmen indusry,

akin o he miliary indusrial complex, ha was ull o incenives designed o

prolong our effors, raher han reduce hem.

Many o USAIDs U.S.-based parners reaced sharply o he plan. While hese

groups had always suppored he conceps o local ownership and helping coun-

ries graduae rom aid more rapidly, hey also had very real concerns ha shifing

hundreds o millions o dollars o local parners would hur heir botom line.

Making maters worse, USAID did no anicipae he srong reacions ha pro-

curemen reorm would galvanize and seemed o go ou o is way o anagonize

some o is parners a a ime when hese implemeners were already lookinga reduced unding. Many U.S. NGOs and conracors el ha USAID creaed

an arificial divide beween inernaional and local organizaions ha ailed o

accoun or inernaional parner experise and capaciy. USAID was also ill-pre-


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pared o address imporan congressional concerns abou he plan. As a resul,

Congress, which should have been an enhusiasic supporer o he reorms

given heir poenial or cos savings and more effecive developmen programs,

wasand remainsskepical.

Bu here were also vocal supporers o he new reorms. Coaliion groups suchas he Modernizing Foreign Assisance Nework suppored procuremen-reorm

effors o creae efficien local governmens, hriving civil socieies and vibran

privae secors, hereby making counries more accounable o heir ciizens while

helping hem graduae rom U.S. assisance.5Oxam America praised USAID or

leading a renaissance ha pus poor people in he drivers sea.6

U.S. nonprofi implemeners greeed he reorms lukewarmly, eeling ha

USAIDs local procuremen effors largely ignored he significan conribuions

o U.S.-based NGOs and heir exising paterns o work wih local counerpars.

Te iniial response o Ineracion, an NGO umbrella group, enumeraed hemany conribuions o U.S. NGOs around he world while also expressing a hope

o build on our parnerships wih USAID in suppor o he adminisraors new

vision or U.S. global developmen.7

In conras, U.S. or-profi conracors mobilized quickly in an effor o roll

back he reorms beore hey could begin. Under he banner o he Proessional

Services Council, a Washingon-based lobbying group, some 50 conracors

ormed he Coaliion o Inernaional Developmen Companies and derided

USAID or inaccuraely porraying he value o or-profi developmen parners

o heir muual derimen and employed a proessional lobbying firm o help

cemen opposiion o he reorms on Capiol Hill.8

Perhaps mos imporanly, USAID missed a crucial sep in quickly cemening his

reorm by no clearly explaining he connecion beween procuremen reorm and

more effecive developmen pracice and resuls. Te ocus was almos exclusively

on he 30 percen ha would no longer flow o U.S. organizaions raher han he 70

percen o he budge ha sill would. Debaes abou how o make all o USAIDs

assisance more effecive, more accounable, and less risky were largely absen.

Congress enered ino he procuremen-reorm ray in April 2012, wih ep.

Darrell Issa (-CA) and he House Commitee on Oversigh and Governmen

eorm expressing concern ha unneling grans direcly o unaccounable and

ofen corrup oreign governmens wihou he necessary saeguards would lead

o reduced program accounabiliy and effeciveness. Te commitee also called

or deailed fiduciary daa around USAIDs procuremen-reorm effors.9


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While he admitedly hosile congressional leter and subsequen examinaion

were no doub spurred in significan par by he or-profi firms opposed o

reorms, he congressional scruiny was useul in highlighing wo crucial areas

ha USAID needed o address as i made he case or procuremen reorm: risk

and ransparency.

A clear sraegy rom USAID on how i planned o address corrupion and

accounabiliy, especially as i ramped up unding direced hrough parner gov-

ernmens, should have been a he cener o debaes around local procuremen.

Te hisory o U.S. aid ransers direcly o parner governmens is, a bes, mixed.

During much o he Cold War period, he Unied Saes showered money on cor-

rup, unaccounable governmens, ofen based largely on geopoliical calculaions.

In he more modern era, he massive amoun o aid o Egyp under miliary-dom-

inaed governmens and he huge invesmens in Pakisan, Aghanisan, and Iraq

during periods o poor and corrup governance raised serious quesions. USAID

needed o demonsrae ha i was willing o direc money o governmens in hedeveloping world ha had earned ha righ by being democraic, accounable, and

willing o make hard choices.

USAID incorporaed a comprehensive plan in June 2012 o manage risk, ackle

corrupion, and promoe accounabiliy in is parnerships wih local govern-

mens. Te plan is based o a large degree on daa and merics ha es govern-

men insiuions and heir fiduciary sysems beore resources are ranserred.

Te agency urher operaionalized heir procuremen-reorm effors hrough a

comprehensive Experience Summi held in November 2012. Te summi was a

direc response o iniial criiques and brough ogeher USAID saff and imple-

mening parners o build a baseline body o knowledge around counry sysems

srenghening.

Te agency has also worked o increase ransparency around local procuremen

effors, releasing he USAID Forward Progress epor in March and deailed

implemener daa or FY 2012 in Ocober.10Beore ep. Issas leter, USAID had

no offered any deailed resource daa on he breakdown o is implemeners.


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As a resul o congressional pressure, USAID released implemener daa or

FY 2011, offering some saggering figures. In FY 2011, USAID obligaed roughly

$1 billion direcly o he 25 larges oreign governmen recipiens. By comparison,

USAID obligaed $3.7 billion o is 25 larges conracors. Tis imbalance was

urher exacerbaed in FY 2012, when USAID obligaed $669.7 million direcly

o he 25 larges oreign governmen recipiens and $5.4 billion o is 25 larges

conracors.13

Te able below shows he op five conracors and oreign governmens by FY

2011 and FY 2012 obligaed amoun.

Local procurement-reform efforts have seen continued congressional

attention, with explicit language in both the House and Senates FY

2014 State and Foreign Operations Appropriations bills. Both versions

include a section establishing limitations on direct government-

to-government assistance, requiring congressional approval on all

assistance agreements exceeding $10 million.

The legislation also calls for stringent transparency and account-

ability mechanisms, similar to those that USAID is already under-

taking. Congressional members are keen to see assessments of a

governments fiduciary standing and management capabilities,

the establishment of clear and achievable objectives, existence of

effective monitoring and evaluation systems, and the possibility that

assistance be available on a cost-reimbursable basis.

11

Additionally,both bills call for the USAID administrator to suspend aid to any

government that is suspected of either violating the aforementioned

requirements or misusing funds.

The threshold willand shouldbe up for debate as it introduces

a potentially dangerous level of congressional micromanagement.

The House bill further introduces a requirement that the secretary of

state certify each government-to-government program, a condition

that would make it nearly impossible for USAID to conduct the

programs in a timely manner.

Absent the above provisions, the remaining requirements are n

prohibitive for procurement-reform efforts; instead, they comp

ment USAIDs more specific requirements for direct governmen

government assistance.

While both bills take a risk-averse tone to procurement reform

noting the potential landmines in this undertaking, it is worth n

ing that the Global Partnerships Act of 2013 offers more positiv

language around the potential behind procurement reform. As

principle of assistance, the legislation notes that:

When partner country systems are transparent, accountable an

effective, the United States Government should use such system

for delivering assistance. When use of such systems is not feasib

the United States should establish additional safeguards and m

sures that strengthen rather than undermine country systems.1

Though this act is unlikely to pass, it nonetheless signals an imp

tant shift in tone on the U.S. approach to development assistan

Congressional action on procurement reform


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In 2013, USAID rebranded is procuremen-reorm effors as susainable devel-

opmen hrough high-impac parnerships. In is 2013 USAID Forward Progress

epor, he agency anchored hese reorms around he cenral pillars o aid effec-

iveness and more clearly ariculaed how and why hese shifs in unding were

criical o beter developmen resuls.14

I is worh noing, however, ha USAID used he repor o reierae is com-

mimen o direc 30 percen o program unds o local insiuions by FY 2015.

While his meric cerainly is no he only measure o successul reorm and does

no indicae he resuls o developmen effors, USAID mus keep an ambiious

arge ha allows i o keep moving orward wih is local sysems effors.

Why shifting to local procurement is important

Despie he iniial criicisms o USAIDs reorm effors, he agencys move o

increase is parnership wih local insiuions broadly reflecs bes pracices in

inernaional developmen. I anyhing, he Unied Saes is sill well behind he

curve in adaping and insiuionalizing such an approach.

FY 2011 FY 2012

Contractor Amount Government Amount Contractor Amount Government Am

Chemonics International $732.1 Pakistan $357.8 Chemonics International $681.8 Pakistan $4

Partnership for SupplyChain Management

$417.7 West Bank and Gaza $200.0 John Snow, Inc. $482.9 Afghanistan $

John Snow, Inc. $396.3 Jordan $196.6Partnership for Supply

Chain Management$431.7 Georgia $

Development Alternatives,

Inc.$294.4 Afghanistan $62.7

Development Alterna-

tives, Inc.$324.5 Uganda $

Berger Black Veatch Joint

Venture$261.4 Georgia $52.4 Abt Associates $319.2 Zambia

TABLE 1

Top USAID allocations, FY 20112012 (in millions of dollars)

Source: Authors calculations based on USAID budget and contracting data. IC Tworks, Where does USAIDs Money Go?, available at http://www.ictworks.org/sites/default/files/uploaded_pics/2011/top-20-uscontractors-countries.pdf(last accessed October 2013); U.S. Agency for International Development, Where Does the Money Go? Excel Spreadsheet, available at http://www.usaid.gov/documents/1870/whe

money-go-excel-spreadsheet(last accessed October 2013).
http://www.ictworks.org/sites/default/files/uploaded_pics/2011/top-20-usaid-contractors-countries.pdfhttp://www.ictworks.org/sites/default/files/uploaded_pics/2011/top-20-usaid-contractors-countries.pdfhttp://www.usaid.gov/documents/1870/where-does-money-go-excel-spreadsheethttp://www.usaid.gov/documents/1870/where-does-money-go-excel-spreadsheethttp://www.usaid.gov/documents/1870/where-does-money-go-excel-spreadsheethttp://www.usaid.gov/documents/1870/where-does-money-go-excel-spreadsheethttp://www.ictworks.org/sites/default/files/uploaded_pics/2011/top-20-usaid-contractors-countries.pdfhttp://www.ictworks.org/sites/default/files/uploaded_pics/2011/top-20-usaid-contractors-countries.pdf


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In December 2011, he Global Parnership or Effecive Developmen

Cooperaion ou o he Aid Effeciveness Forum in Busan, Souh Koreahe

ourh such global orum on aid bes pracicesurged donors o ake advanage

o opporuniies or local procuremen, business developmen, employmen

and income generaion in developing counries.15In anicipaion o Busan,

Brian Awood, ormer chair o he Organisaion or Economic Co-operaion andDevelopmen, or OECD, Developmen Assisance Commitee, pinpoined pro-

curemen as he main issue o ackle on he donor side.16

Capable and accounable public financial-managemen sysems are a he core o

good governance or developing and developed naions alike. Improved public

procuremen processes allow counries o beter manage no only donor resources

bu also all public resources, including naural resource and ax revenues ha

accrue o a governmen. Sound fiduciary sysems encourage good and responsible

governance as ew oher insiuions can.

Te underlying logic behind local procuremen is a simple ye powerul one: By

unneling developmen assisance hrough local organizaions and governmens,

developmen leadership and capaciy is cenered in-counry. Te ulimae aim o

U.S. assisanceor any assisanceis o help creae susainable governmens,

insiuions, economic opporuniies, and healhy ciizens. I is no o ensure ha

developmen assisance coninues in perpeuiy.

Numerous sudies have borne ou he conclusion ha using counry sysems

srenghens hose sysems. A recen in-deph sudy by Eurodad, a nework o

European developmen NGOs, concluded ha, Using counry procuremen sys-

ems helps srenghen hem as scarce aid resources are used o build he capaciies

o core sae uncions raher han on expensive and redundan parallel srucures.17

Tis conclusion is no bound o a small se o sable, well-governed counries.

An excellen series o repors rom he Overseas Developmen Insiue finds

ha localized aid can have enormous capaciy-building effecs while achieving

he same developmen resuls as radiional assisance.18Surprisingly, hey noed

ha local procuremen can play a posiive role in ragile saes, no jus middle-

income counries.

When considered hrough his lens, local procuremen offers a double dividend

or developmen across he ull specrum o parner counries.19Wih a procure-

men process ha ocuses on local organizaions and governmens, parner coun-

ries benefi rom increased job opporuniies, resource flows, and capaciy. Tis

injecion o unds offers a sraegic boos o he local economy and workorce.


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Perhaps he sronges raionale or smarer implemenaion and localized

procuremen pracices is ha hey are inherenly more susainable. Again, i he

ulimae goal o developmen assisance is o pu aid donors ou o business,

hen he projecs, organizaions, and insiuions mus be susainable beyond

ouside suppor. Tis comes rom puting local organizaions and governmens

a he helm o developmen effors raher han simply rying o impor expensiveinernaional experise.

Results to date

USAID has parnered wih local governmens and organizaions since is incep-

ion, represening 50 years o engaging in hese ypes o parnerships. Wha is

new or USAID is he argeed scale-up o effors afer wo decades o almos sole

reliance on exernal conracors and implemeners.

TABLE 2

USAIDs local institution funding

FY 2010 FY 2011 FY 2012 FY 2013

9.7% 11.1% 14.3% 19.4%20

Source: Authors calculations based on a USAID report and FY 2013 USAID transactional data. See U.S. Agency for International Development,

USAID Forward Progress Report 2013 (2013), available at http://www.usaid.gov/sites/default/files/documents/1868/2013-usaid-forward-report.pdf;Foreign Assistance Dashboard, U.S. Agency for International Development, available at http://www.foreignassistance.gov/web/Agency_USAID.aspx?budTab=tab_Bud_Impl(last accessed October 2013).

Each counry will vary in is implemenaion o procuremen reorm, and i is

vial o underscore ha he 30 percen arge is mean a he aggregae global level.

USAID is no pursuing an increase o local procuremen o 30 percen in every

counry in which i operaes, bu raher i is aiming o have an average o 30 per-

cen o is oal unding direced o hese sources.

o reach he 30 percen goal, USAID is working wih a hos o new developmen

parners. Tese new developmen parners will largely all ino wo caegories: par-

ner governmens and minisries, and local nonprofi organizaions and businesses.

USAID recenly released deailed FY 2012 daa on where is parner eniies arelocaed. As Figure 1 indicaes, USAID coninues o largely parner wih U.S.-based

implemeners o dae and will no doub coninue o do so. oal unding o non-U.S.

based vendors, which includes oher donors and parners no necessarily based in

he recipien counry, did no exceed $2.3 billion rom 2007 hrough 2011. By con-

ras, unding o U.S.-based eniies reached $10.3 billion during his same period.21
http://www.usaid.gov/sites/default/files/documents/1868/2013-usaid-forward-report.pdfhttp://www.usaid.gov/sites/default/files/documents/1868/2013-usaid-forward-report.pdfhttp://www.foreignassistance.gov/web/Agency_USAID.aspx?budTab=tab_Bud_Implhttp://www.foreignassistance.gov/web/Agency_USAID.aspx?budTab=tab_Bud_Implhttp://www.foreignassistance.gov/web/Agency_USAID.aspx?budTab=tab_Bud_Implhttp://www.foreignassistance.gov/web/Agency_USAID.aspx?budTab=tab_Bud_Implhttp://www.usaid.gov/sites/default/files/documents/1868/2013-usaid-forward-report.pdfhttp://www.usaid.gov/sites/default/files/documents/1868/2013-usaid-forward-report.pdf


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Te non-U.S. vendor caegory groups govern-

mens and local organizaions ogeher, bu

USAID has a differen sraegy and raionale or

hese wo ses o implemeners. How USAID

approaches local procuremen opporuni-

ies and chooses he ypes o implemenerso direcly award depends on he conex and

landscape o each counry.

In counries where governance and civil sociey

are boh srong and capable, USAID may

pursue increased grans and conracs wih

boh he governmen and local organizaions.

In counries where he governmen has ineffec-

ive fiscal insiuions, USAID is more likely o

direc is increased unding hrough civil soci-ey while avoiding direc governmen conracs.

USAIDs government-

to-government assistance

Direc governmen-o-governmen financ-

ing is no a new unding modaliy or USAID,

hough is applicaion over he pas decade has

been uneven, as Figure 2 shows. From 2007 o

2011beore USAID began is local procure-

men pushUSAID gave an annual average

o $920 million o parner governmens. In

FY 2012, he agency obligaed $677 million

direcly o 41 parner governmens; hrough

he firs nine monhs o FY 2013, USAID has

direced $610 million o parner governmens.22

Beore USAIDs push o increase local procure-men o governmens and organizaions, governmen-o-governmen unding

comprised he bulk o local procuremen. USAID devoed large resources o a lim-

ied number o counries, ofen o sraegic securiy ineres. In FY 2011, USAID

devoed 87 percen o governmen-o-governmen allocaions o jus five sraegic

FIGURE 1

USAID resource allocation by vendor origin

0

5

10

15

2007 2008 2009 2010 20

9.5

2.1

2.8

3.64

1.94

10.33

3.35

2.33

8.75

2.96

1.07

8.1

7.16

1.44

2.13

USDB

illions

U.S. vendors

Non-U.S. vendors

Other/unidentified

Note: Other/unidentified indicates a vendor for which USAID does not provide geographical inforUSAID has not released complete transactional data for FY 2012.

Source: USAID Obligations Data, FY 20072011, shared in USAID meeting.

0

500

1,000

1,500

2,000

MillionsofU.S.

Dollars

Total U.S. budget support

Budget support as percentof total U.S. flows

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

FIGURE 2

U.S. official development assistance directed tobudget support in developing countries

Source: Organisation for Economic Co-operation and Development, Statistics, available at http://oecd.org/statistics/(last accessed October 2013).
http://www.oecd.org/statistics/http://www.oecd.org/statistics/http://www.oecd.org/statistics/http://www.oecd.org/statistics/


16/43


governmens: Aghanisan, Pakisan, Jordan, Georgia, and he Wes Bank and

Gaza.23While hese governmen allocaions ofen received significan scruiny,

unding o inernaional implemeners dwared direc governmen assisance.

As par o is local procuremen push, USAID is seeking o diversiy he coun-

ries and minisries wih which i works. In FY 2012, USAID Missions offered 69awards o 30 differen counries. Te bulk o hese awards65 percenwen o

specific minisries or secors wihin hese parner counries.24

Far and away, Aghanisan and Pakisan remain he counries wih he larges

direc governmen-o-governmen financing mechanisms. In FY 2012, a com-

bined 21.1 percen o hese Missions unding wen o local governmen pro-

curemen. In absolue erms, his amouned o roughly $560 million in direc

obligaions o he governmens o Aghanisan and Pakisan.25

emoving hese wo ouliers, he Europe and Eurasia region represens he largeslevels o governmen-o-governmen unding by percenage, wih 8.8 percen o

hese Missions unds allocaed o parner governmens.26Tis ranslaes o $36

million in direc obligaions o European and Eurasian governmens.

Perhaps no surprisingly, he bigges increase in local procuremen effors was also

in he Europe and Eurasia Missions. In FY 2010, only 1.6 percen o unding wen o

local insiuions. Only wo years laer, ha oal jumped o almos 9 percen, likely

reflecing he relaive sophisicaion o governmens and civil sociey in his region. 27

In absolue erms, Arican governmens received he mos governmen-o-gov-

ernmen unding in FY 2012when Aghanisan and Pakisan are no consid-

ered. Direc governmen unding oaled $55 million in sub-Saharan Arica wih

Uganda, Zambia, and Ghana receiving he larges allocaions.28

USAIDs efforts to work with local organizations

Te oher key pillar o USAIDs effors in procuremen reorm is increasing engage-

men wih local businesses, NGOs, and civil-sociey groups. Tese organizaionscan offer crucial counry experise, as well as a high level o flexibiliy o adap o

changing circumsances. Local organizaions have local connecions, he abiliy o

operae in challenging environmens, and skills in neworking wih oher groups,

including he governmen. By engaging direcly wih local organizaions, USAID

hopes o susainably build he capaciy and experise o hese groups so ha hey

may hold heir governmen o accoun and advocae or effecive developmen.


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USAID allocaed $687.6 million o local organizaions in 72 counries and regions

in FY 2012. Almos 76 percen, or $520 million, o his unding wen o local

nonprofis. According o he USAID Forward Progress epor, Missions in he

Europe and Eurasia region have seen he larges increase in local organizaion

unding, moving rom 4.3 percen o Mission unding in FY 2010 o 15.4 percen

in FY 2012.29

Tis regional rend is similar or direc governmen unding.

While USAIDs pas local procuremen effors were largely cenered on govern-

men-o-governmen financing, recen reorms have brough a greaer number o

local organizaions and businesses o USAID as parners. In FY 2011, unding o

local organizaions firs eclipsed ha o unding o counry governmens by less

han a enh o a percen. Tis rend coninued in FY 2012 wih 1.6 percen more

unding going o local organizaions han direcly o governmens.30


18/43


USAID is not alone in its efforts to strategically increase its local pro-

curement efforts. Aid agencies across the globe invest considerable

resources in partner governments and local organizations.

After an independent review of AusAIDAustralias aid programin

late 2010, AusAID prioritized allocating aid through recipient govern-

ments. According to the 2011 Quality of Australian Aid report prepared

by AusAIDs Office of Development Effectiveness, the agency is already

channeling 23 percent of its assistance through country systems.31

As a part of the Paris Declaration on Aid Effectiveness, EuropeAid,

the aid agency of the European Commission, pledged to channel 50

percent of government-to-government assistance through country

systems.

32

Aid funding from the European Union has moved to focuson initiatives that are in line with recipient country priorities, and

there have been strategic efforts to decentralize management, build

local capacity, and discourage parallel structures.

Indeed, some national development agencies see the use of local

systems as the standard, not the exception. Canadas International

Development Research Centre has cultivated such strong ties with lo-

cal researchers and developing organizations that it has had to devise

a reverse target of sorts, instituting a target of 20 percent of funds for

Canadian researchers and organizations.33

But it is the United Kingdoms Department for International Develop-

ment, or DFID, that offers the best comparator, as the United Kingdom

has recently made efforts to re-evaluate its procurement practices to

better focus on capacity building. From 2008 to 2010, DFID channeled

about two-thirds of its money through country systems. Since then,

DFIDs administrative outlays have been cut by 33 percent as the de-

partment continues to pursue procurement reform predicated on de-

centralization, direct budget support, and partner country syste

One of DFIDs biggest challenges in increasing local procurem

despite budgetary cuts has been improving in-country procur

expertise. DFID has recorded some difficulty in finding employ

equipped with the knowledge necessary to procure at the loca

but also able to look at procurement as part of an overall deve

ment strategy.35

At a broad level, this is the same sort of in-country capacity-build

challenge facing USAID as the agency seeks to expand its engag

with in-country partners and rebuild its own technical capacity. T

aid agencies focused on increased local procurement must not o

seek greater capacity in local institutions but also worry about hathe capacity in-house to manage new partners and new procure

USAID could also draw lessons from the political ramifications o

DFIDs procurement-reform efforts. U.K. Prime Minister David C

erons Conservative Party made the United Kingdoms budgeta

concerns part of its platform, and the DFID reformsgeared to

market competition and improving efficiencyhave dovetaile

nicely with this agenda. Under the coalition government, the n

development direction will be tailored to results, delivery, and

for money.36Future funding is slated to involve increased com

tionincluding active encouragement of non-U.K. biddersacloser monitoring of results.37

DFIDs repeated use of catchphrases such as value for money

leverage greater impact have seemingly helped it garner poli

support for the reforms, even though DFID, like USAIDs procur

reform, plans to increase competition by encouraging non-U.K.

ders and diversifying its partner base.

Procurement reform in other development agencies


19/43


Mitigating risk and ensuring accountability

As USAID has ramped up effors o work wih local parners, i has atemped o

build in muliple mechanisms o ideniy and manage possible risks in local procure-

men. isk managemen and accounabiliy measures are presen rom he idenifi-

caion and planning phase o a projec hrough o implemenaion and evaluaion.

As noed, criics o procuremen reorm claim ha working hrough local parners

will invariably lead o greaer wase and corrupion. ecen sudies have debunked

his assumpion, however, demonsraing ha he use o local sysems carries a

level o risk similar o ha o working wih radiional inernaional parners.38

USAID has sough o cover is invesmens wih he high levels o fiduciary assess-

men and accounabiliy, sressing ha, as wih all o is developmen programs,

he goal is o ideniy poenial risks and srive o couner hem. Developmen as

an enerprise always carries a cerain amoun o risk, and i would be impossible ound risk-ree developmen projecs.

o ideniy and assess poenial new parnersand ensure ha curren parners

are held o he same high sandardsUSAID has adoped wo differen sraegies

and approaches or is counry parners and local organizaions.

Assessing risk in partner governments

For he pas hree years, in seeking o expand his mode o direc developmen

financing, USAID has applied a Public Financial Managemen isk Assessmen

Framework, or PFMRF, o curren and new counries poised o receive direc

USAID unding. Ou o he 101 counries in which USAID works, 33 counries

have undergone a leas one sage o he our-sage PFMRF process.

Each PFMRF sage is designed o build upon he nex and pinpoin i, where,

and how USAID migh use is developmen dollars wihin a naional governmen,

minisry, or subnaional governmen. Te PFMRF is buil o no only assess a

counrys financial sysems bu o also develop a broader undersanding o a coun-rys governance landscape. In his way, USAID hopes o gaher a complee picure

o a counrys fiduciary and managemen sysems and he exernal risks ha migh

make hem vulnerable. As such, PFMRF is no only a useul accouning ool bu

also a powerul gauge o a counrys overall prospecs or developmen.


20/43


Te PFMRF process is usually iniiaed a he behes o he USAID Mission

direcor and saff. As such, USAID in-counry personnel are he key drivers

behind he idenificaion and assessmen o risk in a given counry. I is heir rela-

ionships wih parner counry officials and knowledge o counry sysems ha are

criical in moving he PFMRF process orward and ulimaely deermining i a

projec should be pursued and wha ype o mechanism migh bes be uilized.

Sage 1 o he PFMRF is an iniial apid Appraisal. USAID, in conjuncion

wih parner counry governmens, underakes a naional assessmen o a coun-

rys financial, governance, and public-secor healh. Te apid Appraisal is no

mean o dive ino projec or unding specifics, bu raher o offer an indicaion o

wheher a counry environmen is broadly amenable o direc USAID unding.

Te apid Appraisal sage is also where USAID ensures ha poenial invesmens

will no suppor a governmen ha does no suppor is people. isk comes in

many orms, and fiduciary risk is no USAIDs sole concern. Te risk o undermin-ing civil sociey hrough suppor o an unaccounable governmen is jus as prob-

lemaic as a leakage o unds, and he apid Appraisal is designed o deermine his.

USAID offers sric guidance on governance assessmen as a par o is financial

managemen assessmen o guaranee ha any direc governmen unding would

no undermine civil sociey. Some counries have no moved beyond Sage 1

assessmens due o governance concerns, despie having srong financial man-

agemen sysems.

In Sage 2, parner governmens undergo a deeper dive ino he specific sec-

or or minisry o governmen wih which USAID inends o parner. Tis isk

Assessmen sage is mean o horoughly es and ve financial managemen sys-

ems and he civil service members who work wihin hem.

For insance, i USAID idenifies counry X as a good poenial parner or a proj-

ec on srenghening is rural healh clinics, he Sage 2 isk Assessmen would

ocus solely on he Minisries o Healh and Finance, as hose would be he wo

bureaucracies handling USAID unds or his paricular projec. Tis approach

would seem o acknowledge ha he qualiy o differen minisries and heir lead-erships are ofen highly variable in he developing world.


21/43


A counry can undergo muliple Sage 2 isk Assessmens depending upon where

a poenial projec migh beperhaps in muliple disrics across a counryor

wha secor i migh involvedifferen isk Assessmens would be necessary or a

vaccinaion program as opposed o a eacher-raining program.

Te final wo sages o he PFMRFProjec Design and Projec Agreemenare designed o build upon he resuls o he apid Appraisal and isk Assessmen

o design and move orward wih a program ha, o he urhes exen possible,

miigaes agains idenified risks and achieves maximum developmen oucomes.

While USAID Mission direcors and saff ofen begin he PFMRF process wih

a specific projec and implemening mechanism in mind, he assessmen offers a

chance o refine and adop he projec scope and implemening mechanism ha

will bes serve boh he parner counry and USAID.

As noed, USAID has already uilized his assessmen ool in a number o coun-ries. Tiry-five counries have compleed a Sage 1 apid Appraisal, and 23

counries are currenly conducing or have concluded Sage 2 isk Assessmens.

welve counries did no proceed beyond Sage 1. Complee inormaion abou

he progress o counries in he Sage 3 and Sage 4 processes is no readily avail-

able; USAID should make his inormaion more ransparen.


22/43


TABLE 3

Countries undergoing USAIDs public financial management

risk-assessment frameworks

Stage 1:

Rapid Appraisal

Stage 2:

Risk Assessment

Stage 3:

Project Design

Stage 4:

Project Agreement

Armenia

Bangladesh

Barbados

Benin

Colombia

Dominican Republic

East Timor

El Salvador

Ethiopia

Georgia

Ghana

Haiti

Honduras

Indonesia

Jamaica

Jordan

Kenya

Kosovo

Liberia

Malawi

Mali

Moldova

Morocco

Mozambique

Nepal

Paraguay

Peru

Philippines

Rwanda

Senegal

Serbia

South Africa

TanzaniaTrinidad and Tobago

Zambia

Note: Stage 3 and Stage 4 data are incomplete and only represent information that is publicly available.

Sources: PFMRAF table shared at USAID meeting; U.S. Agency for International Development, Review of USAIDs Partner-Country and LocalOrganization Assessments Under Implementation and Procurement Reform (2013), available at http://oig.usaid.gov/sites/default/files/

audit-reports/9-000-13-003-s_0.pdf; and U.S. Agency for International Development, Implementation & Procurement Reform: Achievements,USAID Forward 4 (2012).

Bangladesh

Barbados

Colombia

El Salvador

Ghana

Honduras

Jamaica

Jordan

Kenya

Kosovo

Liberia

Malawi

Moldova

Mozambique

Nepal

Peru

Rwanda

Senegal

Serbia

South Africa

TanzaniaTrinidad and Tobago

Zambia

Ghana

Liberia

Rwanda

Ghana

Liberia

Rwanda


23/43


USAID has no oulined wha happens o a counrys programs i i ails he Sage

1 assessmen, bu i should. Tere are hree basic alernaives i a counry does no

pass Sage 1:

1. USAID and he parner counry pu in place a plan o address he muually

idenified problems unil a counry can complee Sage 1.

2. USAID deermines ha assisance should be direced hrough local and iner-

naional parners raher han he governmen.

3. USAID disconinues assisance because he counry in quesion does no

appear o be a good parner.

Negaive resuls rom a Sage 1 apid Appraisal would seem o be a good reason or

USAID o scale back is developmen effors in cerain counries i he quesions

raised by he appraisal canno be resolved expediiously. USAID programs coninueo be spread over a very wide variey o counries, and a more ocused approach o

assisance would likely increase he effeciveness o programs in general.

Anoher cause or concern is he ac ha PFMRFs have no been underaken in

some o USAIDs larges and mos imporan parner governmensAghanisan,

Egyp, Pakisan, Uganda, and Wes Bank and Gaza. Tis has creaed he unor-

unae impression ha he PFMRF is an exam only given o counries ha will

be able o pass i. USAID should include he aoremenioned counries in he

PFMRF process and make clear he cases where assisance is being coninued

or geosraegic purposes despie PFMRF resuls.39

USAID has noed ha i plans o reroacively underake PFMRFs in hese

counries ha would apply o new grans and conracs.40As i sands, how-

ever, Aghanisan and Pakisan comprise significan levels o USAIDs oal

governmen-o-governmen calculus. I hese counries are o be used as a par o

USAIDs procuremen-reorm effors, hen hey should be subjec o he same risk

assessmens as oher local governmens.

Despie congressional criicism ha USAID will give money o unaccounableand ofen corrup oreign governmens, he agency has by and large picked he

righ counries o underake he PFMRF process.41Ou o he 101 counries

in which USAID operaes, only 23 have made i o he Sage 2 process o he


24/43


PFMRF. As Figure 3 shows, when compared

o oher USAID counries, hese counries

are advanced along muliple indicaors o

governance, capaciy, and civil-sociey open-

ness. USAID is no simply passing ou direc

governmen grans o any and all o he parnercounries wih which i works.

Once poenial risks have been idenified and

miigaed agains, he benefis o hese govern-

men-o-governmen ransacions by USAID

canno be oversaed. Each parner governmen

has unparalleled knowledge o is counrys

need and conex and can bring his experise

o bear in he implemenaion o susainable

developmen effors. Moreover, he use ocounry sysems helps build echnical and

financial capaciy and apply hese same sysems

o responsible procuremen and accounabil-

iy o he counrys own local businesses and

NGOs, domesic resources, exracive indus-

ries, and invesmen loans rom nonradiional donors.

A parnership beween USAID and he governmen o Ghana illusraes his

poin. USAID has provided $22 million o he Ghanaian governmen or he

consrucion o schools, municipal educaion offices, and saniaion aciliies.

Te parnership has brough in he experise o Ghanas Minisry o Educaion,

Meropolian Works Deparmen, and Minisry o Finance o survey, prioriize,

and map ou he inended schools and offices. USAID has provided echnical

experise in environmenal, financial, and procuremen managemen and pro-

moed public-privae parnerships wih 69 consrucion firms seleced hrough

Ghanas procuremen sysems.42

o ensure susainabiliy, he governmen o Ghana organized local communiy

orums ha emphasized paricipaion hroughou he enire process o schoolconsrucion. USAID gave hese communiy sakeholders inormaion ha will

allow hem o hold heir governmen accounable in ensuring ha he schools con-

inue o provide qualiy educaion. As par o he parnership beween USAID and

Ghana, he Ghanaian governmen also provided 25 percen o he oal unds. 43

FIGURE 3

Governance comparison of USAID countries

Note: WGI stands for the World Banks Worldwide Governance Indicators.

Source: Authors calculations based on World Bank, Worldwide Governance Indicators, available a

info.worldbank.org/governance/wgi/index.aspx#home (last accessed October 2013); InternationalPartnership, The Open Budget Index: Timeline, available at http://survey.internationalbudget.org/(last accessed October 2013); and Freedom House, Freedom in the World 2013 (2013), available at

www.freedomhouse.org/sites/default/files/FIW%202013%20Booklet.pdf.

0%

10%

20%

30%

40%

43.45

27.32

45.04

30.58

46.13

28.88

36.83

21.52

25.95

17

WGI controlof corruption

(0100;100 is best)

WGI governmenteffectiveness

(0100;100 is best)

WGI voice andaccountability

(0100;100 is best)

Open budgetindex

(0100;100 is best)

Freedom Hcivil liber

(06060 is be

Stage 24 USAID countries Other USAID countries

45%

25%

35%

15%

5%
http://survey.internationalbudget.org/#timelinehttp://survey.internationalbudget.org/#timelinehttp://survey.internationalbudget.org/#timeline


25/43


Should Sage 2 isk Assessmens indicae ha a counry is no ye ready or direc

iniial unding, USAID has a muliude o implemening ools a is disposal o

suppor counry sysems while mainaining high levels o accounabiliy. Te

fixed-amoun reimbursemen agreemen, or FAR, is one such ool ha maxi-

mizes he efficacy o direc governmen financing wih much less risk or USAID.

FARs are designed o ocus on a specific se o oucomes o which USAID

ataches a predeermined cos. Once he governmen complees he agreed-upon

objecives, USAID reimburses he cos coningen upon final approval by he

agency ha he compleed work is done in accordance wih inernaional san-

dards and requiremens. USAID is uilizing FARs o enable governmens o

design, implemen, and monior developmen programs in a number o secors,

rom he consrucion o schools and roads o governmen-run social saey nes

or he poores o he poor.

USAID, or example, has negoiaed a FAR wih El Salvador o suppor isemporary Income Suppor Program or Salvadorans affeced by devasa-

ing floods. FARs can also be used o enac programs and build capaciy a he

subregional governmen level. In wanda, USAID has underaken a five-year, $40

million FAR wih eigh disric governmens o rehabiliae approximaely 800

kilomeers o rural eeder roads. Te program is srenghening he echnical capac-

iy o hese local governmens while reducing risk, lowering coss, and ensuring

accounabiliy or USAID.44

Assessing risk in local organizations

Because o he wide array o poenial local organizaions in a given counry, he

process by which USAID idenifies and parners wih local eniies is less sraigh-

orward, hough rigorous.

Te firs sep is ideniying poenial civil-sociey organizaions and businesses

ha migh achieve beter developmen oucomes wih direc assisance rom

USAID. Many o hese organizaions have some rack record o already working

wih USAIDs U.S.-based NGO and conracor parners as subgranees.

Some U.S.-based NGOs and conracors have readily made heir subgranee

inormaion available and encouraged hese organizaions o apply or direc und-

ing. Save he Children, or example, has offered muliple case sudies o how, afer

building capaciy in a local organizaion, i swiched rom being he prime granee

o becoming a subgranee under he local organizaion.45


26/43


From 2007 o 2012, Save he Children was he prime recipien o a major USAID

ood-securiy projec in Guaemala.46I worked wih local expor consorium

AGEXPO o run small-scale projecs ha opened up markes or poor rural

armers. AGEXPOs success in running hese projecs combined wih USAIDs

push o parner locally allowed AGEXPO o become he prime recipien in

2012, wih Save he Children acing as a subgranee o provide echnical sup-por and insiuional capaciy. Save he Children expecs ha in he nex gran

cycle, AGEXPO will no need any inernaional NGO suppor, allowing

AGEXPO o coninue is effors in Guaemalan ood securiy and Save he

Children o prioriize is resources elsewhere.

Tis is a powerul example o he poenial o local procuremen reorm. USAID

does no currenly have he capabiliy o rack subgranee awards, however, which

is a huge missed opporuniy o ideniy poenial local parners and a logical nex

sep i he agency hopes o become less relian on large umbrella conracs over

ime. Should USAID hope o ideniy hese local organizaions, he onus is on heprime granee, ofen large inernaional implemeners, o proffer his inormaion.

USAID is also pursuing inernal sraegies o ideniy and work wih local organi-

zaions. Many USAID Missions have underaken exensive mapping exercises o

beter assess he civil-sociey and privae-secor landscape and pinpoin poenial

organizaions.

USAIDs mapping guidelines uncion in much he same way as he PFMRF

does. Te agencys mapping consiss o our phases:47

1. Counry and secor conex

2. Invenory o civil-sociey and privae-secor organizaions

3. Capaciy developmen marke analysis

4. Drawing conclusions

Te ull specrum o his mapping is designed o cover poliical and economicsysems, culural and communiy conex, legal and regulaory environmen,

civil-sociey landscape, and privae-secor landscape. Te counry mapping allows

USAID Mission saff o ocus limied personnel and resources on he organizaions

and secors ha have he mos poenial o ably carry ou USAID programming.


27/43


In a leas 15 counry and regional Missionsincluding Egyp, Ghana, Kenya,

Peru, he Philippines, Senegal, Eas Arica, and souhern AricaUSAID has also

deployed Local Capaciy Developmen eams o work wihin Missions o build

he fiduciary and managemen capabiliies o argeed local organizaions. Tese

eams conduc exensive workshops and briefings o amiliarize local eniies wih

USAID financial and reporing requiremens.

While he reach o hese eams has reporedly been uneven, he local organiza-

ions ha have worked wih USAID Local Capaciy Developmen eams have

gone on o successully compee or USAID grans despie very dauning applica-

ion procedures.48

I USAID hinks a local eniy has he poenial o implemen a direc gran rom

USAID, he agency adminisers he Non-U.S. Organizaion Pre-Award Survey.

Te survey is a ool ha allows USAID o make a responsibiliy deerminaion

abou he organizaion under consideraion. Te survey has hree objecives:

1. Deermine wheher he organizaion has sufficien financial and managerial

capaciy o manage USAID unds in accordance wih USAID requiremens.

2. Deermine he mos appropriae mehod o financing o use under he poenial

USAID award.

3. Deermine he degree o suppor and oversigh necessary o ensure

proper accounabiliy o unds provided o he organizaion.49

USAID has ye o release any deails around he adminisraion o his survey,

including where i has been adminisered and how many local organizaions i has

idenified. Tis inormaion would offer a criical meric o success in USAIDs local

procuremen-reorm effors and could be shared in an aggregae way ha would

no impinge upon he proprieary inormaion o local businesses or organizaions.

Much like wih governmen-o-governmen financing, USAID has muliple poen-

ial implemening mechanisms o use in is work wih local organizaions. One o

he key mechanisms ha USAID has used o culivae new local parners is hefixed obligaion gran, or FOG. Much like he FAR, his flexible gran model

ocuses on implemenaion and oucomes raher han inpus.


28/43


Te FOG mechanism provides paymens based on oupus, such as milesones

achieved, raher han inpus, such as maerials used, as is he case wih USAIDs

radiional gran unding. USAID revised is FOG policy in Augus o allow or a

ocus on capable parners wih limied experience in direcly receiving and imple-

mening USAID grans.

Tis procuremen sraegy is especially useul in counries wih weak or poor

governance srucures and a srong and acive civil sociey. In Kazakhsan, or

example, USAID enered ino a parnership wih he local NGO Echo o engage

in rapid voer educaion afer he Kazakh governmen called an early elecion.

USAID and Echo agreed upon a $105,000 FOG o underake a naionwide voer-

educaion campaign wih media coverage in all 16 provinces. USAID echnical

saff closely moniored he program and offered assisance o NGO saff in manag-

ing and implemening he program.50

USAID was able o miigae risk hrough he FOG mechanism while also ensur-ing accounabiliy or resuls. Because USAID underook his aciviy wih a local

NGO, i cos less han hal o wha i would have cos hrough an inernaional

implemener. Tere were no direc coss associaed wih a U.S.-based headquar-

ers, which led o considerable labor and ransporaion savings. Whas more,

USAID did no have o accoun or mobilizaion and close-ou coss since Echo

exised long beore he agency apped i or his aciviy and coninues o exis

afer is conclusion. Equally imporan, i helped build he capaciy o an impor-

an civil-sociey organizaion in he process. Srong local organizaions will

ulimaely help make Kazakhsan more democraic han USAID alone can.

Tis arrangemen proved successul or USAID as i allowed hem o ap a new

local parner while miigaing risk o he agency and he American axpayer. Te

FOG mechanism was an effecive means o ocusing Echo on concree resuls ied

o paymen milesones.

Te poenial in USAID parnering wih new and varied local organizaions is grea,

bu i will be incumben upon he agency o provide he same level o ransparency

around hese grans and conracs as wih governmen-o-governmen financing.


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Ensuring adequate levels of trained personnel

No surprisingly, a significan shif in how he agency awards grans and conracs

requires a commensurae shif in saffing paterns and skills. One criical elemen

o risk miigaion and accounabiliy is ensuring ha USAID saff, especially

Mission saff, have he appropriae level o echnical experise. When USAIDlaunched plans o expand is local procuremen effors, i explicily included a

call o recrui and reain procuremen officers. ebuilding he agencys inernal

echnical capaciy and rebalancing he workorce o provide ull oversigh o local

conracs and grans is a necessary cornersone or he successul implemenaion

o procuremen reorm and successul programmaic resuls.

As described above, USAID Mission saff are a he ronlines o deermining he

fiduciary healh and capaciy o boh governmen sysems and local organizaions.

For he pas hree years, USAID has sough o overcome a dearh o personnel and

compeence in procuremen and implemenaion afer his experise arophied wihsaffing declines in he 1990s. As he HELP Commission noed, USAID shrunk is

saff levels rom 3,163 in 1992 o 2,040 in 2006, while increasing is program und-

ing rom $7.68 billion in 1996 o $10.66 billion in 2006.51Fewer and ewer people

a USAID had he responsibiliy o oversee more and more money.

o reesablish is experise in ideni ying viable local parners, USAID has se he

goal o hiring and raining he echnical and conracing saff idenified under is

implemenaion and procuremen plan by FY 2013.52By FY 2015, he agency

hopes o have in-sourced a range o key echnical posiions.

While he rheoric o USAIDs commimen o build up is echnical saff has been

on poin, declines in USAIDs operaional budge mean ha he agency mus do

more wih less o successully scale up local procuremen. As discussed, USAID

has deployed muliple Local Capaciy Developmen eams o assis local NGOs

and privae-secor businesses in becoming compeiive or USAID grans. Tese

eams are a welcome saffing addiion and will creae criical local capaciy, bu

hey are only available in a limied subse o counries.

Some available budge inormaion does shed ligh on he curren levels o USAIDsconracing resources. In USAIDs FY 2013 Congressional Budge Jusificaion, he

agency added a new line iem o is operaing expense reques: he Implemenaion

and Procuremen eorm Iniiaive.53In FY 2012, USAID received $12.6 million

or new hires and capaciy building in suppor o is effors. In FY 2013, he agency

received an esimaed $5.1 million or addiional procuremen-reorm hires.


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Less inormaion is available on echnical and conracing saff levels a he

USAID headquarers in Washingon, D.C., and in USAID Missions around

he world. USAID has noed ha i is drawing procuremen experise rom is

Developmen Leadership Iniiaive, which has been seadily saffing up since FY

2011. Only 16 direc hires, however, were requesed or he Implemenaion and

Procuremen eorm Iniiaive in FY 2013.

o provide effecive oversigh and risk managemen, USAID mus have appro-

priae levels o rained echnical and conrac expers. USAID should endeavor

o recrui seasoned proessionals in his space wih he abiliy o provide he

necessary oversigh o USAID, Congress, and American axpayers. I is no only

abou hiring more people bu also ensuring ha curren personnel are effecively

rained. Tis will no only allow appropriae risk managemen bu will also help

creae a new generaion o local businesses and NGOs ha have he capaciy and

experise o compee or grans on he inernaional sage in suppor o develop-

men effors in heir counries.


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Tracking the results of USAIDs

local procurement reform

Full-hroaed debaes abou he merics behind procuremen reorm, wheher i

can adequaely manage risk and keep insiuions accounable, and when USAID

will offer greaer ransparency on is effors have served o overshadow he main

goal behind increased local procuremen: beter developmen resuls.

Te raionale and impeus behind local procuremen reorm is predicaed on

he ac ha parner governmens and local organizaions will be able o achieve

moreand more susainabledevelopmen oucomes per developmen dollarhan radiional pracices.

As wih insiuionalizing any major business-model overhaul, however, a long-

erm perspecive is necessary. A presen, USAID and he developmen com-

muniy have ye o conclude programs wih unding explicily direced o local

insiuions under hese reorms. Once a body o evidence is available, hese devel-

opmen resuls mus be compared o similar programs underaken by radiional

parners boh in erms o cos and effeciveness.

Tis comparison will help shape a discussion around real program resuls, and

should be par o a broader effor o ocus on oupus raher han inpus in our

aid programs. By sraegically sourcing more resources o local organizaions and

parner governmens, USAID is aking a long-erm view o developmen, signal-

ing ha i values srong and capable local organizaions and governmens as a

developmen oucome. Tus, USAID should cener merics or success o local

procuremen effors around impac achieved, cos o oucomes, susainabiliy o

oucomes, and capaciy buil.

USAID noes ha i has buil merics or is local procuremen-reorm effors inonew programming, bu has ye o make hese merics publicly available. An indica-

ion o how USAID is planning o measure he success o hese reorm effors

would help o ocus he resuls rame around aid effeciveness and developmen

bes pracices raher han simply resource inpus.


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While i sill may be some ime beore he developmen communiy is able o

access and compare resuls daa across program implemeners, capaciy-building

merics or boh parner governmens and local organizaions should be avail-

able. Because a cerain level o capaciy and fiduciary compeence mus be presen

beore USAID moves orward wih a gran or conrac, i would be beneficial o

USAID o make his inormaion available. More counries moving ino Sage3 assessmens and more local organizaions passing he Non-U.S. Organizaion

Pre-Award Survey are posiive, angible signs ha local procuremen effors are

building capaciy.

Anoher imporan meric or he success o local procuremen effors would

be he number o subgranees ha become prime granees in a given counry.

Insiuions ha move rom sub- o prime- saus will presumably have undergone

effecive capaciy-building measures o achieve his saus. Inernaional imple-

meners who are able o effecively build capaciy and shepherd local organiza-

ions should be encouraged and urher uilized in a given counry. Tis approachbuilds in a direc exi sraegy by ensuring local ownership and capaciy building

in a given projecsomehing ha fiscal hawks and developmen praciioners

should boh suppor.

Indeed, some USAID Missions are wisely building his relaionship ino heir

program design and soliciaion. USAID Malawi, or example, included a com-

ponen o address he challenge o ideniying local organizaions in heir new

agreemens. Each primary implemening parner will pair wih a local group as a

subparner wih he inen o build heir capaciy o manage heir own grans and

conracs. Afer hree years, he relaionship will swich, wih he subgranee local

organizaion becoming he prime recipien and he inernaional organizaion

becoming he subgranee.54

USAID should encourage oher Missions o adop his policy more broadly and

creae baseline daa on which local eniies are currenly subgranees wih he

poenial o becoming direc awardees.

In addiion o an emphasis on oucome measures, shifing o locally procured

developmen aciviies can also offer significan cos reducion. Tis benefio local procuremen has been los in many discussions around USAIDs local

procuremen effors despie shrinking developmen assisance worldwide and a

reduced naional budge in he Unied Saes.


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In his ime o budge auseriy, he cos savings available rom local procuremen

provide significan incenives or USAID o pursue procuremen reorm. Savings

are derived rom areas such as reduced adminisraive and overhead coss and

locally sourced goods and maerials. In urn, more unds can flow direcly o he

insiuions ha USAID is seeking o assis while providing beter resuls and

impac or less money.

USAID has already noed many examples o success on his ron wih projecs

implemened o ull oucome a a racion o he cos. Te agency, or example,

reduced is cos o build schools in Senegal by 50 percen as a resul o shifing he

same conrac o a fixed-price reimbursemen model wih he local governmen

raher han procuring rom a radiional inernaional implemener.55

In USAIDs income suppor program in El Salvador, he agency invesed $10.3

million as o April 2012a relaively nominal sum. Because he Salvadoran

governmen adminisered he program raher han an inernaional conracor,however, USAID saved $1.8 million in adminisraive coss. Tis means program

beneficiaries realized 18 percen more o USAIDs invesmen as a resul o his

mode o procuremen.

Local governmens have long recognized ha inernaional implemeners

ofen carry an ousized price ag. In Aghanisan, a ormer Cenral Bank official

explained how he bank urned down a USAID offer o build regional branches

due o exorbian cos esimaes. Te USAID conracor quoed a cos o $130,000

per branch ha hen increased o $170,000 and hen $630,000 per branch. Tis

final esimae included $250,000 or subconracing coss alone. Te Cenral Bank

oped no o use USAID or consrucion o hese branches and insead used is

own unds, a a cos o $85,000 per branch.56

Tese cases no doub represen maximalis examples o how local procuremen

can increase cos-effeciveness and are a rariy in he sums saved. Bu hey do offer

concree examples o he muliple benefis o local parners and he American

axpayer when developmen aciviies are locally procured.

esuls rom USAIDs local procuremen effors willand shouldbe measuredby ar more han he atainmen o 30 percen o direc local unding by FY 2015.

Clear merics or success should be buil around capaciy building, program

resuls, and cos-effeciveness. While hese merics will cerainly ake longer o

accrue as programs are implemened, USAID should signal is inen and make

public he indicaors by which i will measure local procuremen-reorm success.


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Recommendations to cement

local procurement reform at USAID

Since he launch o is procuremen-reorm effors, USAID has diligenly sough

o expand and insiuionalize an ehos o local capaciy building and parnership.

Te agency has underpinned his wih ambiious inpu merics and has sough o

diversiy is parner base boh wihin and across counries.

Wih wo years unil is firs official benchmark o FY 2015, USAID mus double

down on is effors o expand local procuremen, while ensuring ha risk is

appropriaely managed, insiuions are held accounable, and unds are disbursedransparenly. Te recommendaions below offer ideas o help USAID build upon

is early success wih local procuremen worldwide, while coninuing o build sup-

por or his reorm in he U.S. developmen communiy.

Clearly define the goals of local procurement reform

Alhough i is an imporan inerim arge, direcing 30 percen o program

unding o local insiuions will no, in and o isel, consiue success or local

procuremen reorm.

USAID mus ake a long view and look beyond FY 2015 o ideniy wha he

success o local procuremen reorm will look like. I mus hen define he

merics o success by which i and he developmen communiy can hold reorm

effors accounable.

Beyond ransiioning a leas 30 percen o unding o local governmens and

organizaions, USAID could define he success o local procuremen reorm in a

number o dimensions, including:

Capacity building:How many new minisries, organizaions, and businesses are

now able o effecively implemen USAID awards? Wha are he mos imporan

elemens o capaciy o USAID, and how is he agency measuring hem wihin

local insiuions?


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Cost-effectiveness:How much program unding and operaional resources

has USAID been able o save by procuring locally? How is USAID using hese

savings? Has he agency been able o re-inves hese savings ino programming,

achieving greaer developmen resuls wih less money?

Sustainability:Are locally procured programs proving o be more susainable inheir implemenaions and resuls han hose programs implemened by radi-

ional parners?

Impact:Is here a difference in he developmen impac o a program when i

is managed and implemened by a local eniy as opposed o an inernaional

parner?

Focus:Are program unds being sraegically direced o counries where our aid

can be mos effecive?

Make the data and metrics around local

procurement-reform efforts more transparent

A a ime when USAID has rumpeed is relaive ransparency and pu significan

resources ino a robus Foreign Assisance Dashboard, he agency has done an

inadequae job ransparenly communicaing he differen elemens o procure-

men reorm o he wider developmen communiy. Inormaion is ofen no

published or ou o dae.

USAID mus make a concered effor o make more inormaion available or pub-

lic consumpion as i seeks o increase local procuremen. As a sar, he ollowing

pieces o inormaion should be made publicly available and regularly updaed.

Government-to-government assessment and funding data: USAID should

publish he saus o each counry along he PFMRF process, as well as when

each sage was underaken. I is undersandable ha he deails o hese assess-

mens canno be made public as hey may conain sensiive inormaion, bu

a op-level picure o how governmens are progressing hrough he PFMRFprocess would signal which counries are proving o have capable financial man-

agemen sysems.


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As counries progress beyond Sage 2, USAID should also clariy on which min-

isries or subnaional bodies he PFMRF is ocusing. Tis would offer a clearer

picure o naional capaciies and USAIDs work wihin a given counry.

Local organization assessment and funding data:USAID should rack and

publish he number o Non-U.S. Organizaion Pre-Award Surveys ha i suc-cessully adminisers in a given counry. Over ime, his inormaion should pro-

vide a good picure o he capaciy level o local organizaions in a given counry.

Again, USAID does no need o make he conens o such surveys available as

hey migh conain proprieary inormaion.

Local Capacity Development Teams:USAID should make he locaions o hese

eams in a given fiscal year available. Tis inormaion would prove helpul in

boh ideni ying where USAID sees he greaes poenial or local parners and

where oher donors and implemeners migh ocus effors should USAID no

be presen.

Project subgrantees:I USAID is no racking he subgranees o is awards in

a given counry, i is missing an imporan opporuniy o ideniy and build up

local organizaions ha already have experience in working wih and execuing

USAID programs. Over ime, his inormaion will also prove incredibly useul

or USAID o show how previous subgranees have become prime granees.

I he inernal capaciy is no available o rack his inormaion, hen USAID

should include his disclosure as a par o projec conracs.

Internal local procurement strategy:USAID should updae and make is

procuremen-reorm plan public. USAID had is original five-year plan publicly

available bu hen reraced i afer he agency received inense criicism over

is reorm plan. USAID should updae is plan based on communiy eedback,

make i publicly available, and hen commi o revisiing i annually as new daa

and eedback are received.

Build local procurement plans into contracts with traditional donors

Te USAID Mission in Malawis plan ha requires inernaional implemeners

parner wih a local organizaion o build is capaciy over hree years is an excellen

model ha oher Missions should implemen. Building hese parnerships ino con-

racs allows USAID o achieve programmaic resuls while also expanding is par-

ner base and grooming local organizaions o evenually become prime awardees.


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Ensure that staffing and training needs keep pace with reforms

USAID mus mach is srong rheoric and sraegy wih he echnical experise

necessary o implemen such reorms a he Mission level. Te agency will only

coninue o increase he number o awards ha i offers, and his will require

personnel wih in-deph procuremen and risk-assessmen knowledge. Tis is acriical ime o show he resuls o local procuremen, and he reorm should no

ge ahead o he abiliy o execue i.

Focus on the politics behind local procurement reform

Te ulimae success o local procuremen effors will require he suppor o he

U.S. developmen communiy, he adminisraion, and Congress. USAID should

clearly ariculae he raionale behind hese reormsincluding greaer resuls a

a reduced cosand convey he inheren value or money ha local procuremeneffors can achieve, boh in he shor and long erm. I USAID is ruly going o

work isel ou o business, local procuremen reorm is a required sep.

Wihin he wider developmen communiy, USAID should also shif ocus away

rom he 30 percen arge o a larger ocus on he effeciveness o 100 percen o

is programming. Is USAID unding, including he 70 percen flowing o inerna-

ional implemeners, achieving good developmen resuls? Are resuls ranspar-

en? Is risk being appropriaely managed? Te spoligh around hese imporan

issues should be on all implemeners, no jus local parners.

Use local procurement reform to be more selective

Effors o ocus on cerain counry sysems and civil sociey offer an opporune

ime or USAID o exercise greaer seleciviy and ocus in is developmen effors.

o a cerain exen, he agency has done his by limiing he counries o which i

sends Local Capaciy Developmen eams or in which i uses governmen sysems

or projecs. USAID should explicily orien is local procuremen effors hrough

a seleciviy rame, showing ha i will no be doing everyhing everywhere andwill also be selecive in he parners wih which i chooses o work.


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Conclusion

Behind USAIDs push or increased local procuremen is an explici recogniion

ha developmen mus be counry-led and counry-implemened in order o have

susainable impac. While he agency experienced significan growing pains in

launching his reorm, i has worked o insiuionalize and expand local procure-

men pracices so ha local soluions becomes a way o doing business or USAID,

no a fleeing developmen ad.

Bu here is sill room o grow. USAID mus make a concered effor o bringcongressional members and U.S. NGOs o he able as parners wih a sake in he

success o local procuremen. Boh members and NGOs bring unique perspec-

ives and will be key allies in carrying orward his vision beyond a single USAID

adminisraor or adminisraion.

Te sriden pushback o local procuremen reorm is a sign o he change in

business ha i ulimaely porends. USAID is maching he rheoric o puting

isel ou o business wih a unding and implemenaion model ha does jus ha.

Local procuremen reorm may no be he ho developmen opic du jour, bu he

long-erm impac ha i can deliver could very well oulas he agency isel.


39/43


About the author

Casey Dunningis a Senior Policy Analys or he Susainable Securiy and

Peacebuilding Iniiaive a he Cener or American Progress. Her research ocuses

on he effeciveness o U.S. developmen effors and oreign aid reorm. Prior

o joining he Susainable Securiy eam, she was a policy analys a he Ceneror Global Developmen where she conduced he ceners analysis on he

Millennium Challenge Corporaion and researched he applicaion o aid effec-

iveness principles wihin he U.S. Agency or Inernaional Developmen, or

USAID, wih a paricular emphasis on counry ownership, aid seleciviy, and

innovaive aid delivery models.

Previously, Casey worked on harmonizing gender and rule o law programs in

Liberia wih Emory Universiys Insiue or Developing Naions. She has also

worked a he Carer Cener and he Inernaional escue Commitee. Dunning

graduaed rom Emory Universiy wih a specializaion in inernaional polii-cal economy and has also compleed sudies a Oxord Universiy and riniy

College, Dublin.

Acknowledgements

I would like o hank my colleagues John Norris and Annie Malknech or excel-

len eedback and suggesions. I am especially graeul o he Hewlet Foundaion

or heir suppor o his work a he Cener or American Progress.


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Appendix: USAID country presence

Note: Countries in bold received government-to-government assistance in FY 2013. Data compiled from U.S. Agency for InternationalDevelopment, Where We Work, available at http://www.usaid.gov/where-we-work; Foreign Assistance Dashboard, U.S. Agency forInternational Development, available athttp://www.foreignassistance.gov/web/Agency_USAID.aspx?budTab=tab_Bud_Impl(lastaccessed October 2013).

AfricaAngolaBenin(Completed Stage 1; did not progress to Stage 2)BotswanaBurkina FasoBurundiCameroonCentral African RepublicChadCote dIvoireDemocratic Republic of CongoDjiboutiEthiopia(Completed Stage 1; did not progress

to Stage 2)The GambiaGhana(Implementing programs under Stage 4)GuineaKenya(Undertaking Stage 2 assessments)LesothoLiberia(Implementing programs under Stage 4)MadagascarMalawi(Undertaking Stage 2 assessments)Mali(Completed Stage 1; did not progress to Stage 2)MauritaniaMozambique(Undertaking Stage 2 assessments)NamibiaNigerNigeriaRepublic of the CongoRwanda(Implementing programs under Stage 4)Senegal(Undertaking Stage 2 assessments)Sierra LeoneSomaliaSouth Africa(Undertaking Stage 2 assessments)South SudanSudanSwazilandTanzania

(Undertaking Stage 2 assessments)UgandaZambia(Undertaking Stage 2 assessments)Zimbabwe

AsiaBangladesh(Undertaking Stage 2 assessments)BurmaCambodiaChinaIndiaIndonesia(Completed Stage 1; did not progress

to Stage 2)KazakhstanKyrgyz RepublicLaosMaldivesMongoliaNepal(Undertaking Stage 2 assessments)Philippines(Completed Stage 1; did not progress

to Stage 2)Sri Lanka

TajikistanThailandTimor-Leste(Completed Stage 1; did not progress

to Stage 2)TurkmenistanUzbekistanVietnam

Europe and EurasiaAlbaniaArmenia(Completed Stage 1; did not progress to

Stage 2)AzerbaijanBelarusBosnia and HerzegovinaCyprusGeorgia(Completed Stage 1; did not progress to Stage

2)Kosovo (Undertaking Stage 2 assessments)MacedoniaMoldova(Undertaking Stage 2 assessments)MontenegroSerbia(Undertaking Stage 2 assessments)Ukraine

Latin America and the CaribbeanBarbados (Undertaking Stage 2 assessments)BoliviaBrazilColombia(Undertaking Stage 2 assessments)CubaDominican Republic (Completed Stage 1; did not

progress to Stage 2)EcuadorEl Salvador(Undertaking Stage 2 assessments)GuatemalaGuyanaHaiti(Completed Stage 1; did not progress to Stage 2)Honduras(Undertaking Stage 2 assessments)Jamaica(Undertaking Stage 2 assessments)MexicoNicaraguaPanamaParaguay (Completed Stage 1; did not progress to

Stage 2)Peru(Undertaking Stage 2 assessments)

Trinidad and Tobago (Undertaking Stage 2 assessments)

Middle EastEgyptIraqJordan(Undertaking Stage 2 assessments)LebanonLibyaMorocco(Completed Stage 1; did not progress to

Stage 2)Syria

TunisiaWest Bank and GazaYemen

Afghanistan and PakistanAfghanistanPakistan
http://www.usaid.gov/where-we-workhttp://www.usaid.gov/where-we-workhttp://www.foreignassistance.gov/web/Agency_USAID.aspx?budTab=tab_Bud_Implhttp://www.foreignassistance.gov/web/Agency_USAID.aspx?budTab=tab_Bud_Implhttp://www.foreignassistance.gov/web/Agency_USAID.

is local spending better?

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