5 takeaways from the USAID supply chain hearings

Checking supplies at a storeroom. Photo by: Lan Andrian / GHSC-PSM

WASHINGTON — On Thursday, almost nine months after Devex first reported that the United States Agency for International Development’s largest-ever contract was facing major problems, the U.S. Congress held a hearing to examine the $9.5 billion global health supply chain project.

Lawmakers questioned the design of the massive contract, USAID’s decision to award it to Chemonics International, and a system that allows contractors who do not meet performance targets to still get paid.

Rep. Chris Smith first told Devex of his intention to hold a hearing and raise his concerns about the project in Sept. 2017. The date for this public inquiry, which saw testimony from U.S. Global AIDS Coordinator Debbie Birx and USAID Senior Deputy Administrator Irene Koek, has been repeatedly pushed back.

Chemonics has been implementing the supply chain project since Jan. 2016. The Global Health Supply Chain — Procurement Supply Management project delivers lifesaving health commodities to more than 50 countries on behalf of the U.S. government’s largest global health initiatives, including the President’s Emergency Plan for AIDS Relief.

While only a handful of lawmakers were present for the hearing, some of them dropping in and out, those who attended asked blunt questions about USAID contracting, oversight, and management. Chemonics was not called to testify, but the contractor did submit written testimony outlining the steps it has taken to improve performance, most recently reaching an on-time, in-full delivery rate of 67 percent — up from an all-time low of 7 percent at the beginning of 2017.

Lawmakers asked the USAID and Office of the U.S. Global AIDS Coordinator representatives to provide more information about the contracting process, the consequences of delayed delivery, and to clarify what options are available to hold the implementer accountable.

Here are five takeaways from the hearing.

1. Some lawmakers think USAID should be able to penalize contractors for poor performance.

“Do you have the authority to penalize a nonperforming entity, and if not, [could you] get back to us as to whether or not you think that would be advisable,” asked Rep. Smith, relating an action he took in his own district to impart a fine on a contractor that was delayed in delivering services to the government.

“If that authority does not exist … it does work in other government agencies. I know it for a fact. It might work here,” Smith said.

“We’ll have to get back to you on that. It’s not information I have,” Koek replied.

In response to the challenges the supply chain project experienced, Chemonics, in consultation with USAID, replaced its entire project leadership team. Rep. Tom Garrett took particular interest in learning who, specifically, had been fired from Chemonics because of the project’s poor performance.

“I don’t care who was moved off the project. I want to know who got shown the door,” he said.

2. The PEPFAR chief had limited visibility into the contract as it was being designed and awarded.

Ambassador Birx had not yet taken charge of U.S. HIV programs when USAID’s technical review committee was meeting to evaluate bidders for the global health supply chain award. At the time she was a director at the Centers for Disease Control and Prevention, where she said she, “had awareness that USAID was letting a [request for proposals] for a combined agreement, and that was the depth of our awareness.”

“When I came to [the Office of the Global AIDS Coordinator] I found out about the award through the public system, when it was announced publicly,” Birx said. “There were procurement concerns and, I guess, other concerns, so we were not aware of the award until it was announced publicly.”

3. USAID is already thinking about how lessons from this project should inform the next global health supply chain award.

When USAID officials first discussed with potential partners that they would be consolidating multiple supply chain contracts into one massive award, they did so with a spirit of optimism that the new approach could lead to a transformation of global health supply chains in developing countries. Just a few years later, with a track record of major challenges, agency officials sound less confident that the current award structure is a formula for success.

“We have started to aggressively apply lessons learned from this experience to the design of USAID’s next supply chain programs,” Koek said. “Building on USAID’s broader procurement reform efforts, we are identifying ways to be innovative in our design, procurement, and management of awards and effectively manage risk.”

USAID Administrator Mark Green has made procurement reform a priority — at least partly inspired by his observation of what happens when a massive project like GHSC-PSM fails to deliver. On Thursday Koek suggested that USAID is open to new ideas.

“We will actively engage industry leaders, interagency partners, and the field throughout this process. We will also build in opportunities for public comment during the design process and closely with this committee and our other oversight committees,” she said.

4. USAID became aware of management problems even before Chemonics had delivered any shipments.

On April 13, 2017, the USAID official overseeing the supply chain contract sent a letter to Chemonics outlining a list of concerns about their implementation of the project. In Wednesday’s hearing, Koek told lawmakers that USAID had been aware of potential problems as early as Aug. 2016, when Chemonics placed their first order and before they had delivered any health commodity shipments.

“At the time, our staff identified that there were likely to be some issues,” Koek said. “They had not yet delivered any product at that moment in time.”

“We continued to escalate the issues within Chemonics. Our staff identified the problem. They did some reorganization. It didn’t fix the problem,” Koek said. In the spring of 2017, USAID and Chemonics agreed to a corrective action plan, aimed at returning the project’s performance to acceptable levels.

5. USAID is aware of two cases where delays in the supply chain led to program disruption, but cannot say how many people were affected.

The first question that Rep. Smith, who chaired the hearing, asked USAID’s health official to address was, “have there been consequences where anyone has, as far as we know, potentially lost their lives?”

A late shipment of health commodities, while a serious problem, does not automatically imply that patients will go without lifesaving drugs. Most of these shipments are made to warehouses, which stock commodities and distribute them to health clinics and hospitals farther down the supply chain. Both the international organizations involved in the programs and country health officials work to ensure enough stock exists to provide a buffer between shipments in delivery and what patients need.

Despite that, USAID is aware of two cases — in Nigeria and Ukraine — where delays in the delivery “did have programmatic impact,” Koek said.

In Nigeria, the start of an initiative to distribute malaria bed nets had to be delayed “for some weeks,” Koek said. In Ukraine, the delayed shipment of HIV antiretroviral drugs did delay onset of treatment to some patients by “a couple of weeks,” she said. “Those are the two instances that we’re aware of.”

“Do we have any way of knowing the number of people who might have been affected by virtue of the failures in delivery?” asked Rep. Garrett.

“No, sir,” Koek replied.

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About the author

  • Igoe michael 1

    Michael Igoe

    Michael Igoe is a Senior Reporter with Devex, based in Washington, D.C. He covers U.S. foreign aid, global health, climate change, and development finance. Prior to joining Devex, Michael researched water management and climate change adaptation in post-Soviet Central Asia, where he also wrote for EurasiaNet. Michael earned his bachelor's degree from Bowdoin College, where he majored in Russian, and his master’s degree from the University of Montana, where he studied international conservation and development.