Parliament’s International Development Committee on Monday will hear testimony from stakeholders in the aid community and media on the role of for-profit contractors receiving and implementing U.K. taxpayer-funded overseas development assistance.
The hearing is the culmination of an ongoing inquiry by the IDC into for-profit development, a topic that has featured prominently and frequently in U.K. headlines over the last five years.
Criticism of for-profit aid firms intensified in the last year, after the government enshrined the aid budget at 0.7 percent of gross national income, prompting indignation from the austerity-squeezed U.K. public and the Daily Mail newspaper, which initiated a petition to repeal the measure. The petition quickly reached the 100,000 signatures required to compel Parliament to hold a debate, which is now scheduled on June 14.
Aid workers employed by the for-profit companies told Devex they were not yet sure what, if any, changes would come of the hearing, but hope it will be a chance to clarify their business model, often referred to by company members as “social enterprises,” using commercial strategies to achieve aid impact for the world’s poorest.
The aid industry comprises thousands of for-profit, not-for-profit, multilateral and philanthropic organizations that compete to implement $135 billion worth of aid projects globally every year. For many, the fact that aid organizations are allowed to grow and improve their capabilities by generating capital disturbs the view that aid work should be fueled by altruism alone.
Critics have also questioned the need for high executive salaries in the aid industries, and point to the questionable impacts of some aid projects.
But others believe the diversity of organizations and modalities in the aid sector, often referred to as an “ecosystem,” encourages competition in the sector and drives value for money, much in the way a market with several vendors offering similar services encourages variety and drives down prices.
“DfID has a very diverse supply chain, and it should be continuing to apply pressure to keep it diverse,” Erika Hoganson, head of DfID partnerships at Crown Agents told Devex in a phone interview.
She said that large contractors like Crown Agents often help facilitate new, smaller organizations’ access DfID funds.“You’ve got to get a balance. And part of that is you do want a dozen or so organizations that know the donor inside out, that can handle large contracts, but still have the pressure to bring new entrants into the DfID market, showing them how to bid, how to work with DfID, and this is the best of both worlds,” Hoganson said.
Yet some critics argue that the U.K. Department for International Development favors these contractors over smaller, local organizations in recipient countries and regions, to the detriment of the global push to localize aid work.
By directing aid through through Western-based contractors such as Adam Smith International, Crown Agents and Development Alternatives, Inc. instead of local and regional counterparts, these critics argue U.K. aid is missing the chance to encourage local ownership of aid interventions.
Contractors counter that they are meticulous about involving local partners. “It's not widely understood that a significant amount of the DfID funding managed by DAI is implemented through small companies, NGOs, and local partners through subcontracts and subgrants,” Steven O’Connor, director of communications for DAI told Devex ahead of the hearing.
He explained that approximately half of all aid channeled through DAI goes to subcontracting and subgranting organizations.
“We’re judged by DfID on the degree to which we engage smaller and local firms and smaller partners, so our success depends on it, and we value their contributions enormously,” he said.
Shadow Secretary of State for International Development Diane Abbott,has argued that for-profit contractors are scrutinized less than their nonprofit counterparts, and pose a greater accountability risk when tracking aid.
“At times DfID has focused on short-term gains, [and it appears they] try to get aid out of the door as quickly as possible. The use of private contractors is one clear example of this culture,” she told Devex.
“These agencies are not held to the same levels of accountability as NGOs, and so although aid funds are being spent we cannot guarantee that it is being done in an effective and sustainable way.”
Hoganson of Crown Agents disagreed, telling Devex, “I think actually it’s the opposite.” Because of certain DfID measures placed solely on contractors determining “fair and reasonable” profits during the formation of a contract, “the scrutiny and the driving of value for money and the much more intimate relationship that comes from being contracted as opposed to granted means that there’s more pressure placed [on contractors] than on other mechanisms in which ODA is delivered,” she said.
DfID denied through a spokesperson that contractors are subject to less rigorous accountability measures.
“This is factually incorrect,” the spokesperson said in a phone interview. “All of our partners, whether contractor, NGO or multilateral, are subject to rigorous scrutiny of their effectiveness and value for money, in advance and throughout delivery.”
In the runup to the debate on the U.K.’s ODA commitment, the hearing on June 6 could be an opportunity to clarify what might be a common misconception about modern international development, from the point of view of contractors, or could raise new questions about whether the “privatization of aid” is good for global poverty reduction.
Molly is a global development reporter for Devex. Based in London, she covers U.K. foreign aid and trends in international development. She draws on her experience covering aid legislation and the USAID implementer community in Washington, D.C., as well as her time as a Fulbright Fellow and development practitioner in the Middle East to develop stories with insider analysis.
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