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The United Kingdom is regarded as having one of the most effective and innovative foreign aid programs in the world. It is also widely considered a driver of key international aid system reforms, including the ongoing pursuit of greater aid coordination and effectiveness. The second largest donor in the Organization for Economic Co-operation and Development, the U.K. recently assessed its Department for International Development’s approach to foreign aid to determine ways to achieve the greatest “value for money.” The conclusions and recommendations from the department’s Bilateral Aid Review and Multilateral Aid Review continue to trickle down and influence changes in its culture, priorities, and operations. To date, however, these changes have not been well-understood by the global development community – a condition which has opened up credible questions for those seeking to work with DFID. Devex has looked into the post-assessment DFID in the hopes that we could shed some light on important movements and trends within the department.

Despite the global economic crisis and the gradual implementation of government austerity programs in parts of the world, U.K. aid spending was spared from cuts and ‘ring-fenced’ (to protect assets) by the ruling coalition government. Over the past five years, DFID’s expenditure has grown steadily by an average of five percent per year. From fiscal 2008-09 to 2009-10, the department’s budget grew by about 14 percent. Moreover, Prime Minister David Cameron has voiced his dedication to reaching the target of providing 0.7 percent of Gross National Income to international development by 2013 – a goal passed into law by the preceding Labour government.

DFID has now concluded that more concentrated, results-based development programs will achieve the required value for its sizeable 2010-11 budget of 7.7 billion pounds ($12.6 billion). Indeed, although DFID’s budget has not been reduced, official bilateral and multilateral aid reviews recommended that the department re-prioritize its country programs, resulting in a considerable decrease in the number of aid-recipient countries from 43 to 27 within the next four years, and stricter standards for making multilateral agency contributions based on each organization’s effectiveness and performance. In fact, DFID dropped China and Russia completely off its list of aid-recipient countries and continues to close shop in various other countries. While most agree that the moves make operational and financial sense to achieve “value for money,” they were also necessary to appease scrutinizing and skeptical politicians, bureaucrats, and the British populace, all of whom have been forced to endure deep and painful cuts in public spending. Garnering public awareness and support for its development program in today’s volatile global economy will continue to present a challenge for DFID and its leaders.

Yet, as the international development community applauds the U.K.’s increasing commitment to the developing world, many wonder if DFID can manage its beefed-up aid program with less administrative resources. Over the course of the last few years, DFID’s administrative outlays have been cut by 33 percent, raising rational fear over its capacity to maintain the quality and impact of its assistance. By 2015, DFID’s back-office spending will sit at about 2 percent, significantly lower than the global donor average of 4 percent. The overall administrative resource cuts will almost certainly result in serious staff reductions which could sacrifice technical and in-country expertise, even as the number of DFID focus countries declines. The department’s new information technology strategy for 2011-15 outlines an increasing reliance on satellite communications and other hardware because of explicit cuts in travel spending and staff numbers. These human resource cutbacks are frequently easiest to implement and at the same time hardest felt in conflict-afflicted and fragile states – areas that receive well over half of the U.K.’s bilateral aid contributions.

An increasing budget and fewer administrative resources suggest that needed capacity must come from alternative, and oftentimes external, sources. In line with DFID’s vision to deliver better quality, greater impact, and value for money, the department also continues to implement procurement reforms. These important reforms begin to define the sources of this capacity.

Specifically, DFID procurement reform is based on enhancing its commercial awareness so it can better assess its funding options for each and every country or project. The two most prevalent of these options are (1) administering funds through in-country systems and (2) increase contributions to multilateral development organizations.

With administrative and procurement practices more decentralized than most other major bilateral donors, DFID has announced its intention to prioritize and emphasize budget support for recipient countries and leverage in-country systems so more and more procurement opportunities will occur in-country versus in London. In 2009, 68 percent of the U.K.’s bilateral aid was programmed at the country level, far exceeding OECD’s Development Assistance Committee averages, and up from 63 percent in 2008.

Investments in prominent multilaterals are also considerable. In 2009, 33 percent of all U.K. ODA was granted to multilateral development organizations and, following the department’s formal Multilateral Aid Review, more DFID money is expected to flow through the most effective multilateral channels.

Any discussion of DFID procurement policy must also tackle its objective of untying aid which began way back in 2001. At that time, the World Bank estimated that tying aid reduces its effective value by as much as 25 percent so DFID genuinely expected significant improvements in the quality and value for money of goods and services procured in support of its development programs. But while strides have certainly been made in various donor agencies across the globe, there remains a disconnect between formal untying as a policy matter and practical untying for implementing partners irrespective of where they are based.

This is evident in the DFID context. In its first official background briefing in September 2001, DFID acknowledged the difference between procedural and practical untying, citing the “potential for bias to creep into procurement.” Remarkably, while few doubt DFID’s sincerity in its effort to untie its aid, U.K.-based partners continue to win the lion’s share of its funding which is not administered locally. In fact, Devex’s analysis of DFID’s own data reveals that half of the top 20 non-governmental organizations awarded grants in 2010-11 are from the U.K., with total funding of $152.9 million (see chart below). Meanwhile, out of the top 20 private firms that have won contracts from DFID this fiscal year, 14 hail from the U.K., with a total contract value of $1.26 billion (see chart on top).

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DFID has done its own fact finding on the matter. In a survey to determine the constraints international entities face when bidding for tendered contracts for bilateral aid, DFID found that even when local organizations were aware of bidding opportunities, they usually did not bid because the cost of preparing bids and risk of losing was greater than the potential reward. Failure to decipher legalese in bidding documents, difficulty in finding able local partners, financial constraints, and being largely unknown outside of their country further inhibit business entities in partner nations from entering into the competitive bidding process for international tenders. Even some larger global development consultancies headquartered outside of the U.K. have voiced challenges in understanding how to take advantage of DFID’s aid untying policy and practices.

So we have a situation where there is more DFID money being spent than ever in a consolidated group of countries and, due to administrative cutbacks and reliance on in-country systems, more of it is being spent at a local country level. At the same time, international and local firms are experiencing difficulty accessing DFID funds directly administered out of London as opposed to in-country.

With these dynamics in mind, all implementing partners would be wise to rethink their DFID outreach strategies by building additional capacity at more local levels. While understanding department-wide procurement guidelines and London’s interpretation of them is still valuable, even DFID officials we spoke to admit that the best strategy for international non-governmental organizations and development consultancies is to establish a robust and constructive presence in DFID priority countries. This will inevitably help partners grasp on-the-ground development requirements, as well as the bidding and awarding practices specific to each country. By mimicking DFID’s process of concentration and decentralization, organizations will be better positioned to win consistent business with the department.

About the author

  • Pete Troilo

    Former director of global advisory and analysis, Pete managed all Devex research and analysis operations worldwide and monitors key trends in the global development business. Prior to joining Devex, Pete was a political and security risk consultant with a focus on Southeast Asia. He has also advised the U.S. government on foreign policy and led projects for the Asian Development Bank and International Finance Corp. He still consults for Devex on a project basis.