Chemonics lands in London

LONDON — The United States’ biggest development contractor, Chemonics, has landed in London, United Kingdom, in the hopes of winning more contracts from the Department for International Development and Foreign & Commonwealth Office. The American development giant, which employs 5,000 staff across 100 countries, looks set to shake things up for British aid contractors, a number of which have been left reeling after DFID introduced tough reforms to crack down on “profiteering,” cronyism, and unethical behavior. “We’ve got the benefit of our scale, ... [and] staff and consultants … and the numbers work for us … We’re not seeking profit, we’re seeking to have a sustainable organization.” --— Jeff Wuorinen, senior vice president, Chemonics U.K. Division “We heard the message coming from [the British government] around seeking a different approach to development from their suppliers, and that call really resonated with us and we felt we could actually deliver on a number of [those] areas,” Jeff Wuorinen, who heads up Chemonics’ new U.K. division, told Devex. But some have questioned whether the new kid on the block will be able to win enough contracts, and fast enough, to recoup its investment in what other contractors have described as a tough operating environment. The company officially announced its arrival in the British capital through various launch events earlier this month. Its U.K. team already numbers around 70 staff, split between the contractor’s U.S. headquarters and a temporary office in London, with plans to add another 10-20 staff by the end of the year, as well as more U.K. staff posted abroad, Wuorinen said. The London office is mostly staffed by British nationals or Chemonics staff who were already working in the U.K. So far, Wuorinen is the only intercompany transfer, he told Devex. Chemonics has been working for DFID and FCO for more than a decade, including running emergency education projects in Syria, but establishing the London office represents a significant ramp-up of the firm’s U.K. efforts. Based on current information, one veteran U.K. contractor estimated Chemonics would need to win £50 million-£100 million ($63.4 million-$126.8 million) worth of contracts a year — making it one of the biggest U.K. government suppliers — in order to recoup the costs of setting up and staffing its U.K. market entry, while still making a modest profit. But winning contracts in that range could prove a tall order in the current political climate, with the aid budget coming under increasing scrutiny. A Chemonics spokesperson said: “Chemonics sees our entry into the U.K. development sector as a long-term investment to expand our development impact by partnering with the U.K. development community. As such, our operational costs in the U.K. will not be delinked from our U.S. cost structure immediately. This unified approach will present value for all our clients while we lay the foundations for sustained work with HMG [Her Majesty's Government].” U.K. aid contractors have said that doing business with DFID has become increasingly difficult and unprofitable as a result of procurement reforms introduced after a supplier review in 2016. These changes include fee caps and higher compliance requirements, which have squeezed profits, some contractors said. Long contracting delays have also caused problems. While not wholly to blame for the challenges facing many contractors, the reforms are making things tough, insiders said. Several firms have recently gone out of business; others — most recently WYG — have been taken over; and a number are rumored to be facing financial difficulties. But Chemonics’ U.K. bosses are upbeat about the market and said the company is ready and able to meet the government’s high standards. “Chemonics is very positive about the U.K. market … everybody is so negative … but we’re saying, ‘no, we can do this, we can offer really quality services … at the value that the government expects,’” said Michael Shaw, market engagement director at Chemonics in London. Wuorinen thinks the company is already off to a good start, having been awarded all of the lots it pursued under DFID’s new Multi-Disciplinary Programme Framework Agreement –– meaning it can bid on future contracts in these areas. Wuorinen described it as a “very positive result” for Chemonics’ U.K. division, which plans to work on education; health; climate and environment; research; livelihoods; and public procurement. Founded in 1975, the company has a wealth of experience, including in running large programs, which could make it an attractive proposition to U.K. procurement bosses. However, Chemonics’ ability to deliver at scale has been called into question over its mishandling of a major health supply chain project for the United States Agency for International Development. Last year, concerns about the management of the $9.5 billion project reached all the way to U.S. lawmakers. For Wuorinen, being a “mission-driven, employee-owned” company helps make the Chemonics offer unique since staff have “skin in the game” — it became 100% employee owned through its Employee Stock Ownership Plan in 2011. The plan is also open to international staff depending on country-specific laws. That means the firm answers not to investors but to its staff, who have different priorities, he said. “We’ve got the benefit of our scale …[and] staff and consultants … and the numbers work for us … We’re not seeking profit, we’re seeking to have a sustainable organization,” Wuorinen said. While other U.S. contractors have ramped up their presence in the U.K. market via acquisition — such as DAI, which merged with British consultancy HTSPE in 2013; and Tetra Tech, which recently acquired WYG and previously bought out Coffey, an Australia-based firm with a solid presence on the U.K. aid scene — Chemonics has for now set up in London “organically.” “We did feel it was important for us to be authentically Chemonics here from the beginning … and our brand and message not to be encumbered,” Wuorinen said. He added that Chemonics is committed to meeting the U.K. government’s requirement for contractors to operate in a “more ethical and transparent manner” and said the firm will be a “positive presence” both domestically and abroad. This includes partnering with small and medium enterprises in a positive way, he said, adding that Chemonics has vowed to route 20% of its contract spend through from the U.K. government through British small- and medium-sized enterprises. “Frankly I don’t understand why other providers of our scale are afraid of doing that … It’s better for everyone … You’ll never hear us push back on those sorts of things ever,” Wuorinen said. The U.K. government aims to spend 33% of procurement through SMEs, both directly and indirectly, by 2020. DFID has set itself a “stretch target” of 40%, a figure it has surpassed in recent years, although the share of aid going to smaller groups fell last year. Some insiders have complained that the more onerous terms of the new supplier regulations are making it harder for SMEs to bid and that the market is consolidating as a result, with bigger groups taking on more contracts and subcontracting to smaller firms. This is something that Chemonics’ arrival onto the U.K. aid scene is only likely to compound, they said. One U.K. contractor, who spoke to Devex on the condition of anonymity to preserve professional ties, said that DFID is likely to look favorably on Chemonics as a way of diversifying its contractor base and proving that its much-criticized supplier reforms are not impossible. “DFID would like to be able to say that despite fee rates going down, there is no shortage of bidders. It’s in the U.K. government’s interest for Chemonics to succeed,” they said — but success “will depend [on] whether it can win enough contracts, fast enough.” Update, June 6: This story was updated to clarify that DAI had a presence in the U.K. prior to its merger with HTSPE