The U.S. Agency for International Development revised its guidelines for choosing between grants and contracts. For-profit companies aren't happy with what they're reading between the lines of the new "choice of instrument" policies. Photo by: Jason Stare / CC BY-NC-SA

A trade group for U.S. development companies has asked the U.S. Agency for International Development to withdraw and revise its most recent guidance on acquisition and assistance. The new guidance, according to the group, implies a narrower role for contractors in U.S. foreign assistance.

The new operations policy “presents a falsely reduced range of options at USAID’s disposal, which will restrict the agency’s ability to deliver on its objectives,” Alan Chvotkin, executive vice president and counsel of the Professional Services Council, wrote in a letter to USAID Deputy Administrator Alfonso Lenhardt.

The U.S. Agency for International Development’s operational policy, known as the ADS series, provides the policies and procedures that guide USAID’s personnel on a range of routine programmatic decisions. ADS 304 instructs USAID staff on which type of procurement mechanism to use — usually a contract, grant, or cooperative agreement — in the design and execution of development programs.

So when the agency released a new version of the ADS 304 guidance in April, implementing partners read it carefully. Guidance that shifts the balance between “acquisition,” or contracts,  and “assistance,” or grants or cooperative agreements, can have major implications in terms of which companies and organizations stand to win USAID funding.

In the most recent guidance, contract-seeking companies see three main reasons for concern. They charge that, first, the examples of activities for which USAID might use a contract appear more limited than in previous guidance. Second, the guidance omits language about using contracts to procure goods and services on behalf of third parties. And finally, USAID’s degree of “operational control” over a project is no longer listed as a “determinative factor” in the choice between acquisition or assistance.

The overall impression from the guidance, contractors say, is that contracts should only be used for purchasing goods and for USAID’s internal purposes, as opposed to the wider variety of uses they’ve been put to in the past, from delivering health services to administering trainings.

For their part, agency officials say concerned contractors are reading too much into the new language.

“It was not our intention to draw a narrower line in regard to what contracts could be used for,” said Mark Walther, deputy director for the office of acquisition and assistance. “That hasn’t [been] and wasn’t our intent. It’s unfortunate that trying to compare prior guidance to existing guidance they feel that’s somehow being interpreted in that fashion,” he said.

Walther declined to comment on the likelihood that the new guidance would be withdrawn and reconsidered.

The policy revisions have generated additional concerns among some of USAID’s small business partners. Since grant instruments, unlike acquisition instruments, have no small business utilization targets, “redirecting USAID spending to assistance for activities that should be acquisition will undermine efforts to promote USAID small business contracting,” the Small Business Association of International Companies told Devex in a statement.

USAID’s “choice of instrument” has been a perennial source of friction between the agency and its implementing partners. For-profit contractors have raised concerns that USAID overuses grants in projects that should be funded through contracts. Some grant recipient organizations complain that the agency periodically tries to exert more management control over grant-funded projects than it should. And USAID consistently maintains that all procurement mechanisms have a role to play in U.S. foreign assistance and that the agency works closely with its implementing partners to clarify the roles of each.

USAID’s intention in updating the guidance was twofold, Walther said. First, to clarify internal roles and responsibilities in documenting instrument choice; and second, to ensure the solicitation and administration of awards aligns with the type of instrument that was selected at the outset.

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Some contractors worry though that the most recent guidance, with what they consider a more limited interpretation of the uses of contracts, is evidence of a behind-the-scenes effort to constrict the portion of U.S. foreign aid dollars that flows through for-profit companies. While this is hardly a new concern, sensitivities could be higher in the midst of a U.K. parliamentary committee’s inquiry into the same issue on the other side of the Atlantic: the role of for-profit contractors in delivering U.K. aid.

USAID’s ADS guidance is supplemented by a range of other tools and clarifying documents. Some of these relate to sector-specific procedures, and in the case of USAID’s democracy and governance programming, contractor representatives say the pattern is similar — new language that seems to paint a smaller picture of the role for contracts in implementing those programs.

At a recent public meeting with the Advisory Council on Voluntary Foreign Assistance, Neil Levine, director of USAID’s Center of Excellence for Democracy, Human Rights, and Governance, responded to a question about this “amplifying guidance,” which describes numerous examples of when the agency would use assistance to implement democracy and governance programs, and far more limited examples of when it would use acquisition mechanisms.

“As a matter of law and policy we’re sort of agnostic. It’s really [about] what are we trying to get done,” Levine said.

He added that the agency will monitor the balance of contracts and grants now that the new guidance has been issued to keep tabs on whether the use of one mechanism versus another changes in any significant way.

“The proof is in the pudding. We’re monitoring the use pattern, and so the idea is, once it’s disseminated and socialized, does the pattern change?” he said.

USAID will hold a partners’ meeting in coming weeks, and the new guidance will be on the agenda. The agency plans in the meantime to continue its outreach to ensure new guidance is well understood and correctly applied.

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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.