DFID contractor Oxford Policy Management reports financial loss

LONDON — British development contractor Oxford Policy Management has revealed it lost £3.7 million ($4.4 million) last year, stoking fears that the aid market in the United Kingdom is squeezing out smaller firms.

The development consulting firm, which holds a number of contracts with the Department for International Development, recorded the “disappointing” figures in its latest annual report.

The company has scaled rapidly over the past 11 years, growing from a small research team based out of Oxford University into an international company operating across 18 countries and turning over £80 million in 2018. OPM reported a profit of £1.1 million in 2017 and £1.7 million in 2016.

But the company’s most recent financial statement shows a loss for 2018, of which £2.9 million was linked to “possible tax liabilities on current or recently closed projects,” according to an OPM spokesperson. The remaining £800,000 was due to an “operating loss, which includes absorbing costs for project delivery delays and reduced project margins,” the spokesperson told Devex in an email.

The company’s financial statement also refers to “turbulence in DFID procurement,” along with reduced profit margins and increased compliance costs, as some of the reasons behind the company’s decline.

However, it also admitted to weak management and oversight internally, especially within its finance team, which went through three chief financial officers in four years.

“The accounts … are disappointing and there are both environmental and business specific reasons … that have led to that outcome,” the spokesperson explained, adding that the company has “since taken concrete steps to ensure OPM is more resilient and commercially competitive moving forwards in a changing development landscape.”

OPM is the latest in a string of British development firms reliant on U.K. aid funding experiencing tough times. Veteran DFID contractor Maxwell Stamp and Aktis Strategy, which managed a number of aid contracts for the Foreign & Commonwealth Office, both went into administration — a U.K. insolvency process — earlier this year. Meanwhile, the U.K. international development arm of AECOM and international professional services firm WYG have both been taken over by bigger firms.

Other suppliers are also said to be feeling the pinch, including Crown Agents, which reported a net loss of £12.7 million for financial year 2017, and Adam Smith International, which has seen operating profits fall.

A number of suppliers blamed contracting reforms introduced by DFID in 2017 for some of their troubles. Changes included the introduction of fee caps, profit restrictions, and new compliance requirements.

There is also increased competition, with a number of large, often foreign-owned companies entering the market — most recently Chemonics — as DFID’s budget has expanded.

Suppliers told Devex that DFID’s new approach is driving out smaller companies and creating a consolidated marked dominated by large contractors with “deep pockets.”

In response to the financial loss, OPM has hired a new CFO, Dougal Freeman, to put in place a “return to profitability” plan. This includes staff cuts and restructuring, an overhaul of its finance systems, and a more focused approach to business development. The company has also appointed a number of new directors. The changes are expected to save the company £2.2 million by the end of this year, the report states.

In the lead up to the losses, OPM still paid £350,000 in dividends to its shareholders for 2017 — the same as had been paid the previous year — a cost that came out of the 2018 accounts. However, a spokesperson said that no dividends were paid for 2018 and that no further dividends will be paid until the return to profitability plan has been delivered. 

Its staff costs also grew from £17.5 million in 2017 to £20 million in 2018, and the company faces the possibility of having to pay £2.3 million in tax going forward due to possible “historic tax obligations.”

At the same time, OPM recently won new DFID contracts, including an education program in Lebanon to support Syrian refugees and local children, and a domestic revenue mobilization program in Uganda. Approximately 60% of OPM’s total turnover comes from DFID funding, the spokesperson said.

Update, Aug. 12: This story was amended to clarify that the dividends paid out of the 2018 accounts covered the previous financial year.