DFID cracks down on contractors

MANCHESTER, United Kingdom — Priti Patel announced comprehensive reforms to the way the Department for International Development engages with for-profit contractors at the Conservative Party Conference in Manchester, United Kingdom, on Tuesday.

The reforms will crack down on contractor accountability by mandating “open-book accounting” so that all financial activity is held in the public domain. Patel, the U.K.’s secretary of state for international development, also introduced an annual league table, whereby the department will “name and shame” contractors that aren’t delivering value for money.

Some in the aid sector welcomed the renewed drive to improve the transparency and accountability of private sector contractors. Patel said the reforms are the result of a 10-month supplier review launched following revelations that one of its top suppliers, Adam Smith International, had shared proprietary information in order to retain an advantage over other firms. The discovery exacerbated concerns raised by the House of Commons International Development Committee and in media reports about high profits earned by private suppliers in the aid and humanitarian sectors. ASI has since launched its own reforms and changed its business model.

But some members of the DFID supplier community expressed concern over whether the new compliance standards will exacerbate barriers already faced by small- and medium-sized organizations in contracting with DFID, both as prime contractors and subcontractors to larger firms.

“Today I am announcing the conclusion of a comprehensive review of DFID’s relationships with suppliers,” Patel said in a keynote address to conference attendees. “I am setting out tough reforms that will encourage the private sector to work with DFID and end the appalling practice of fat cats profiteering from the aid budget.”

“On my watch, I will end the crony market where a handful of suppliers would win contract after contract, which blocked innovation and competition,” she added.

A DFID spokesperson told Devex the reforms will seek to open bidding up to smaller firms, aiming to increase the number of SME contractors from the current 19 percent of direct awards to 33 percent by 2020. DFID will break down tender sizes in order to attract smaller firms and will begin hosting workshops to assist firms in bidding on DFID contracts. According to DFID documents describing the reforms, the changes will also seek to make DFID more accessible to international organizations — although in her speech to the conference, Patel emphasized the intent to “open up the aid budget to the best of British firms.”

"Across the country there are thousands of small charities led by inspirational people doing amazing work around the world. But for years they have found it impossible to access U.K. aid, because the aid budget supported big international charities. That is why I am opening up the aid budget to the best of British charities up and down the country,” she said.

The new measures will also put a stop to “exploitative” supplier practices, Patel explained, including “bid candy,” where suppliers bid on contracts in consortia with smaller organizations in order to win favor with DFID, then drop the smaller organizations once the bid is won.

At the same time, an employee of a large private sector DFID contractor — who spoke to Devex on condition of anonymity, because of business ties — claimed that many SMEs walk away from consortia not because of exploitative behavior by the prime supplier, but because DFID’s terms and conditions are too financially constraining for smaller firms. He expressed concern that some of the new measures will further discourage SMEs from engaging.

“We know quite a few SMEs who think they won’t be able to work with DFID or they won’t be able to sign the new terms and conditions because they’re too heavy-handed and DFID doesn’t want to pay for the additional compliance costs,” the source said.

“It’s not like the SMEs are rejecting them because they’re ethically problematic, but because they think they’re undeliverable for a small organization.”

For example, one of the new measures will see DFID apply its terms and conditions all the way through its supply chains. While larger organizations can shoulder the financial risk of the unlimited liability clause, smaller firms often lack the finances and infrastructure to manage it.

“If you’re one of the two Nepali or Burmese local partners who could possibly help on that reform program, you probably can’t take the full unlimited liability of a 30 million pound contract because that’s probably 10 times or more the size of your annual turnover,” the source said. “Suddenly, you get the best people unable to join consortia.”

Several for-profit contractors also came forward under the condition of anonymity to say they had not yet been given access to the new terms and conditions. A DFID spokesperson confirmed to Devex that the donor is only sharing the document with “high-value, strategic contracts” for now. Professionals in the sector argue that selectively sharing the new terms gives larger firms with current contracts preferential treatment.

“The fact that [some firms] have them for a month, two months, three months — I don’t know how long, but longer than [another firm] — that doesn’t seem like a level playing field,” the source said. “It’s not whether [the terms and conditions] are good or bad, but why aren’t they just out there?”

Another professional in the for-profit supplier space said they had complained to DFID that current contractors were left out of the consultations around the supplier review.

“There wasn’t much consultation at all,” the individual said. “There was a discussion with a small group of suppliers, but DFID made clear it wasn’t a consultation — the terms and conditions were not up for discussion.”

The source also said they knew many in the sector were “having a hard time reaching DFID contacts” about the review.

At the same time, many in the sector welcomed Patel’s moves to increase transparency and competition.

Jessica Toale, executive at the Center for Development Results, a member organization of for-profit development firms, said: “CDR members seek to be leaders in the sector — driving impact, value for money, and accountability in their work. We look forward to working with DFID to be part of implementing the outcomes of the Supplier Review, and ensuring that they support DFID's objectives and improve development outcomes.”

Ian Shapiro, head of partnerships at Crown Agents, told Devex: “We feel very positive about higher standards of transparency and accountability ... We think ethical standards by suppliers is an absolute must.”

And Tamsyn Barton, CEO of Bond for International Development, an NGO network, said in an email: “It’s reassuring to hear that there will be a crackdown on ‘bid candy’ practices by which private contractors use civil society organisations to attract a bid, but then drop them at a later stage — often after the civil society organisation has invested significant resources in supporting the bid preparation process.”

But Barton added: “We haven’t seen the detail of what is proposed yet, and we would want to be sure that the ‘tough new reforms’ are not excessively bureaucratic and applied disproportionately to civil society organisations.”

For more U.K. news, views and analysis visit the Future of DFID series page, follow @devex on Twitter and tweet using the hashtag #FutureofDFID.