In USAID procurement, a game of stop-and-go

When Betsy Bassan created the Panagora Group a year and a half ago, she envisioned her small business playing an active role in addressing health and development problems worldwide.

She had all the necessary experience, as vice president at a major development company, project director at a large nongovernmental organization and president of a leading professional association for aid practitioners. In the previous eight years, Bassan had won five large global health contracts with the U.S. government and more than a dozen other awards for the company she worked for. Now she was striking out on her own.

And she had nothing to do. None of the six contracts she bid on last spring have been awarded.

“As a new business that’s really, really hard,” Bassan said. “And as a small business, it’s a killer.”

Delays in awarding contracts and grants don’t just cause headaches for small NGOs and consultancies, but also large implementing partners. And it is having a real impact on development, both at headquarters and in the field, as aid groups risk losing money, talent and even credibility, and needed programs get canceled or never get off the ground.

For years, the U.S. Agency for International Development has been known for its particularly cumbersome procurement process and frequent delays in awarding field work. But over the past few years, delays have become worse, some implementers say. In wide-ranging interviews with executives of small and large nonprofit and for-profit implementing partners of USAID — several of whom spoke to Devex on the condition of anonymity out of anxiety for their ongoing business with the U.S. government — concerns were raised that USAID Forward, the agency’s ambitious reform project meant, among other things, to streamline procurement, might actually be exacerbating the problem, at least in the short run.

USAID officials we spoke with, including Deputy Administrator Don Steinberg, acknowledged procurement delays but insisted that USAID Forward is not to blame. As Devex has previously reported, many implementing partners question USAID Forward’s controversial initiative to provide more funding directly through local companies and NGOs — a fact that may cloud some of the debate around procurement delays.

Whatever the reason, USAID now takes more than 1.5 years to award its largest and most complex programs via what is called an indefinite quantity contract. Its goal is to reduce procurement action lead time to 268 days for overseas contracts, agreements and D.C.-based IQCs, and to 327 days for more complex IQCs.

By comparison, it takes the Australian Agency for International Development an average of 166 days to award a tender valued above 500,000 Australian dollars (about $526,000) and 120 days for a competitive grant, according to an AusAID spokesperson. The Japan International Cooperation Agency takes 75 days to award large-scale projects and 45 for small ones. The U.K. Department for International Development has pledged to award contracts within 120 days except in the most complex cases.

Procurement speed varies by country and project, of course, and USAID has awarded some contracts quite swiftly. But as fiscal 2012 draws to a close and the agency rushes out huge amounts of money at the last minute, questions have grown loud again about funding delays and whether USAID is able to ensure an orderly rollout of aid projects.

What causes procurement delays?

Every bilateral donor must deal with the cyclical game of waiting for funding to be allocated and then trying to spend it all responsibly and in a timely fashion. Procurement delays throughout the year often give way to an outpouring of money at the end of a fiscal cycle, as government officials try to avoid giving the impression that they might as well have made due with a smaller budget. That’s especially true in Washington.

The U.S. Congress has become so partisan that lawmakers struggle to pass annual appropriations bills, instead opting for short-term extensions of the existing budget. The budget is supposed to be passed by Sept. 30, the last day of the fiscal year. But that hasn’t happened in a while, and for fiscal 2012, Congress did not pass a budget until mid-December, after passing five temporary budget extensions.

The delay gave USAID less time to develop acquisitions strategies, solicit bids and proposals, evaluate responses and award funding, according to Alan Chvotkin, executive vice president and counsel at the Professional Services Council, which advocates for U.S. companies pursuing global development business.

After Congress appropriates money, it falls upon the White House Office of Management and Budget to make the funds available — a second potential holdup.

And then there’s USAID.

The agency is still understaffed, most observers say — even after hiring more than 105 new contracting officers in the past few years. And with several large IQCs coming to an end in the past year, USAID procurement officers have been under a lot of pressure to find ways to spend foreign aid dollars.

Adding to that pressure is the new training that’s needed to get staff up-to-date on procurement reform and new reporting requirements for the agency’s partners in the field. The learning curve is particularly steep for USAID’s young recruits — 60 percent of field staff, for instance, has been on the job for five years or less, according to Steinberg — even though the agency tries to match them with more seasoned colleagues.

All of them, though, have to adapt to reforms that are part of USAID Forward, including the need to update acquisition and assistance plans every quarter and, starting in October, to catalog online some of the 40 steps that are part of a standard procurement. Although USAID officials deny that these reforms have caused delays — they are meant to streamline procurement and reduce lead time, after all — implementing partners are not so sure.

“I think they are in a very difficult situation,” Plan USA President Tessie San Martin said about USAID. “They are asked to redesign the procurement rules and processes and not slow down procurement actions. It’s hard to do both.”

The end-of-the-year rush

Funding appropriated by the legislature usually must be spent by a set date, typically the end of the fiscal year, which for the U.S. government is Sept. 30. As a result, USAID and other agencies tend to rush out procurements in the last quarter of the fiscal year, making August the busiest month for proposal writers and recruiters in Washington.

But USAID has other options for handling leftover funds. The agency may extend or expand certain existing agreements, for instance — a practice that “happens every year,” according to one procurement expert with nearly three decades of experience.

“Who wants to go back into the general kitty when you could dump it in a contract and hold it?” she said. “I’ve had $11 million dumped into a contract before, with no work plan and no budget, just to hold it.”

The agency might also waive the competitive bidding process, a move that requires justification. Some recent waivers have been for relatively small amounts of money, but others are significant, and USAID appears to have considerable leeway — regulation allows the agency to “award without competition when it is critical to the objectives of the foreign assistance program,” when an organization has unique capabilities or relationships within a partner country, or when it’s for a small grant that won’t last more than one year. It can also “limit competition to a selected group of applicants when it is necessary for [the] sake of efficiency.”

Extensions to existing agreements can be awarded without justification. For critical priority countries like Pakistan, Iraq and Sudan, this means up to $20 million can be awarded without competition.

There seems to be little debate in Washington aid circles about such funding extensions — unsurprising, perhaps, since the money tends to go to experienced USAID implementers inside the beltway. And although a case can be made for extending successful projects, the agency may miss out on innovative partnerships beyond the usual suspects.

Another way for USAID to award funding is through cooperative agreements, which can’t be protested and, some implementers argue, are easier to write, faster to award and require less monitoring.

USAID officials deny relying increasingly on cooperative agreements. The agency had “no bias one way or the other,” Steinberg said.

USAID decides which vehicle to use based on the underlying intent, Steinberg insisted: A contract is supposed to directly benefit the U.S. government, while an agreement or grant should transfer value to the recipient. Since cooperative agreements prohibit the exchange of fees, for-profit companies tend not to bid and these projects tend to go to nonprofit organizations.

But several for-profit implementing partners we spoke with argue that some cooperative agreements the agency has solicited would have been better suited as contracts. USAID awarded a $400 million Afghanistan infrastructure project with a small development component as a cooperative agreement to nonprofit International Relief and Development in 2007, for example.

The debate between for-profit and nonprofit USAID implementing partners stretches back decades, and the pendulum has swung back and forth with successive administrations. But some procurement experts we interviewed insisted that the reliance on cooperative agreements is on the rise because of their relatively less onerous award process.

The number of health sector RFPs was about the same as the number of RFAs in 2009, and the amount spent on grants and cooperative agreements was within 5 million of the amount spent on contracts. Those numbers have since diverged sharply. Last year, $2.77 billion worth of work was awarded in health under assistance grants, and just $216 million under acquisition contracts, according to Bassan.

“A cooperative agreement gives much, much, much less work in terms of the actual approval actions, so that is a very attractive mechanism,” Bassan said.

The effect on implementers

Whatever USAID Forward is to blame or not, the consequences of the agency’s current procurement sluggishness are not insignificant.

Delays affect NGOs and businesses which must respond to a slew of solicitations at once, forced to eschew some opportunities or put in a less-than-best effort on several at a time.

In turn, USAID suffers from less competition, or lower-quality proposals. It also has less time itself to do an effective quality review and selection process, especially if the fiscal year deadline to award funds is looming.

When USAID publicly forecasts a bid, potential partners often take the time and money to travel to the country, conduct interviews and connect with local organizations, gather a team of experts and recruit key personnel. That can cost more than $60,000, according to one longtime development practitioner familiar with private-sector development consultancies.

If solicitations that were based on expiring funds are not awarded by the end of the fiscal year, they will be canceled — ho harm, no foul, one might say. But because it isn’t made public which agency funds are due to expire and which can carry over into the next year, bidders take all those pains to prepare for projects they’ll never implement.

When an award takes much longer than expected, research grows outdated, conditions in the field change, and staff is lured away by more concrete offers. After repeated delays, consultants and local staff might become hesitant to work with partners who seem to string them along, preferring more reliable employment.

One expert recently demanded to be put on a development contractor’s payroll for one year as a precondition to signing on for a project, a proposal recruiter told Devex. He was sick of being hired for projects that never got off the ground and turning down other work in the meantime.

This story illustrates the challenges aid groups face in times of funding delays.

Organizations lose credibility when the programs they prepare for don’t come to fruition. Often, they must watch talented local staff leave in search of more reliable opportunities — especially painful if the organization had already invested in training.

“We have to scramble around to find cash to pass to our sub-organizations so they can keep their doors open because they don’t have that kind of money available,” said one business development expert. “The local organizations that are getting direct funding do not have the resources to wait these kinds of things out.”

Larger nonprofits that have alternative funding sources sometimes take the risk of going ahead with work on the assumption that USAID’s money will come through. But several aid practitioners told Devex that it’s not unheard of for projects funded solely by USAID to be delayed so long that no one can cover the gap between awards, and work has to come to an abrupt stop.

The future of USAID procurement

Despite its best intentions to speed things up and streamline the procurement process, improvement may not be in the immediate forecast. Actually, it could get worse, according to Chvotkin of PSC.

The next fiscal year begins Oct. 1 and Congress has yet to pass appropriations for foreign affairs, including USAID and the Millennium Challenge Corp. USAID will likely be under a continuing resolution for at least a few months, allowed to spend money at the same rate as fiscal 2012, but not in a good position to make long-term funding decisions.

The results of this year’s presidential election could prove significant. If Mitt Romney is elected, analysts expect the new president to try to cut foreign aid and reshape the way USAID does business.

Finally, there is the possibility of mandatory across-the-board federal government spending cuts later this year — the so called “sequestration” — which was enacted as part of last year’s debt ceiling compromise. This sequestration would likely see USAID’s budget slashed by around 8.5 percent, according to InterAction President Samuel Worthington. The Office of Budget Management will report to Congress by Sept. 8 on the actual amount due to be cut.

Unfortunately, the people who make development happen won’t know the situation until it’s upon them, if authors who wrote a white paper for the American Bar Association’s Federal Procurement Institute are correct. They wrote that, “Individual contracting officers and their customers, the program managers, will generally be among the last to know what funds will be available for what programs.”