Outsourcing the Australian aid program

Budget cuts, organizational and leadership changes, and an overall lack of predictability have taken a well-documented toll on the Australian aid program over the years. The Department of Foreign Affairs and Trade, which manages the country’s foreign aid portfolio, has continued emphasizing the role of the private sector in international development. The new aid paradigm, launched by Foreign Minister Julie Bishop in June 2014 as the Australian government’s new aid policy and performance framework, stressed that the aid program would be “underpinned” by private sector support. “The government will invest over 90 percent of our country and regional program funding in our region. We will harness the private sector in those countries, so that Australia’s aid programme promotes the major driver of poverty reduction — economic growth,” Bishop said. Similarly, Australia’s aid for trade program turns the focus onto the private sector as partners in aid to promote market-based solutions to deliver development outcomes. DFAT’s issuance of larger international development contracts is one example of putting these policies into practice and illustrates a greater reliance on the private sector to deliver aid programs. Rod Reeve, managing director of Ninti One who was recently engaged by DFAT to conduct a market analysis with the goal of advising the department on how to maintain a competitive pool of suppliers, said outsourcing is the future of the Australian aid program. “It’s quite public knowledge DFAT have a consolidation agenda,” he said. “They want fewer contracts of larger value that will be easier for DFAT staff to manage.” A Devex analysis of Australia’s tender data supports Reeve’s assessment. Between 2013 and 2015, under both administrations of Tony Abbott and Malcolm Turnbull, the number of aid contracts declined significantly while the average value per contract increased. Reeve’s report to DFAT recommended ways to create a “healthy ecosystem” to strengthen and diversify its supplier base. His research, conducted between November 2015 and February 2016, involved interviewing CEOs of 35 companies from Australia, Canada, Denmark, Germany, Japan, Papua New Guinea, the United Kingdom and United States. Many of the companies were the leading suppliers to U.S. Agency for International Development, U.K. Department for International Development, and DFAT. The questioning focused on ease of doing business, appetite for innovation, costs, perceived power of incumbencies, profitability and commitment to aid outcomes. While larger government contracts may help streamline the aid program and reduce operational costs, NGOs and small suppliers are concerned by the prospect of competing with larger organizations and question if the money will effectively trickle down to smaller groups. In March, Bishop downplayed the importance of an Australian aid tender which would essentially outsource the entire management of the Fiji aid program. The single facility for delivery of Australia’s bilateral aid program in Fiji, slated for tendering in the first quarter of 2016 but now delayed, was the first proposed business opportunity of this extent. Other contracts awarded suggest mass outsourcing has been a common practice of the current government. A total of $52.9 million Australian dollars ($41 million) was allocated to Africa and the Middle East as part of the 2015-16 aid budget. The contract of more than AU$100 million awarded to Palladium International to manage the Australian Awards for Africa Program between November 2015 and March 2016 suggest the entirety of the African program was outsourced through this single contract. Similarly, more than half of the AU$477.3 million allocated to Papua New Guinea in the 2015-16 budget can be tied to two contracts awarded to Coffey International — one for the management of the PNG-Australia Economic Public Sector Program and the other to deliver the PNG subnational strategy. These instances have led smaller NGOs to believe that their role within the aid program is shrinking. Specific NGO programs have already been targeted – the Australia Africa Community Engagement Scheme has been discontinued, cuts have been made to the Australian NGO Cooperation Program (ANCP) and funding that would automatically go to NGOs as part of regional programs is now non-existent. “As well as the impact of these cuts on reducing the breadth and impact of NGOs work, the unpredictable nature of government funding in recent years has had a negative impact on the work of NGOs — making it more difficult to undertake longer term programming and commit to communities,” Marc Purcell, executive director of the Australian Council for International Development, told Devex. For Purcell, this is particularly frustrating following the release of a recent DFAT report that identified the importance of NGOs in the Australian aid program. While there are clear advantages to larger contracts such as reduced administrative and transactional costs, many NGOs believe that greater private sector outsourcing will lead to greater losses of knowledge and expertise within DFAT. Non-profit groups also say competing for aid funding administered under large, competitive contracts will result in an uneven playing field. Contract awards to NGOs are rare. Oxfam Australia and World Vision were last awarded aid contracts under the Julia Gillard administration. For CARE Australia it has been longer — their last contract was under Kevin Rudd in 2008. Save the Children is the only large NGO to have a published contract under the governments of Tony Abbott and Malcolm Turnbull with funding amounting to less than AU$50,000. Under previous governments, Save the Children received business contracts exceeding AU$800,000. Paul Kelly, principal executive for international programs with CARE Australia, confirmed that contracts were an important source of funding, but admitted his group has been struggling with the shift. “CARE has no problem with the expectation that we should compete for Australian government funds and be held accountable for the quality of its work,” he said. “Our recent experience is that the structure of DFAT procurement processes are more likely to result in a traditional ‘managing contractor’ being awarded DFAT contracts. This means fewer opportunities for community organizations to partner closely with DFAT.” Other NGOs, speaking to Devex off the record to not jeopardize existing business, indicated a reliance on new business development strategies, particularly partnering with large corporations who have resources and experiences in tender responses, to improve their chances of success. These large private sector companies become the face of the bid while NGOs become a component of the program delivery mechanism, often invisible to the Australian public. Reeve’s research showed that smaller organizations, including NGOs, are being forced out of the contracting competition. “Some of the smaller businesses are sole operators and could not possibly raise the finance required to respond to the large tender opportunities,” Reeve said. “Major contract winners can end up being a major client for smaller suppliers as they subcontract out specialized or niche work smaller suppliers can assist with,” he explained. Australian business development professionals confirm the complexity of Australia’s tendering system has shifted it strongly towards large organizations that are equipped with the systems to win big bids. They indicate that larger partners engage DFAT early in the program design process to ensure the tender that goes to market is compatible with their business capability. “By the time the tender is out to the market for responses, the department has already made their connections and possibly a decision on who they want,” Martin Coombs, director of Shipley Asia Pacific, told Devex. “Going to the market is an opportunity to confirm they have made the right decision.” NGOs indicate that in order for them to form a successful partnership with for-profit contractors they should be intimately involved in the early stages of the bidding process. While some concede waiting for subcontracting opportunities, depending solely on that strategy can lead to less than desirable engagements and inconsistent income. Kristine Daw, a tender specialist with Dawtek, explain to Devex that NGOs should not shy away from the possibility of failure in responding to tenders as it was an opportunity to demonstrate their capability as well as develop important contacts with the Australian government. “With your tender response you are marketing your company and it is important to put forward a good image of yourself,” Daw said. “Being selective in responses ensures you can dedicate time to providing a high quality response which provides a positive and lasting image that enables your organization to be invited to the table early for future contracting opportunities.” Check out more funding trends analyses online, and subscribe to Money Matters to receive the latest contract award and shortlist announcements, and procurement and fundraising news.