A traditional Rendille home in northern Kenya, made from food bags provided via the U.S. Agency for International Development — an example for cost-effective foreign aid? Photo by: Erik (HASH) Hersman / CC BY 

This is the first of seven parts in the Devex series "Foreign aid effectiveness: A radical rethink," written by Diana Ohlbaum — a former deputy director of USAID's Office of Transition Initiatives and senior professional staff member of the two congressional panels overseeing U.S. foreign affairs.

Maybe Jesse Helms was right. I never thought I’d hear myself utter those words, but after witnessing the fracas around the U.S. Agency for International Development’s “Local Solutions” policy, I’m coming around to his way of thinking.

Back in 2001, Helms proposed replacing USAID with an International Development Foundation, providing all foreign assistance as grants to nongovernmental organizations. Coming on the heels of his (largely successful) effort to merge USAID, the Arms Control and Disarmament Agency and the U.S. Information Agency into the State Department, his agenda was justifiably perceived as an attempt to end foreign aid entirely. And given that his earlier effort would have put the State Department in charge of all foreign aid, the idea of removing development assistance from the foreign policy umbrella was a remarkable volte-face.

Read more articles on the Foreign aid effectiveness: A radical rethink series:

Betting on the poor
● The siren song of technical assistance
● Knowing our limits
● Old wine in new bottles
● Country ownership 3.0
● The path forward

Motives notwithstanding, what Helms got right was the philosophy of being less prescriptive about how aid is implemented. We should be supporting change, not driving it. Finding people with good ideas and facilitating their work makes a lot more sense than trying to come up with all the ideas ourselves and finding someone else to carry them out. And if we want to make economic growth inclusive and self-sustaining, then we should make a special effort to find those ideas in developing countries themselves.

The problem is, our well-intentioned campaign to make foreign assistance more efficient and more effective has made this kind of cooperation more difficult. In an environment where multiple oversight bodies — regular and special inspectors general, the Government Accountability Office, congressional committees and independent evaluators — conduct audits and investigations, where every error or inefficiency is trumpeted on the front pages of newspapers as an example of waste, fraud and abuse and where there is increasing pressure to show quick and tangible results, USAID has understandably responded by exerting ever-greater control over how programs are carried out.

“We should be supporting change, not driving it. … The problem is, our well-intentioned campaign to make foreign assistance more efficient and more effective has made this kind of cooperation more difficult.”

—  Diana Ohlbaum, former deputy director of USAID's Office of Transition Initiatives

Instead of allowing good ideas to bubble up from the bottom and helping them to flourish, USAID — under real or perceived pressure from Congress — designs the projects and requires its partners to obtain pre-approval for every detail of each work plan, local hire, wage rate, plane ticket and equipment purchase. (Oliver Wyman’s Award Cost Efficiency Study, commissioned by USAID and its Advisory Committee on Voluntary Foreign Aid, lists many of the harrowing details.) Making matters worse, large projects that were previously under the control of mission directors in the field must now be authorized by senior management in Washington (a change that USAID claims was made in response to the Oliver Wyman study), and NGOs complain that “cooperative agreements,” which are technically grants and should provide a certain degree of autonomy and flexibility for partners, are being managed as if they were contracts, with USAID dictating all the details.

This heavy-handedness may seem surprising given USAID’s highly publicized and controversial efforts to move away from “acquisitions” (as the agency refers to contracts) and toward “awards” (grants and cooperative agreements). The agency has particularly sought to reduce megacontracts of the catch-all variety, known as indefinite quantity contracts and indefinite delivery, indefinite quantity contracts. Indeed, from 2007 to 2011, the total value (ceiling) of all USAID’s IQCs fell from $79 billion to $68 billion, whereas awards skyrocketed from $20 billion to $61 billion. However, these numbers are deceptive when one considers the vanishing distinction between contracts and cooperative agreements.

While cooperative agreements are supposed to be less USAID-driven than contracts, they are still highly prescriptive instruments. Unlike traditional grants, in which USAID simply provides funds for a project designed and carried out by others, cooperative agreements allow USAID to have “substantial involvement” in approving work plans, designating key positions, approving key personnel and monitoring progress toward achievement of program objectives. Unlike contracts, they do not allow for profits, and commercial development firms have complained that they are being overused simply because they are easier and quicker to issue.

Unfortunately for those with their own good ideas, true grants have become exceedingly rare. Although USAID has not made recent statistical information available, documents released to Congress several years ago show that in 2011, of the $61 billion in awards, $33.9 billion (56 percent) went to cooperative agreements. Of the remaining traditional grants, 87 percent went to international organizations such as the United Nations and the World Bank and their affiliates. Only about 6 percent of all USAID awards were made in the form of traditional grants to NGOs.

Diana Ohlbaum weighs in on the transformations happening at the USAID.

More control does not lead to better outcomes

It would be unfair to lay the entire blame for this creeping micromanagement at USAID’s doorstep; our entire political and foreign policy culture is suffused with the belief that we know better than anyone else what they need. Yet USAID is a surprising place to find such attitudes. Indeed, since its fateful hollowing-out in the late 1990s, well-documented by John Norris, USAID has often found itself without the internal capacity to design or effectively manage and oversee programs, contracting out what many perceived to be “inherently governmental functions.”

Under Rajiv Shah, whose last day as USAID administrator was yesterday, the agency has been revitalized with new talent and new thinking, enabling its officers to take a much more active role in program design and monitoring. They are encouraged to work with a more diverse pool of partners, in part by issuing smaller, more targeted grants and contracts, and they are told to “manage for results.” Ironically, this mandate tends to create a more adversarial relationship with partners who either were accustomed to being given wider berth, were accustomed to receiving larger sums or were not accustomed to working within USAID strictures at all.

For sure, a degree of distance and creative tension between funder and recipient is necessary; one who is entrusted with the cost-effective, legal and proper use of taxpayer dollars has very different motives and responsibilities than one who has a vision to turn into reality. However, there is a real danger that excessive meddling can simply squash that vision. As the 2013 Award Cost Efficiency Study noted, “Inconsistent policy implementation and frequent changes of project direction impede project progress and add cost.”

USAID funding opportunities:

Review current and upcoming USAID grants and tenders, and check out in-depth analysis of USAID country and regional strategies, including hot sectors, trends and pipeline opportunities.

Once there is an agreed budget, timeline, set of goals, indicators and benchmarks as well as legal and policy parameters, one has to wonder what the value is of further substantial involvement by USAID. Should USAID staff be intervening in the selection of personnel, requesting salary histories and approving salary adjustments, altering the degree and frequency of reporting, requiring prior written approval of equipment purchases and travel itineraries, reviewing timekeeping systems and modifying work plans? Is it really necessary for partners to keep every cash register receipt and document every small decision?

This model of control is burdensome enough when applied to U.S.-based contractors, but when grafted onto budding organizations in developing countries, it moves us ever further from the goal of local self-reliance and self-sustaining growth. Since most local partners are unable to meet USAID’s exacting requirements, the administrative burden is largely shouldered by U.S. entities — sometimes as the prime contractor or grantee and, in a weird inversion, increasingly as a subcontractor or subgrantee to the local partner.

Regardless of who’s wearing the bridle, USAID’s hold on the reins can give a false sense of sway. Gripping tighter doesn’t get us to the destination faster, and it can hold us to an unnecessarily rugged or circuitous route. According to a recent Harvard study, the more restrictions and directions imposed on program design and implementation, the less space there is for innovation and response to local needs and conditions — and the worse the ultimate outcomes. The study concluded that too much emphasis on measuring outputs leads to worse performance, especially in fragile states. A similar effect is noted by the vice president for program management and evaluation at the U.S. Institute of Peace, who argues that government agencies’ normal accountability mechanisms “simply don’t work when applied to conflict-affected areas.” While we may be able to control the inputs, we have remarkably little ability to control the operating environments and we pay the price for failing to adapt to realities on the ground.  

Not only do situations change, but assumptions may be challenged during the course of implementing a program. Bids and proposals are often hastily prepared to meet artificial deadlines — only to discover, after winning the contract, that similar efforts have already failed or that the activity would duplicate or conflict with others. Sticking to the original plan in the face of adverse information may not be logical, but it is the type of behavior that is encouraged when deviations are resisted by contract officers and criticized by auditors and evaluators.

Although USAID’s control measures are often justified as necessary to reduce corruption and improve value for money, they rarely do even that. A 2013 paper by Charles Kenny and William Savedoff of the Center for Global Development found that “corruption control strategies applied to input-based aid modalities are often ineffective and — despite their widespread use — largely unproven. Ironically, the input-tracking approach leads to strategies that undermine rather than improve the effectiveness of foreign aid.” This is because diversion of funds is not the only type of corruption cost; one must also consider the costs of measures to prevent and detect corruption, and the inefficiencies and distortions such measures impose on program selection, design and implementation. If it costs you $2 to avoid $1 in potential fraud, is this a wise investment? And what if you redesign the whole program to avoid the risk that funds will be misused, but as a result you save fewer lives or fall short of critical impact?

In essence, in order to eliminate fiduciary risk, USAID must vastly inflate the administrative costs of its programs and may increase the risk that the intervention will not achieve its aims.

More cynically, in spite of these heroic attempts to prevent diversion of funds for unauthorized purposes, corruption and malfeasance still occur with discouraging frequency. Stories about waste, fraud and abuse in foreign aid contracting have become a staple of our daily news diet. And that’s only the portion we hear about. Clearly, our ability to trace the flow of funding far outstrips our ability to produce the desired results.

Stay tuned for part three of our seven-part series "Foreign aid effectiveness: A radical rethink," written by Diana Ohlbaum, and share your thoughts by leaving a comment below.

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About the author

  • Gsw diana 3

    Diana Ohlbaum

    Ohlbaum is an independent consultant, an executive committee member of the Modernizing Foreign Assistance Network and a principal of Turner4D, a strategic communications firm. She has served as senior associate with the Center for Strategic and International Studies, a senior professional staff member of the U.S. Senate Foreign Relations Committee and the House Foreign Affairs Committee, and a deputy director of the U.S. Agency for International Development's Office of Transition Initiatives.