Top development lawyers on a 'grand bargain' for US aid procurement

WASHINGTON — For the U.S. government, investments in global development require a range of tough choices. How to spend scarce foreign assistance dollars — and with whom — is one of the toughest. Procurement can be a thorny issue inside an industry built on partnership and cooperation. Questions about who should receive government funding, and what form that funding should take, still tend to pit different constituencies within the U.S. development community against each other. For-profit contractors, not surprisingly, argue the U.S. Agency for International Development should channel more of its funding through contracts. Not-for-profit nongovernmental organizations tend to favor grants. How the balance between those two primary funding vehicles is struck is an issue under constant negotiation — and not infrequently, litigation. Robert Nichols, a founder of Nichols Liu LLP, has argued many of those cases, and he thinks it is time for U.S. development organizations to make sure they really understand what the laws that govern U.S. federal procurement actually say. “The grand bargain is not about cutting up a piece of pie in a way that makes everybody happy. Congress has actually already dictated the grand bargain, and it’s a matter of actually reading the rulebook and applying the rulebook in a fair way,” Nichols told Devex. Nichols previously led the Government Contracts practice at Covington & Burling LLP and has represented some of USAID’s largest implementing partners. Natalie Thingelstad served as USAID chief of compliance from 2010 to 2014, before joining Save the Children as a risk and compliance officer. In part-two of our conversation with Nichols and Thingelstad, here are some of the key takeaways on current debates in U.S. development procurement. The text has been lightly edited for clarity and length. USAID’s choice of contracts or grants is still a contentious issue — and it could be ripe for review. THINGELSTAD: It really was a learning curve that the agency was confronted with … in the late 2000s and early 2010s, where there still was so much money coming through USAID. With the rise of bid protests, and the challenges of contracting, and the urgency of the response that USAID was trying to meet, I think the pendulum certainly swung towards issuing more cooperative agreements and grants because they’re just easier to get the money out the door … One would hope that those lessons have been learned and now the agency is being more diligent in exercising its discretion where it’s appropriate and putting together instruments that fit the type of work that they’re asking the implementer to engage in. There are robust discussions. I don’t want to make it sound like it’s just a stamp of approval that a particular award is designated as a contract or a cooperative agreement, but I think there’s definitely areas for improvement still. NICHOLS: My suspicion is that either through contractors protesting proposed grant awards saying these really should be contracts — and the GAO will gladly listen to those arguments — or through a broader GAO investigation into how USAID makes these choice of instrument decisions, I think that this could be a major issue for where the industry pushes back and says, ‘USAID, of course you have some discretion, but you’re applying it outside of the bounds of the law.’ … When you look at the statistics for the effectiveness rate for GAO bid protests — meaning the rate at which either the agency voluntarily overturns its own decision or GAO tells them they have to overturn their decision — AID is one of the worst agencies. Your chances when you file a bid protest of overturning the award at AID and either having a full re-competition or a review of the proposals again is over 50 percent. So when your chances of getting another look are so high, you can see why AID would be incentivized to designate an award as a grant that’s beyond the bid protest jurisdiction, rather than designating something as a contract that could be protested. It may be possible to strike a ‘grand bargain’ for procurement reform — but it starts with understanding the law. NICHOLS: The grand bargain involves everybody actually reading the laws and then applying them properly. What you have instead is avoiding that, and then that turning into fights. If you have a proper application of the Grants and Cooperative Agreements Act, and then you also properly administer the source selection process, then your effectiveness for bid protest rates goes down, and the number of people interested in protesting goes down, because there’s not as much to protest. But when you instead have a lack of diligent application of the laws, in particular within the agency, that’s when you have to go to GAO to get them to force the agency to do it right. So the grand bargain is not about cutting up a piece of pie in a way that makes everybody happy. Congress has actually already dictated the grand bargain, and it’s a matter of actually reading the rulebook and applying the rulebook in a fair way. There is still room for debate over how to move the grants versus contracts issue forward — sometimes even within the same law firm. THINGELSTAD: Thinking back on my agency days, one of the initiatives that went through USAID to address this issue was to break up awards and make much smaller awards — wanting to take away that do-or-die incentive that incentivized, especially, incumbents to protest awards that didn’t go their way. But breaking up awards, what we saw, that was inconsistent with long-term development initiatives and stay-the-course types of plans that require larger awards. So it’s not that simple. Maybe one approach that I don’t think has gotten a lot of attention is revisiting the law. USAID has some very unique provisions in its statutes that allow it to do things a little bit differently because of the specific challenges that that agency is designed to confront, and so this might be one of those areas where additional thought, additional study could be spent thinking of ways the law could adapt more to the unique environment that USAID is operating in. NICHOLS: That is precisely the problem — what Natalie just said — ‘We’re special, and we don’t want to have to follow the rules everybody else follows.’ As long as both the agency and the private sector keep making those arguments it actually gets in the way of reading the rules and following them, and that is an epidemic problem within the development sector, is the ‘We’re special, the rules shouldn’t apply to us.’ They’ve got to get past it … If the U.S. military and defense contractors, which have more money than everybody else, cannot get exceptions to the rules, do you think for a second that USAID is going to be excepted from the rules? It’s just unrealistic, and pointing to the ‘We’re doing god’s work’ mission statement as an excuse for doing so is just another way of saying ‘It’s too hard, please don’t make us do it,’ and it’s never going to carry the day. 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