USAID rethinks contracts that are 'too big to fail'

The U.S. Agency for International Development is planning a major restructuring of its multibillion-dollar global health supply chain project, which delivers lifesaving drugs and health commodities to dozens of countries. As USAID prepares to solicit proposals for the next version of the project, the agency’s watchdog has outlined how design and management challenges allowed the current $9.5 billion supply chain contract to run into major problems early in its implementation, which Devex first reported, prompting congressional hearings and investigations. The Global Health Supply Chain Procurement and Supply Management — or GHSC-PSM — project is the largest in USAID’s history and is implemented by U.S.-based contractor Chemonics International. Chemonics was awarded the contract in 2015 — unseating the organizations that previously managed USAID’s health supply chain efforts — as part of a plan to consolidate two projects into one record-breaking contract with an implementation period of up to eight years. In an audit released in March, USAID’s Office of Inspector General found that the process of designing and awarding the contract took significantly longer than expected. The project’s design process began in June 2010 and it did not begin implementation until January 2016, partly as a result of legal challenges brought by a former implementer. OIG also highlighted shortcomings in how USAID designed the consolidated project, its process for selecting an implementer, and its oversight of the implementation. “Weaknesses in USAID’s planning and evaluation processes hindered the Agency’s ability to design and award the GHSC-PSM contract with the necessary documentation to fully support key decisions made,” OIG wrote. The audit was undertaken at the request of the Senate Foreign Relations Committee during a period of intense congressional scrutiny for USAID’s health supply chain project, which supports the U.S. President’s Emergency Plan for AIDS Relief and other key U.S. health programs. “We recognize the vulnerabilities presented by a single-source contract that is ‘too big to fail’ because millions of people depend on the life-saving medicines and health products USAID buys through it. The GHSC-PSM contract is the largest acquisition award in the history of USAID, and we could, and should, have done it better,” USAID wrote in its comments submitted to OIG in response to the audit findings. “Previous recommendations from the OIG and our own market research have convinced us that we need an entirely different design for the follow-on to [GHSC-PSM],” the agency added. Under the anticipated new design, logistics and procurement in the health supply chain will be broken up by health program into four contracts. “This fundamental shift acknowledges the unique requirements of USAID’s different health programs and the medicines and health commodities they need to purchase, and will build in prudent redundancy as one risk-mitigation measure,” USAID wrote. That new group of awards, which the agency is calling the “Next-Generation Global Health Supply-Chain Suite of Programs,” was initially expected to be made in November, but USAID officials now say the anticipated award dates are yet to be determined. The audit raises questions about USAID’s decision to consolidate the supply chain project under a single implementer with a contract that allows for flexibility in the services provided — known as an “indefinite delivery, indefinite quantity” contract, or IDIQ. USAID’s own policies warn against single-award IDIQs, according to the audit, because they “reduce competitive opportunities and may create a reliance on one contractor, increasing program vulnerabilities.” When Chemonics failed to meet its performance targets in the first years of the project, USAID’s reliance on one contractor left the agency with few options, the audit found. “In choosing to award the project to a single implementer, USAID had little leverage to deal with the potential underperformance of the selected contractor,” OIG wrote. OIG found that USAID’s contracting officer had raised concerns about this arrangement but was not involved enough in the design process to ensure they were taken into account. USAID explained its decision to structure the contract in this way by saying that the required services were so closely linked that they could only be performed by a single implementer. OIG noted that explanation appears at odds with the fact that, in seeking approval for the IDIQ, USAID’s Bureau for Global Health said it was built on the success of the former project, which was implemented under two separate contracts. The audit also noted that while USAID projected the single-award structure would save “at least $10 million per year in various management costs,” the agency had “no plan in place to measure whether … [the expected benefits] had been achieved.” According to Chemonics, cost savings have materialized. Jane Gotiangco, a spokesperson for the company, wrote to Devex that GHSC-PSM “has saved $363 million on commodities over the life of the project through carefully negotiated long-term contracts with suppliers for major product groups” and “$34.2 million on logistics since the project began.” USAID and Chemonics both also point to dramatic improvements in GHSC-PSM’s performance targets. After the project reported a steep decline in the percentage of its shipments arriving on time and in the right quantities — only 7% for one quarter of fiscal year 2017 — such rates have since rebounded dramatically.