Why have USAID's NextGen contracts been so badly delayed?

In May, a short note appeared on the U.S. Agency for International Development’s website letting the world know that it had awarded the first in a much-hyped, much-delayed, multibillion-dollar series of global health contracts — the Next Generation Global Health Supply Chain Suite of Programs, known as NextGen, which is a suite of nine awards worth a maximum of $16.8 billion over 10 years. That first contract, worth $106 million, is the Control Tower Award — so named because the winning firm will play a coordinating role between the contractors that win the remaining awards. The award — made almost two years after originally intended — went to Deloitte, the prominent financial services firm which has dedicated significant resources in recent years to winning development contracts with the U.S. government. NextGen will be the largest-ever set of awards from the agency and one of the largest sets of awards currently being tendered anywhere by the U.S. government. So big, in fact, that two of the larger Department of Defense contractors are understood to have abandoned their usual stomping grounds and joined the rush to bid for them. The plan is for NextGen to replace the agency’s current Global Health Supply-Chain Program. Most of this work flows through one large contract, currently run by private sector implementer Chemonics, making the firm by far USAID’s largest private partner. With NextGen, USAID will take a new approach that splits the work into multiple interlocking parts. That set of contracts will fund the procurement and distribution of health products and services, primarily focused on HIV, malaria, and child and maternal health, to 40 countries around the world. However, the awarding of the contracts has run into severe delays. The awards were originally slated to be made by the end of November 2021, and the NextGen page on USAID’s website still says that it intends to replace the current contract “in Calendar Year 2022.” But well into 2023, only the Control Tower contract has been awarded, while the agency has not yet even requested proposals for another three. The current contract with Chemonics began in January 2016 and is due to expire at the end of 2023, but when it will actually end is an open question. The firm said it was told to expect a year of overlap between the existing contract and the next set of awards. If a year’s overlap is still the intention, Chemonics could receive an extension well into 2024, if not longer. So how will NextGen work, and why has it suffered such delays? A lot of moving parts USAID has been reluctant to comment in any depth on the progress of NextGen, saying it is the agency’s policy not to comment on ongoing tenders. And suppliers close to the contracts are similarly reluctant to speak on the record, in case they are seen to be unduly trying to influence the bidding process. So the reasons for slow progress are impossible to know for sure. But Devex has spoken to a number of former staffers at USAID and major contractors, as well as people close to the current awards process, to gain some insights into what is happening. Sources who spoke with Devex put forward three principal factors for the delays: the project’s sheer complexity compared to the number of experienced individuals available within USAID to work on it; risk aversion from an agency that faced scrutiny and criticism from lawmakers over the design and management of the previous contract; and indecision and internal disagreements about exactly what the awards should look like, including debates about how USAID’s localization goals ought to factor into the design. They also said the agency may have taken advantage of a degree of flexibility granted by the U.S. government to extend existing contracts during the pandemic — which may now be running out. The complexity is very real. NextGen involves nine interconnected awards. The largest awards, likely to be cumulatively worth around $11 billion, are three “procurement service agent” contracts that involve procuring products and services on USAID’s behalf. One covers HIV; another covers malaria and maternal health, known as the Integrated PSA; and the third for lab and diagnostic services, known as PSA Diagnostics. These will involve acquiring drugs and medical supplies and getting them to dozens of countries where they are needed. PSA Diagnostics and the Integrated PSA are both currently out to tender, but the tender for the HIV contract — the largest of the three, worth more than $5 billion — is still to come. Another large award involves in-country logistics — getting goods from the point they arrive in a country to locations that need them. This will involve many local logistics providers. The contract will be a “fourth party logistics” award, in which USAID passes on responsibility for dealing with all those providers to a single supplier. The solicitation was published in June last year and updated last August, with bids due by last October. A final large contract is for comprehensive technical assistance — known as Comp TA — which involves supporting countries’ own supply chains and pharmaceutical management systems. The Comp TA contract could involve several prime awards — “approximately six” according to USAID tender documents. Offers were due on these contracts at the end of 2021. All of these contracts will be tied together by the work of Control Tower, which Deloitte will now manage, and which is meant to be a platform for health data across districts, regions, and countries. Reached for comment, a USAID spokesperson said the purpose of the Control Tower project was “to establish a central information hub to support the operations and management oversight of NextGen.” They added: “The winning proposal, in this case the proposal from Deloitte Consulting LLP to the U.S. government, was selected based on publicly available evaluation criteria.” The Control Tower was always going to be the first project awarded because other suppliers will have to work within the systems it lays out. A USAID presentation shared on its NextGen Industry Day — a gathering for would-be contractors in early 2021 — reveals the scope of the interconnections, with multiple interdependencies at every stage. Instead of a single operator delivering everything, USAID’s Industry Day presentation imagines multiple contractors operating in interlocking harmony, like the gears and dials of a clock. The risks of this multicontract approach are evident. A huge amount of coordination is needed to bring together so many different operators, many of whom would normally be competitors, to share information openly and in the right format for everyone else to understand. Which begs the question: Why create a system which has so many moving parts? USAID told Devex that this was down to necessity. “The scope, size, and timeline of USAID’s Next Generation Global Health Supply Chain Suite of Programs (NextGen) reflects the enormous work required to distribute life-saving, quality-assured supplies and commodities for hundreds of millions of people in need across 40 countries around the world,” the spokesperson said. But it’s also down to experience. NextGen is being done like this to avoid what hasn’t worked before. The spokesperson said that these are “complex contracts that build on the lessons learned from previous contracts and are designed to promote competition, leverage local capacities, and attract those with advanced capabilities for each link in the supply chain.” Lessons from predecessor projects So what are the lessons USAID has learned? NextGen has two predecessors: The first global supply chain contract was delivered by a consortium, while the second was implemented by a single company, Chemonics. The current contract ran into trouble early in Chemonics’ tenure, with targets hitting an all-time low in early 2017, as revealed exclusively by Devex. Frequent stockouts — when supplies are not available when needed — led to Congressional hearings and a stinging rebuke to USAID and its contractors from lawmakers, as well as a number of concrete recommendations. USAID started working seriously on NextGen under its previous administrator, Mark Green, who took the helm in 2017. Green had been in office only a few weeks when the story about Chemonics broke, and the resulting scandal heavily colored his administration’s thinking, according to senior officials in that administration who were involved in decision making. When USAID’s leaders came to design the next round of contracts, one of their foremost concerns, according to former employees, was the need to fulfill the requirements in the Congressional report and avoid a repeat of previous problems. One of the main things USAID is keen to avoid is a single point of failure — that is, having all the risk of the project concentrated in one single implementer. That’s why it has tried to take a multicontract approach with different firms responsible for different parts of the operation. “If one or more contractors fail to perform, and they've got a smaller piece of the overall pie, under the domain, it would be easier to recover from non-performance,” a person familiar with the process said. “One could argue that a single point of failure there would be very hard to recover from.” The structure of the contracts appears designed to make it likely that there are multiple winners. And USAID has expressly said that the companies which win two prime contracts — the Control Tower and the QuTI award, which covers testing and quality control — will not be permitted to bid for PSA prime contracts unless they can show there are strong internal firewalls in place. These two contracts are both supposed to report data on other NextGen contracts to USAID, and they cannot do that impartially if the firm is delivering the contract it is supposed to scrutinize. There are no hard rules saying that a given company cannot win more than one of the four largest contracts, but there appears to be an expectation among contractors that they will go to different entities. Given USAID’s clear desire to avoid putting all its eggs in one basket, and the amount of effort needed to bid for each contract, they say, winning more than one would be an uphill struggle. A risk-averse approach Inevitably, awarding nine contracts has taken longer, and proved more difficult, than awarding one. But more than that, insiders say, USAID has taken an extremely risk-averse approach and proceeded extremely slowly. Previous global health supply chain contracts were delayed by litigation, and suppliers say that USAID has been keen to address all issues in advance. This has led, for example, to the unusual step of publishing draft tenders for consultation. The pandemic may also have given USAID a little more flexibility to extend the current project and take their time awarding the latest version, a chief of party familiar with the project told Devex. “One of the things that I found out was that USAID had an exemption granted for COVID-19 that allowed a lot of extension of projects,” they said. “So it gave them more flexibility than normal. So that has run out and I suspect now that they really do need to try to get on track but my suspicion is at this point [they will] really start awarding fairly quickly.” The contracts may also have been held up by some back and forth within USAID about exactly what they should look like. As mentioned above, work began on the contracts under Mark Green, a Republican appointee, but will be concluded under Samantha Power, a Democratic appointee. The change of leadership and staff is also likely to have led to a change in approach, said one former official. The former official said that the Green administration had wanted to innovate to make contracts more favorable for smaller suppliers, and this ambition is stated on the NextGen page: “USAID has designed NextGen to attract new and underutilized partners, and create opportunities for best-in-class supply-chain operators and service providers.” But the former official said that USAID under Power had reverted to traditional ways of working. He pointed to an analysis undertaken last year by Unlock Aid, an advocacy group that represents smaller contractors who hope to offer more innovation and improved performance — some of whom, it says, would be keen to do more business with USAID if it changed its contracting processes. That analysis found that systems for setting prices and demands for documentation in NextGen tender documents effectively excluded anyone not already doing business with USAID. The first contract, the Control Tower, was awarded through a framework contract — a type of contract that is only open to a preapproved group of contractors — and was therefore even more restricted in who could apply. The chief of party said that there was a desire at USAID’s highest level to diversify and increase the number of players and that while this desire was genuine, the agency had not provided enough incentives. Instead, insiders said, they felt that the suppliers to beat were the existing incumbent, Chemonics, and other major suppliers already delivering procurement service agent contracts elsewhere in the world, such as PFSCM, IDA Foundation, and i+ Solutions, who currently deliver similar services for the Global Fund to Fight AIDS, Tuberculosis and Malaria. Vendor-managed inventory Meanwhile, USAID is trying to make major changes to how it procures the supplies it will deliver through NextGen. The Industry Day presentation makes reference to vendor-managed inventory, or VMI — a type of procurement in which medical suppliers not only provide the drugs for others to transport but are responsible for inventory all the way through to warehouses in-country. Tender documents show that the first steps in implementing this are already well underway. VMI is well established in commercial settings such as Walmart and Amazon, whose suppliers are responsible for ensuring there is an adequate supply of their products on the company’s shelves. But logistics experts question whether what works in delivery hubs and suburban retail parks in high-income countries can be transferred to the complex business of getting drugs across borders and through customs in the global south. USAID, however, appears to disagree. In a document accompanying its solicitation for the PSA Diagnostics tender, it said early attempts have already saved tens of millions. What next? So how much longer until USAID awards the remaining contracts? Some insiders believe that now the Control Tower has been awarded, and most solicitation documents have been issued, the next few contracts could be issued relatively quickly. However, even at that point, the infrastructure will need to be built to bring all the diverse contractors together. Much remains to be done before this most complex group of contracts can finally be set in motion.