House of Commons - International Development

Select Committee on International Development Eighth Report

DFID's Use of Consultancy Contracts

64. In 1999-2000, DFID spent £267 million on consultancy contracts — £257 million through its Procurement Department in East Kilbride, and £10 million through its local offices in developing countries. This figure has been rising steadily for the past five years, having more than doubled over the period, from £115 million in 1994/95.[59] It was equivalent in 1998/99 to just over 28 per cent of its bilateral country programme expenditure, and nine per cent of its total budget planning allocation.[60]

65. In our Report on DFID's 1999 Departmental Report, we expressed concerns about the relatively small proportion of contracts which were let locally (two per cent of the total value of contracts in 1997/98[61]). We also raised the question of the extent to which the delivery of significant amounts of development assistance through consultants was conducive to knowledge transfer and capacity building, and called for the inclusion in contracts of strategies for sharing expertise and knowledge within particular projects.

66. DFID is currently in the process of what Peter Freeman called "a programme of substantial change" in its contracting and procurement work, as a result of the new government-wide guidance which has been issued and as a result of DFID's own intentions to improve its practices.[62] The purpose of these changes, he explained, is "to improve our ability to help partner countries build their own procurement capacity; to improve our own efficiency particularly on small contracts by shortening the chain; ... to increase our use of locally-based consultants and contractors where this can have a direct impact on local capacity and where it adds value to the contracts which we are financing; to learn lessons from the feedback that we get directly and from the experience of others about best procurement practice in the UK and elsewhere and to put them into practice; to improve our relationship with our major suppliers; and last, but not least, we are getting ready to implement a multilateral agreement on untying for which we continue to push hard at the OECD".[63] We welcome DFID's review of its contracting procedures, and we trust that our comments will assist DFID in identifying areas which could usefully be examined as part of the review.

67. In this section of the Report, we consider the following aspects of DFID's use of consultants:

Advertising and Competitive Letting of Consultancy Contracts

68. Of the total number of consultancy contracts awarded by DFID each year, only a small proportion by number (253 out of 2286 in 1998/99)[64] are let competitively. In 1999/2000, 59 per cent of DFID's contracts by number (43 per cent by value) were let non-competitively, a further 29 per cent (5 per cent by value) were call-down contracts, and the only the remaining 12 per cent (53 per cent by value) were let competitively.[65]

69. DFID told us in written evidence that "Decisions on whether a contract should be advertised are made on a case by case basis".[66] We understand that DFID does not have a record of the precise numbers of contracts which are let through open competition, but John Kelly said "I think it is true that we do not advertise that many contracts. We have our own ... index of consultants who have worked for us or consultants who want to work for us. We also take advice from our professional advisers and spending departments ... the number of contracts advertised is fairly small".[67] Most of the competitively-let contracts are not advertised openly, but are let through a tendering process, where DFID invites a number of consultants from its Consultants' Index to bid.

70. British Consultants' Bureau complained that, because only a few DFID contracts are let through open competition, "too often firms and individuals hear after the event about a project being let for which they were eminently suitable — in some cases more suitable than the successful candidate — without there being an opportunity to either express an interest or be selected as one of several bidders".[68] This brings into question the value for money which is being achieved by DFID in electing not to advertise openly the majority of its contracts.

71. Glynis Davies stated that one of the reasons for DFID's decisions not to advertise or hold competitions for the majority of its contracts was that "the market places in which DFID operates, the services that we are seeking to buy, are not all that easily available, and in a number of sectors there is not that much scope for competition ... We are not supposed to let contracts over £100,000 non-competitively but there are occasions when we have to because there are not competitors in the market".[69] There were only a very limited number of consultants with the relevant skills, and these were, she argued, already known by DFID. There was therefore no point in holding a competition, since it would not be likely to reveal any new bidders.

72. Another reason for the high numbers of non-competitively-let contracts is that DFID does not commit to advertising contracts with a value of less than £250,000, and does not normally let contracts with a value of below £100,000 competitively at all. Peter Freeman explained that this was because open advertising, and tendering procedures, were costly, and in the case of smaller projects such costs were disproportionate to the savings which could be made through advertising. He said, "Going out to competition, going through an advertising process which is quite rigid in its nature, which takes time and which takes money, is just somehow not worth it for a lot of the quite small contracts or the follow-on contracts, where it is really unfair to expect bidders to put in a lot of effort to put a bid together when there are people who already are up to speed with whom they would find it difficult to compete. So we have to balance these different considerations".[70]

73. It may well be true that placing a national advertisement would not be the most cost-effective way of finding a suitable consultant for every single project. There are, however, other ways in which information about forthcoming contracts may be disseminated which are far less expensive and might result in more open competitions for contracts. According to British Consultants' Bureau, DFID is not currently exploiting its Internet site to full effect for these purposes. It stated that "The introduction of 'Project Pipeline' information on the DFID website has been welcomed by those seeking work. Unfortunately, until very recently (March 2000) this list was not updated for several months at a time. Clearly, to be effective it needs routine and regular updating. Furthermore, unlike the IFIs ... there is little information on such details as: requests for expressions of interest; dates for proposal submission; short-listed firms; and who has won the project".[71] Peter Freeman conceded, "we are almost certainly not giving enough advance information, I think, about the prospective timing of award of contracts, letting of contracts, either through our website ... or through a process of advertising in newspapers, which is a much more expensive and unreliable process".[72]

74. Other possible initiatives to increase the information available to potential contractors, and to increase the proportion of contracts let through open competition could include:

(a) the production of a regular bulletin sheet outlining basic information about forthcoming projects for distribution to consultants registered on DFID's Consultants' Index. To save on costs, this could be distributed by electronic mail;

(b) holding open days — in the UK for UK-based consultants, and possibly in some of DFID's overseas offices for local consultants — for consultants interested in working with DFID; or

(c) providing regular information to networking organisations such as the British Consultants' Bureau, which may be able to include the information in mailings to its members, or to use information held in its database to alert relevant consultants to forthcoming projects.

75. We accept DFID's argument that there are some short-term or highly specialised contracts where open advertising would not be cost-effective or productive, since there are only a small number of consultants with the relevant skills or the timescale makes it impossible. It is unfortunate, however, that some contracts are let non-competitively simply because of their comparatively low value. We recommend that DFID increase the proportion of its smaller contracts which are let competitively. We suggest that DFID consider ways of disseminating information about contracts, and inviting expressions of interest from consultants, in cost-effective ways, such as via its Internet page, and through open days for consultants, regular bulletins, and networking organisations such as the British Consultants' Bureau. More generally, we recommend that DFID significantly increase the amount of information on forthcoming competitions for contracts on its website, and that the website be updated on a more regular basis. Outdated information is of little use.

The Selection of Consultants

76. DFID told us that "The selection of the organisations / individuals who receive invitations to submit proposals is made on the basis of professional knowledge of the sector and of consultants working in that field".[73] British Consultants' Bureau wrote "some disquiet is evident, particularly among newer companies seeking international work, that unless you are one of the 'chosen few', you are unlikely ever to win a project. Even amongst those who are highly successful in working for DFID, there is a feeling that too many of the projects are let by advisers apparently only on the basis of personal knowledge. Examples have been brought to our attention where large BCB consulting member firms working regularly for DFID have been asked to do projects entirely unsuitable to their specialist capabilities, simply because they are well known to DFID. Some are awarded contracts only to have to sub-contract to a small firm with specialist knowledge".[74] British Consultants' Bureau further complained that "at times BCB members question why the 'big five' management consultants are so often chosen when other smaller, specialist firms could do the work for less and to the same standard".[75]

77. DFID rebutted this in written evidence, stating that "All potential bidders are informed at the outset of the evaluation criteria — this varies depending on the services required — to be used in assessing the proposals. The assessment is two-fold: the technical and commercial proposals are assessed separately by DFID's professional advisers and Contracts Branch, respectively. On occasions external assessors are included in the evaluation process, but as with all evaluations we do ensure that conflicts of interest are avoided — e.g. any individual who has had an association with the bidders would be excluded. The decision on the preferred supplier is made on the basis of the evaluation marks; if there is no clear winner then we would ask consultants to present their proposals before the assessment panel".[76] John Kelly said "I think we have come a long way in the last few years in setting out criteria which bids will be judged on, and publishing these with our bidding papers. We ensure that the criteria and the weightings are in place before bids are received, and we insist that the adjudication / evaluation panel which looks at these bids will follow the criteria".[77]

78. Peter Freeman did admit, however, that there was a danger that the advantage of having a track-record of working with DFID could "tip over into ... introducing a bias which means we are not exploiting all the expertise ... and therefore getting the best value for money for what we do".[78] Glynis Davies said, "it has to be a level playing field so we go on the written evidence in the bid which are put to us ... we have to ensure that that kind of judgement is not made on the basis of two people falling out because they disagree with each other, but it is based on some kind of systematic analysis".[79]

79. International Family Health wrote "With reference to the procurement procedures for hiring contractors and consultants and mechanisms for assessing their performance, we would comment that procedures do not always seem to be transparent or applied consistently".[80] British Consultants' Bureau argued that "A major criticism expressed by firms - large and small firms - successful and unsuccessful in winning DFID projects - is the lack of visibility in the procurement process ... More open bidding, clearer procedures and reasons for selection / rejection in line with those proposed for the EU would do much to encourage cost effective competition and avoid the impression of a fast-track for certain firms".[81] The comments made by British Consultants' Bureau and International Family Health in written evidence lead us to question the adequacy of the mechanisms DFID currently has in place to ensure fair and effective decisions are made on the selection of contractors. We recommend that in its review of procurement, DFID include consideration of how its selection procedures might be improved so as to remove the perception that its rules are not always applied fairly, consistently or transparently.

80. International Family Health stated in written evidence that "Some DFID personnel operate on the premise (common amongst European and governmental donors) that a company or individual consultant that was contracted to design a project should not be eligible to bid for a contract to implement the same project, while other DFID personnel do not regard involvement in design work as a conflict of interest for future bidding. We believe there should be a consistent ruling on this and that it should be made known to consultants".[82] Dr Ken Brown told us that International Health Sector Development's (IHSD's) 'parent company' had on several occasions bid successfully for contracts which IHSD had designed, and that there was a perception that this was an advantage of being a resource centre. He did not think that there was such an advantage, because in fact "in terms of the parent company competing for bids the success rate is exactly the same when it was partially involved in the design as when it was not".[83]

81. The relationship between DFID's resource centres and what Dr Ken Brown termed their "parent companies"[84] is an ambiguous one. Dr Ken Brown explained that, in the case of IHSD, "the original contract was won by a consultant company called Health and Life Sciences Partnership, and when we won the first resource centre contract we were asked to give a separate name so we called it the Institute for Health Sector Development. The work was then much greater than originally envisaged, so we were asked again, the second time, to bid as the Institute for Health Sector Development as a separate organisation ... IHSD now is a general consulting company which separately holds the resource centre contract, and the resource centre is just known as the DFID resource centre".[85] DFID told us in written evidence, however, that IHSD "has no parent company but it has a partner company, Health and Life Sciences Partnership (HLSP), which is a general consulting company with a wider focus. In the last 3 years, there have been 18 contracts for project design under the Resource Centre. IHSD / HLSP tendered to implement all of them and won 11. They bid for a further 13 projects where they had not been involved in the design and won 8".[86] It appears that DFID does allow contractors involved in the design of a project to bid for future contracts for the implementation of the same project. We recommend that in its response to this Report DFID confirm that this is the case, and provide details of what mechanisms are in place to prevent consultants from designing projects which only they can implement.

82. British Consultants' Bureau suggested that the difficulties of being selected as a new contractor to DFID were heightened by the lack of relevant information about projects which was made available to bidders. It stated, "Until recently, budgetary information on projects was not available or inadequate. It is therefore difficult for some consultants to determine an order of cost or fee rates".[87] The Committee has also heard worrying anecdotal evidence that a potential contractor was recently sent forms which had been so badly photocopied as to render them illegible, and which included a set of departmental objectives relating not to DFID but to the Overseas Development Agency, which ceased to exist three years ago. DFID has a policy of requiring consultants to speak to only one DFID official during the bidding process, in order to prevent any consultant from being disadvantaged by or benefiting from speaking to different officials. On some occasions, we have heard that the official in question has gone on holiday without a replacement being nominated. We recommend that DFID review the information it provides to consultants bidding for contracts so as to ensure that they are furnished with all the necessary information about the project.

DFID's Use of Resource Centres

83. Peter Freeman told us in oral evidence that DFID had been "faced with a situation where we wanted to increase our capacity to work in health and population in developing countries ... we had very constrained resources both within DFID itself, in terms of our professional and technical capacity in this area, and in terms of the kind of resources we could access ... at short notice ... We could not increase our overall running cost expenditure on recruiting people as permanent and pensionable civil servants to do this, there were very tight caps with Government as a whole on doing it and it would not have been appropriate, frankly, to recruit people on a long-term commitment to employment".[88] DFID's response to this had been to increase the proportion of its professional staff working on a contract basis rather than as permanent civil servants, and to establish resource centre agreements "particularly to meet these very short-term demands for people to go and work up particular projects or to become involved in particular activities which would often repeat in cycle but would not be continuous, where we did not want to employ somebody on a continuous basis".[89]

84. Resource centres are organisations, separate from DFID, which are appointed by DFID for their expertise in a particular area to undertake contract work in a number of separate projects over a period of several years. DFID awards 'call-down' contracts to the Resource Centres whenever their services are required, rather than having to negotiate a new contract for each separate project. DFID has eleven Resource Centres in total, for engineering, health and population, social development, governance and development awareness. The resource centres, and the value of contracts awarded to each of them since 1997, are shown in the table below.

Table 7: DFID Resource Centres

Resource Centre	Number of Contracts since 1997	Value of Contracts since 1997
Engineering
AEA Technology plc	22	£553,212
HR Wallingford	40	£611,147
British Geological Survey	26	£458,475
Intermediate Technology Consultants	5	£237,698
Institute of Hydrology	13	£259,943
Health & Population
John Snow International	29	£631,049
Institute for Health Sector Development	116	£2,963,561
Social Development
Edinburgh University	10	£270,167
University of Swansea	30	£325,675
Governance
International Public Service Unit (Cabinet Office)	12	£69,853
Development Awareness
University of Leicester	1	£20,058

Evidence, p. 66

85. Typical activities for which resource centres are contracted include "project design, monitoring and evaluation; developing strategies and guidance on best practice; dissemination of information / synthesis of experience within DFID; attendance at conferences and technical meetings; and developing new initiatives".[90] DFID explained in written evidence that "Resource Centres enable DFID to act quickly, obtaining high quality advice, which can be especially useful in the early stages of projects. They also extend the range of expertise available to DFID and its partners for consultancy and research inputs; support and inform the development of DFID policy and strategy at all levels; ensure that key technical and programme related issues emerging from consultancy assignments are disseminated to influence future DFID assistance; and develop the capacity of local developing country consultants and groups".[91]

86. Call-down contracts currently represent less than 1.5 per cent of the value of total consultancy contracts awarded by DFID,[92] but DFID plans to increase its use of resource centre agreements, in order that it may save on administration costs.[93] There is no reason in principle to object to DFID's plans to increase the use of consultants under resource centre arrangements. But there are two important questions to which satisfactory responses must be provided in order for us to be assured that this is the best way for DFID to achieve the best development outcomes and good value for money. First, DFID must select its resource centres carefully and use them effectively. Secondly, the performance of each resource centre must, as with other contractors, be properly monitored and evaluated.

87. It appears that a large part of the work contracted out to resource centres results in them sub-contracting the work to others. This is certainly true of International Health Sector Development, which is in receipt of by far the largest amount of DFID funds compared to the other resource centres. Dr Ken Grant told us that "as a resource centre we do not necessarily use our own staff, we see our role as accessing the best available, we have to provide a variety of CVs, and we access them from all institutions within the UK and nationally ... 29 per cent of the consultants used were freelance private consultants who work for a variety of organisations, 25 per cent came from other UK institutions, 25 per cent were local consultants, because we see a particular remit as trying to develop local consultants, and a further 23 per cent came from either the resource centre itself or the parent company which hold the contract but of these two-thirds were specifically requested by name by the DFID desk or the partner country".[94]

The Selection of Resource Centres: John Snow International

88. DFID told us that the selection of resource centres is usually through competition. Glynis Davies explained, however, that "There are, of course, occasions where there is only really one organisation which can do what is needed, so we cannot say there is always competition but our approach is to go for competition wherever possible".[95] This we welcome. We are concerned to note, however, that on at least one occasion, a resource centre has been appointed which did not fulfill the eligibility criteria for inclusion on DFID's Consultants' Index. John Snow International (JSI) was appointed as a DFID resource centre following a competition in which there were, we understand, several bidders. Peter Freeman told us that a complaint had been received about the process by which John Snow International had been appointed as a Resource Centre, but that the complaint had not been upheld. He said "we were satisfied that an impartial and competent competition had been carried out in accordance with DFID procedures, and that the contract was therefore validly awarded to JSI".[96]

89. DFID subsequently stated in written evidence, however, that John Snow International did not fulfil the eligibility criteria at the time of its selection as a Resource Centre, because it was not based in the UK. DFID explained that "we reserve the right to allow non-UK based companies to bid for DFID contracts. In these cases, we must have Director-level approval. By acting in this way we: allow greater scope for Value for Money by increasing the level of competition in the market place; increase the value of the competition by involving organisations of international standing; [and] have the benefit of being able to select the most appropriate consultant from a wide range of possible candidates".[97] If this is the case, then one must wonder why DFID has in place the eligibility criteria for any contract in the first place. We are puzzled as to why DFID took the decision to embark on a resource centre agreement with John Snow International, despite its failure to meet all the criteria for inclusion on DFID's Consultants' Index. We recommend that DFID provide us with a full account of the circumstances under which approval may be given for consultants to be hired who do not meet the eligibility criteria.

59 DFID, Statistics on International Development, 1994/95 - 1998/99 Back

60 DFID, 2000 Departmental Report, pp. 17 and 113 Back

61 See Fifth Report from the Committee, Session 1998/99, 'Department for International Development - 1999 Departmental Report' (HC 567), para 26 Back

62 Q. 209 Back

63 Q. 209 Back

64 DFID, 2000 Departmental Report, p. 113 Back

65 Evidence p. 69 Back

66 Evidence p. 65 Back

67 Q. 258 Back

68 Evidence p. 101 Back

69 Q. 256 Back

70 Q. 285 Back