House of Commons - International Development

Select Committee on International Development Eighth Report

DFID's Use of Consultancy Contracts

Knowledge Transfer and Capacity Building

90. ActionAid raised a concern in its memorandum that many contractors displayed an ignorance of local conditions, had an inadequate knowledge of the specific social objectives of aid, and shared a common tendency to pay inadequate attention to the stated poverty eradication objectives of aid.[98] It cited the Christian Aid study of Aid to India, which included a comment that "too many consultancies are short term. While the expertise is not an issue, they do not spend enough time with us to truly understand the local situation. And because of time constraints, the emphasis is on getting the job done, not on learning or on sharing information".[99]

91. Glynis Davies said "The terms of reference for each consultancy or contract for services are very carefully drafted to cover the capacity building element ... the logical framework that covers the project or programme in question which is attached to the contract will include indicators to show whether or not capacity building has taken place as expected".[100] Peter Freeman added that "on the whole we have moved away from the days when we were simply building bridges or dams with the use of British contractors, British consultants, and then walking away ... What we are about is building sustainable improvements into transport systems, to take the engineering example".[101]

Aid Tying and DFID's use of Local Consultants

92. One solution to the problem of achieving sustainable outcomes through consultants is to increase the hiring of contractors from developing countries themselves. This can contribute to development in itself, and might result in the hiring of consultants who are already familiar with the geographical area concerned. In a previous Report, we have argued that DFID should seek to let a greater proportion of contracts to consultants based in its partner countries. In 1997-98, only £5.4 million of a total of £235 million of contracts (two per cent) were let locally.[102] In written evidence to this inquiry, ActionAid argued that "one of the reforms that would help to increase Southern ownership of development, make advice and know-how more relevant to local realities and which help to increase Southern capacities is to award more contracts to local consultants".[103] It was concerned, therefore, that "the overwhelming majority of consultancies and individual technical cooperation officer posts are awarded to UK-based firms and individuals. This excludes many Southern-based consultants from competing for contracts and reduces the opportunities to build capacities and involve poor people".[104]

93. The main barrier to increased letting of contracts to consultants from developing countries is the Aid Tying rules, which are set by the Department of Trade and Industry and stipulate that contracts must be let either to consultants based in the UK or in the recipient country. Glynis Davies told us "We have a set of rules called the Aid Tying rules which are also known as the Buy British rules, but in practice those rules tie the British programme of development assistance to British and local sources. So actually our assistance is not tied to British companies only, it is tied to local companies as well".[105] DFID has negotiated a change to the rules to allow contracts to be let to consultants from other countries in the same region as the recipient country.

94. ActionAid has also questioned the legality under EC law of DFID's eligibility criteria which specify that consultants must be based in the UK in order to become a resource centre or be included on the Consultants' Index.[106] Work is taking place at the European Commission to establish the legality of aid-tying rules in all Member States. Peter Freeman said "We are following extremely closely the internal discussions going on in the European Commission and some of the action that they are now beginning to take on getting together their own information about compliance of EU Member States as a whole with the EU Procurement Directives ... There is a further meeting of the Development Assistance Committee, DAC, of the OECD which we are rather keeping our fingers crossed about, because we are really yet again at the crunch point at which Member States of the DAC need to decide whether they are going to have an untying agreement this year or not".[107]

95. British Consultants' Bureau was in support of aid untying initiatives — the "internationalisation" of consultancy contracts — but was concerned that progress be made multilaterally rather than bilaterally. It stated that "Such ... is the strength and professionalism of British consultancy that in general terms we do not have a great deal to fear [from aid untying] ... It is, however, galling for British consultants, the majority of whom are SMEs, to see international competition for British funded aid projects encouraged while there is a closed door for other countries' bilaterally funded work".[108]

96. The communiqué issued by the leaders of the G8 countries following their recent summit at Okinawa included a statement that "To achieve increased effectiveness of oda, we resolve to untie our aid to the least-developed countries ... we believe that this agreement should come into effect on 1 January 2002".[109] This commitment has yet to be formalised at the Organisation for Economic Co-operation and Development (OECD), but it represents a positive step forward. We welcome the work DFID has done to seek a multilateral agreement on aid untying. We also welcome the recent communiqué from the leaders of the G8 countries, which contained a commitment to an agreement to untie aid to the least developed countries, and look forward to further progress being made in negotiations at the OECD.

97. A further barrier is a lack of procurement capacity within DFID offices overseas. DFID has an upper limit in most cases of £100,000 on the value of contracts which may be let locally. Glynis Davies explained that this was "entirely to do with procurement capacity, and in fact local consultants can be hired at any value of contract but not necessarily by local people".[110] DFID now allows contracts of a value of up to £250,000 to be let locally, where there is sufficient procurement capacity. Glynis Davies said "We changed the rules so that local consultants could be hired locally ... As a consequence of that rule change and the work of that group of overseas-employed DFID members of staff, we have increased the proportion of local consultants in those target areas from about 5.6 per cent to about 12 per cent ... It is not a simple operation because in order to achieve this effectively we actually have to decentralise our procurement capacity, and that is not something we are going to do overnight, especially if we want to do it well, which of course we do".[111] We welcome the steps taken so far to decentralise DFID's procurement capacity, and we consider this to be an essential step towards increasing its use of local consultants, with the potential result of achieving a much greater and more sustainable development impact.

98. In its written evidence, DFID told us that "Since 1997 significant progress has been made; effort has been particularly focused in East and Southern Africa, Zimbabwe, Nepal, India and Vietnam ... These target countries together are in receipt of over 30 per cent of DFID's bilateral programme".[112] The table below shows the levels of local procurement in the target countries.

Table 8: DFID's Use of Local Consultants in Target Countries

	Local spend as a percentage of total consultancy spend
	1997/98	1998/99	1999/00
Zimbabwe	6.5	23.0	39.2
Southern Africa	7.7	8.5	12.9
East Africa	7.1	16.3	7.3
India	2.4	7.9	6.2
Nepal	2.0	8.6	6.2
Vietnam	0.0	5.2	30.1

Evidence, p. 69

99. The table shows that in those countries where DFID has been making efforts to increase its local procurement, there has been a significant increase in the proportion of contracts which are let locally rather than through the East Kilbride Procurement. There has also been an overall increase in the proportion of contracts being let locally. The 2000 Departmental Report states that, of a total of 2286 contracts let in 1998-99, 573 — amounting to £14.21m (6 per cent) were let locally. We welcome the work that has taken place to increase the proportion of contracts which are let locally in those countries where DFID has been piloting new initiatives and building its procurement capacity. We also welcome the overall increase from two to six per cent of contracts which are let to local consultants.

100. Whilst welcoming the steps taken by DFID to increase local procurement, ActionAid commented "it is clear that local sourcing remains the exception rather than the rule and is currently not strongly incentivised or resourced. Only contracts under a certain value or with specific waivers agreed by DFID (or on some cases with the DTI) can be locally sourced and the emphasis in procurement of services remains within a narrowly defined concept of value for money. In this regard, aid-tying rules clearly distort the most effective use of aid resources".[113]

101. ActionAid recommended that "DFID put additional resources into rapidly building its capacities to source locally and to begin pooling market information with other donor organisations. DFID should consider setting targets for letting contracts locally for each country or region",[114] and such measures "should be supplemented by other measures to enable local companies to compete on an equal footing with Northern companies. It will be necessary to dismantle the various obstacles that hinder local companies from bidding; many currently lack the opportunity and access to contracts other lack expertise on minimum standards acceptable in international contracting. It is necessary to put in place mechanisms for sharing information on contract opportunities and tendering procedures. Furthermore, it is likely that additional measures may be necessary to encourage local companies to apply for specific contracts".[115]

102. ActionAid proposed that, in order further to increase the numbers of contracts being let locally, contracts could be broken down into their component parts and those parts be let separately.[116] The breaking down of contracts could be done in consultation with the Procurement Department in East Kilbride, and the parts could (falling below the £100,000 threshold) then be treated separately by the DFID overseas office. This would also reduce the problems which may be associated with finding consultants in developing countries which have the full range of skills, expertise and staffing necessary to fulfil large contracts. We recommend that DFID give consideration to ActionAid's proposal for larger contracts which would normally be let to UK-based consultants to be broken down into smaller contracts and let locally instead.

103. We note ActionAid's proposal for the use of "targeted procurement", where procurement contracts are targeted as specific sectors in developing countries in order to support wider economic and social objectives".[117] ActionAid "urges DFID to undertake some pilot studies in a few developing countries to examine the extent to which targeted or affirmative procurement could be used as a vehicle for supporting development objectives. DFID should also discuss the issue of targeted procurement with partner countries and other donor organisations in order to mainstream the concept".[118] We invite DFID to comment upon the potential use of targeted procurement in developing countries.

Evaluation of Resource Centres and Consultancy Contractors

104. For individual contracts, British Consultants' Bureau "would prefer to see a more formal procedure for assessing performance [of contractors] in line with the equivalent in the World Bank".[119] ActionAid stated "In our experience, it has been difficult to get information on how DFID evaluates its technical cooperation projects. The large number of intervening variables and the long timeframe within which policy impacts can be identified and assessed, mean that it is not easy to directly attribute to specific technical assistance efforts, changes in capacity or improved policy outcomes. While the general difficulties and practical constraints experienced in evaluating technical cooperation are understood, it is clear that DFID could give greater attention to evaluating the impact of its technical cooperation efforts".[120] Technical co-operation represents a large portion (43 per cent in 1998[121]) of DFID's bilateral oda. This portion of the programme must be fully incorporated into DFID's evaluation strategy.

105. International Family Health (a former Resource Centre) stated in written evidence that, during ten years of consultancy contracts with DFID, it was not aware of its performance as a resource centre ever having been evaluated by DFID, or, if evaluations had taken place, the organisation had not been made aware of the outcome or of any general assessment procedures.[122] Dr Ken Grant, however, outlined various evaluations which had been carried out on the work of IHSD as a resource centre.[123] DFID stated that it "oversees the overall performance and quality of each Resource Centre by monitoring agreed targets; assessing performance after each assignment; ... day to day contact with Resource Centres; and, in addition to regular meetings, formally evaluating each Resource Centre's performance".[124] Glynis Davies admitted though that "[it] is perfectly possible; that a resource centre would get feedback on a particular project, a particular activity, but they would not get a kind of annual report".[125] We recommend that, in addition to individual project appraisals, DFID periodically review the performance of each of its resource centres.

106. BCB suggested that "In general our perception is that currently DFID [terms of reference] given to consultants are driven by inputs rather than by outputs. UK PFI current experience would suggest that emphasis on outputs would be beneficial to all".[126] DFID stated in its memorandum on procurement that it was "piloting the idea of contracting to pay for delivered results ("outputs based contracting") rather than person days ("inputs") for larger contracts. This approach is already used often for small contracts".[127] We welcome DFID's pilot of outputs-based contracts, and we look forward to examining the results, and any proposals for changes in consultancy contracting procedures, in due course.

Complaints Procedures

107. It is important that any organisation has in place effective and fair mechanisms for dealing with complaints, including complaints by contractors and complaints made against them. ActionAid suggested that although donors such as the World Bank had put in place complaints mechanisms, "obtaining effective and timely remedial action when development initiatives cause harm to local people is still a protracted and thankless process. DFID should ensure that credible dispute-settlement mechanisms are in place and that there is a fair process for adjudicating legitimate claims against consultants given the difficulties - political, financial and cultural - that confront poor communities when they try to gain access to the courts".[128]

108. Members of this Committee have been approached during this inquiry by several organisations and individuals wishing to express their apprehension about complaining to DFID about decisions made on the selection of contractors or about the running of projects. Organisations were afraid to complain, because they had the impression that, if they did, it would be to their disadvantage in future competitions for contracts. We put our perception to Sir John Vereker that there was a fear among contractors of complaining to DFID. He was unaware of any such apprehensions, and he implied in his response that some of these complaints might be a result of DFID applying its rules too strictly and fairly, rather than inconsistently.[129]

109. Glynis Davies told us that during her time as Complaints Officer, she had received no complaints. In the previous year, one complaint had been made. Peter Freeman told us that no complaints had been received about DFID by the Ombudsman during the past three years.[130] Glynis Davies suggested that "it is certainly not unknown for contractors to complain about the way in which their project is running or about the contracting processes, although it is a very low proportion of projects or contracts where this happens ... The fact that we get these complaints from time to time and that we then take steps to resolve them, I would suggest illustrates that there is not too much fear of us treating complaining contractors badly in future years, but equally because of the way DFID is set up there are not Chinese walls but very ordinary geographical barriers to that happening".[131]

110. Peter Freeman conceded that the low number of complaints received by DFID might be a result of fear among contractors, although he suggested it might also be indicative of a good level of satisfaction among them, and said that he had not heard any suggestion that there was a fear of complaining to or about DFID.[132] DFID was, however, aware that it needed to "get better and more open feedback, not just on complaints and worries ... but also on constructive suggestions for improving our procedures, for making them more transparent ... I do not want to leave the Committee with the feeling that we are complacent about this".[133]

111. We are not satisfied by the responses we received from DFID when we put to its officials our perception that there was a widespread fear among contractors of complaining about any aspect of its work. We are reassured to some extent by DFID's admission that it perhaps needed to work to obtain better feedback from its contractors, but we are alarmed rather than comforted by the implausibly low number of complaints dealt with by the complaints officer.

112. We recommend that in reviewing its procurement procedures, DFID actively seek out constructive comments from consultants about the matters we have discussed in this Report, paying particular attention to their views on how complaints procedures might be amended to dispel the fear of complaining which currently prevails and to encourage constructive criticisms which might improve the Department's work.

Anti-Corruption Measures

113. We have recently launched an inquiry into Corruption. Our discussion of the matter in this Report is therefore brief. The World Bank, as part of its anti-corruption strategy, has appointed a Sanctions Committee which has the power to debar any company or individual from World Bank-financed projects for a set period of time on the grounds of having been found to have violated the Bank's Procurement Guidelines or Consultants Guidelines. The list of debarred firms is published on the Bank's website.[134] The current list of 54 firms and individuals includes 36 UK companies, all debarred permanently from World Bank funding as a result of corruption and / or fraud (breach of Procurement Guidelines 1.15 (a) (i) and / or (ii)).

114. We asked DFID to tell us whether any of the contractors currently working for it appeared on the list. DFID's response was that none of them did, but this response appeared to be on the basis of an analysis which had been conducted not as a result of checks in the contracting process, but in response to our enquiry. DFID does not, we were told, have its own blacklist. It does, however, include anti-corruption clauses in its contracts, and if any contractor breaks the laws of the UK or the recipient country, the contract is declared void.[135] Seacas (UK) Ltd, citing two failed projects in Indonesia, suggested that "DFID should introduce regulations which would make it mandatory for a company wishing to benefit from DFID funding to compensate in full all expenses incurred by the DFID in the event a contract is lost because of malpractice by the company".[136] We intend to examine these mechanisms further in our forthcoming inquiry into corruption. At this stage, however, we recommend that DFID include in its contracting procedures a check to establish whether potential contractors appear on the World Bank's list of companies debarred from funds as a result of corruption. Such companies should not be awarded contracts by DFID. We recommend that DFID review the potential for cooperation with other donors on this matter, and inform us of the outcome of its deliberations as soon as they are available.

Ethical and Development Standards

115. ActionAid suggested that the DETR and Treasury Guidelines, "environmental issues in purchasing" could be adapted for use in procurement. ActionAid suggested that further research was necessary to establish how this could be done, but stated that "it is clear that certain elements of the ethical purchasing methodology could be quite readily adapted to aid procurement practices".[137]

116. Glynis Davies told us that DFID's "procurement procedures include the ethical standards of the Chartered Institute of Purchasing and Supply, and those apply to us in the Procurement Department and to our procurement agents. There are within our contracts for services with consultants anti-corruption clauses".[138] We invite DFID to comment upon the possibility of adapting the DETR and HM Treasury guidelines on ethical purchasing to its consultancy procurement procedures.

Conclusion

117. We accept that DFID should use consultants to implement some of its programmes. During this inquiry, however, we have found that DFID's procedures require improvement. In particular, there are concerns about the selection of contractors, the ability and willingness of contractors to make complaints to DFID in confidence, and appropriate safeguards against corruption. We look forward to the outcome of the current review, and trust that it will heed our recommendations.

98 Evidence pp. 103-111 Back

99 Evidence p. 108 Back

100 Q. 303 Back

101 Q. 304 Back

102 Fifth Report from the Committee, Session 1998-99, Department for International Development: 1999 Departmental Report (HC 567), para 26 Back

103 Evidence p. 103 Back

104 Evidence p. 103 Back

105 Q. 313 Back

106 Evidence p. 110 Back

107 Q. 316 Back