4 Running costs
52. While DFID will be increasing its total spending
over the next four years, it will also, according to the CSR,
have to reduce the share of expenditure spent on running costs
- from 4% to 2% of the total budget. Administration costs which
are a subset of running costs, excluding most frontline staff,
are to be reduced significantly - by 33% in real terms.[61]
This has led to concerns that DFID will be unable to spend its
increased budget efficiently because it will not have adequate
numbers of staff in place. When we put this to DFID we were informed
that these concerns were unfounded because it would be possible
to increase both running costs and the number of its frontline
staff.
Administration costs
53. DFID's
core administration budget will be cut by £34 million over
the spending review period from £128 million to £94
million.[62] DFID told
us this was in line with all Government departments.[63]
DFID provided us with a breakdown of the £128 million[64]:
DFID's core administration budget
Employee costs | £76m.
|
Property costs | £24m. |
Comms & IT | £6m.
|
Consultancy , service & supply
| £8m. |
Staff Training, Travel
| £12m. |
Other admin costs
| £2m. |
Total | £128m.
|
54. It is not yet clear precisely how the £34 million reduction
in spending will be achieved. DFID informed us that:
Organisational Units across DFID will be preparing Operational
Plans for the SR period in early 2011. These plans will set out
how the department will meet the reductions in administrative
costs. There are already a number of plans in place to achieve
significant reductions, notably on [...] consultancy, increased
income from property and further rationalisation and systems improvements
in the corporate support functions. Further details of these plans
will be available in 2011.[65]
55. However, we were given some indication how the savings might
be achieved. This would be done largely through "changes
to our travel policy, changes to overseas allowances, renting
out more office space in Palace Street and reforming DFID's corporate
centre."[66]
56. The Permanent Secretary told us that reductions
in its use of office space will enable DFID to rent out some space
it currently uses. We were told: "we are moving to a system
where we will have only seven desks per every 10 members of staff,
and everyone is going to have to hot desk."[67]
The NAO informed us that
Since 2009, the Department has let space in its London
office which should generate income of £1.2m in 2010-11.
The department estimates further rental income of over £2m
per annum is possible in future years from renting out space available
in London by relocating posts to East Kilbride.[68]
57. The travel budget will be reduced by about £1.2
million per year or about £5 million over the next 4 years
by travelling less and by using economy flights. Increased use
of video-conferencing will ensure communication channels remain
open.[69]
58. Corporate functions include finance, procurement,
human resources, information and communications technology, knowledge
management and communications. DFID said it was "shifting
from a ratio where [...] we had something close to one in three
of our staff doing corporate or central work, to a ratio that
is more like one in five or one in six. [..] That will probably
account for at least £8 million to £10 million of the
savings we need to make."[70]
This reduction will continue the downward trajectory of costs
of the corporate centre which have already been reduced from £57
million in 2006-07 to £38 million this year.[71]
59. DFID will also make a number of changes to the
composition of its staff. There has been a reduction in the number
of senior staff: Director Generals from four to three and Directors
from 14 to 12. In addition DFID has already offered a voluntary
redundancy scheme for senior staff members.[72]
Staff working on communications have been reduced from about 100
to about 60 this year and there has been a significant reduction
in the number of Human Resources (HR) staff.[73]
60. DFID was keen to point out that the changes were
not only in response to the current public spending pressures.
DFID said it had been becoming more efficient over a number of
years:
If you look at our HR function, in 2005 we had 150
people there. By the end of this calendar year we'll have about
89. That's been a steady downward pressure. If you look at space
planning in the building, we sublet one floor of our building
in Palace Street 18 months ago. We're going to sublet more of
that space. I think what's happened is this hasn't been an overnight
change to say, "We were running a particular model before
and suddenly that's changing and we're cutting things that we
previously felt completely relaxed about." We've been on
a downward trajectory with admin costs.[74]
DFID denied that savings had been possible because
it had been inefficient or excessive in its expenditure in the
past; rather there were new ways of doing some things, with new
technologies such as video-conferencing, which were more cost
effective.[75] Despite
these major organisational changes DFID claims that staff morale
remains high.[76]
STAFFING ABERCROMBIE HOUSE
61. DFID's staff in the UK are divided between the
London Office and the East Kilbride OfficeAbercrombie House.
DFID plans to increase the number of posts based in East Kilbride
by 70.[77] DFID explained
that although there were many corporate jobs based in East Kilbride,
and this was an area for Departmental cuts, it was engaged in
a process of moving more policy and management jobs there:
If you looked at Abercrombie House five to 10 years
ago, it was dominated, probably 90+%, by corporate and transactional
work. That's changed quite a lot now. We've moved policy jobs,
we've moved some of our bilateral aid programme management jobs,
some research jobs; some of the multilateral work is done from
there. The balance of work in East Kilbride has moved that office
from what it was originally set up aseffectively a transactional
and corporate support functionto one that's much more part
of the core headquarters of the Department. One of the things
that's meant, over the last six months or so, is that the 70 policy
and programme management jobs that we're in the process of moving
right now have largely been filled by staff who were already in
Abercrombie House and previously doing corporate roles [...]
We are managing some quite important shifting of staff away from
seeing themselves just as Abercrombie House corporate staff, to
staff who do a wide range of work, and we expect that process
of continuing to review the balance of work between Abercrombie
House and London to continue.[78]
62. However, although policy posts are being moved
to East Kilbride, the majority of posts there are at Band B1 or
below (295 out of 463). In contrast the majority of posts in the
London office are at Band A2 and above (451 out of 756).[79]
63. Some costs in East Kilbride are lower, for example
accommodation. We asked the Permanent Secretary about how DFID
attempted to strike the right balance between staff in London
and East Kilbride. We were told:
you have to think coherently about teams, and so
certain teams have big functions that require them to be in London,
which is how we thought about which jobs we could relocate to
Abercrombie, but even there we've tried to be very flexible. A
big part of the spending review was run out of Abercrombie, and
those teams had to go back and forth between London on a regular
basis; we had to balance the costs and manage it in a sensible
way. Having staff outside London also incurs costs, because if
they are having to come to London three times a week and stay
in hotels and pay for transport it's not very cost effective.
So those are the kind of choices and balancing that we have to
make as managers.[80]
64. The
previous Committee visited Abercrombie House during the last Parliament
and we intend to do so during the course of this Parliament. We
will keep a watching brief over staff moves to East Kilbride and
at whether the balance between London and East Kilbride is optimal.
The risks of increasing total
spending while reducing running costs
65. By 2013-14 DFID will be spending over £11billion
per year, meeting the UK's international commitment of spending
0.7% of GNI on ODA. To spend these funds effectively DFID will
require the right numbers of staff with the right skills and abilities.
In the last Parliament the International Development Committee
raised on a number of occasions its concern about the consequences
of DFID's decision to cut expenditure on administration while
increasing spending on programmes.[81]
66. The US Agency for International Development (USAID)
has found to its cost the consequences of such a policy. In December
2009 this organisation published its Annual Human Capital Management
Report, which criticised the previous US Government's policy of
reducing staffing across the agency:
More than a decade of downsizing and a failure to
replace employees has created a gap in the Agency's workforce.
While staff levels were steadily decreasing, USAID's mission was
changing and expanding to meet the challenges of the 21st century.
These new roles and responsibilities have challenged USAID's small
staff and required the Agency to constantly adapt its business
practices.[82]
67. USAID has now embarked on a mission to "rebuild
USAID through expanding its workforce [...] to create an agile,
flexible, focused, and more accountable organization."[83]
DFID needs to be careful not to make the same mistakes as USAID.
Adam Smith International argued:
DFID's aspirations to provide global leadership on
a range of development issues, and to 'punch above its weight',
are dependent on DFID's ability to retain and further enhance
its reputation for quality. It seems evident that the political
and policy underpinnings of the decision to ring fence ODA have
their basis in maintaining quality. If quality can be improved,
so much more can be delivered. There is a distinct danger that
the drive to reduce administration costs could have a very negative
effect on quality and delivery of effective and efficient development
aid. In short cutting administrative costs could very easily be
a false economy [84]
68. Another option, which as we have seen would enable
DFID to spend its increased budget without increasing administration
costs, is to spend the funds through multilateral institutions.
Adam Smith International cautioned that DFID should not think
that it was reducing its administrative costs if it was transferring
more resources to other (multilateral) organisations which had
much higher overheads. This would be a "pretence" in
terms of savings.[85]
Frontline staff and running costs
69. In fact, DFID's position is not as bad as the
above analysis suggests. While DFID acknowledged that "the
biggest risks are probably around maintaining the capacity to
deliver the programme, and particularly looking at the programme
in some of the more difficult environments that we work in,"[86]
the Department for the reasons given below will be able to employ
significantly more staff.
70. The CSR states that DFID's running costs will
decline from 4% to 2% in 2014-15. However, according to the NAO,
if we compare current running costs on a comparable basis (notably,
excluding depreciation) to the 2% in 2014-15, they are currently
2.6%, not 4%. Since there is to be an increase in total spending
of 34% in real terms, running costs while declining as a percentage
of total spending will increase in real terms by 6%.[87]
71. In addition, DFID is engaged in a major "reshaping
of the organisation" which will mean it will switch resources
from back-office to front-line functions.[88]
The Permanent Secretary explained the situation the Department
found itself in:
We are, like all Departments, cutting our core administration
costs by a third, and we believe that we have to do our part,
and there are some bits of our business where we think we could
become more efficient. There are areas like HR, for example,
where our ratio of HR staff to total staff is higher than the
Whitehall average; our use of space could be more efficient. We
don't want to exempt ourselves from the efficiencies that our
colleagues are making across Whitehall. Having said that, we
are in a fairly unique position, because of the rising programme.[89]
72. As a result of the 6% increase in running cost
and the 'reshaping', DFID informed us: "the spend on frontline
goes up by something like 80% over the period. It's not just
a growth in total running costs; it's a very big reshaping of
the organisation within that."[90]
The Permanent Secretary stressed that there should be a significant
increase in front-line staff:
The Treasury, in the settlement, has given us a rising
programme funded administrative budget, which covers the people
who are directly managing the aid programme. That rises fairly
rapidly, and the good thing is, it starts rising from the beginning
of the programme. We haven't decided exactly how we're going
to use that additional resource, but in theory it enables us to
hire an additional 300 to 400 staff, who would be responsible
for directly managing the rising programme.[91]
73. There are, however, concerns. The first is whether
it is necessary to increase the staff by this number if DFID significantly
increases the share of funds spent through multilateral institutions.
Secondly, we questioned the Department whether the new staff needed
to deliver the larger budget would be in place before 2013-14
when the total DFID budget begins to rise rapidly. The Department
claimed that that this would be the case.[92]
74. The Department will need to ensure that its staff
have the right skills. They are key to DFID's future success.
We saw in Chapter Two that DFID will require: people who know
how multilateral institutions work and how to work with them;
others with the skills to work with the FCO and MOD to develop
policy; and more frontline staff capable of working in difficult
conditions in fragile states. The previous Committee raised concerns
on a number of occasions about whether DFID had the right staff
with the right skills to pursue its increasing emphasis on fragile
and conflict-affected countries.[93]
The Committee thought DFID needed better incentives to encourage
staff to take up these postings and a reconsideration of its language
training provision.[94]
In October 2008 the NAO report Operating in Insecure Environments
said:
The Department has worked hard - often in difficult
and dangerous situations - to deliver real benefits to some of
the world's most vulnerable people. However, higher risks in insecure
environments has led to lower project success rates, and delivery
of aid through partner organisations has sometimes suffered from
weak partner capacity. The Department has not always found it
easy to ensure all posts are filled in insecure environments.[95]
75. DFID acknowledged that it needed to employ more
specialist staff in this area:
We definitely need more governance specialists, conflict
specialists, economists who have experience in fragile states;
we need more people who can deliver programmes where you can't
work easily through the Government.[96]
76. We also asked DFID officials about the balance
between UK-appointed and local staff on its programmes. We were
told that there had been an increase in staff appointed in-country
(SAIC):
We used, seven or eight years ago, to have only single
figures of staff appointed in country who were in professional,
decision making, advisory roles. We now have more than 100 people
of that sort, some of whom run one or two of our overseas offices.
Others are deputies in the overseas offices. There are a lot
of decision makers; we have a lot of economists, health professionals,
governance specialists. It's a much more mixed economy than there
used to be in the group of staff appointed in country.[97]
In 2010 out of a total of 2383 DFID staff, 764 were
appointed in country, of which 132 were Grade A2 or above.[98]
We were also informed that in countries, such as Pakistan, where
the programme was expected to be expanded, it would be useful
to have more locally employed staff who spoke the relevant languages
and understood the local culture. UK-based staff contributed knowledge
of DFID and of the UK political and financial systems. DFID said
it was important to have a mix of the two.[99]
USE OF TECHNICAL COOPERATION
77. One of the ways in which DFID is able to compensate
for a lack of staff with the right skills and to implement a diverse
portfolio of projects and programmes in-country is through the
employment of external suppliers to manage these programmes. DFID
spent £420 million on technical cooperation (also known as
technical assistance) projects in 2009-10 of which £374 million
was paid to suppliers of these services and £19 million to
experts.[100] It is
not expected that expenditure through these organisations will
decrease. DFID told us how it used technical assistance:
The other big block of spend that has been loosely
called consultancy is really services that are provided on behalf
of DFID to developing countries. So this is the programme-funded
activitytechnical assistance in the language that we've
often used [...]and we are not actively looking to reduce the
volume of activity there. How much of that we contract is largely
driven by programme design decisions, particularly in the country
programmes. We are concerned about getting best value from that,
and it is correct to say that we hadn't set fixed limits, but
that does not mean that we don't care very much about the value
we're getting.[101]
78. Appendix One provides a breakdown of £374
million, indicating the payments made to suppliers of technical
assistance. Details of current supplier contracts with a value
greater than £10m are shown in Appendix Two.
79. There are a number of concerns about expenditure
on technical co-operation. According to the OECD, while DFID manages
this technical cooperation well, the use of large external suppliers
is likely to have negative implications for the building up of
local expertise.[102]
It is also unclear how effective the use of technical cooperation
is. DFID told us it wanted to be better at evaluating technical
assistance:
[We are] ambitious for getting much better evaluation
of technical assistance in the future by using new evaluation
techniques, including randomised control trials where we can,
and the truth is that the aid community as a whole has not been
very good at getting a really strong grip on how effective technical
expertise is. We've a lot of anecdotal evidence, but really solid
evidence of impact is quite difficult to get hold of, and DFID
is not alone in that; we are ambitious that in future we will
strengthen our ability and that of the rest of the donor community
better to understand where it works well and where it doesn't.[103]
Another concern are the fee rates paid to external
suppliers. They receive large sums of money and we need to be
convinced that external suppliers offer better value for money
than civil servants (taking account of all overheads) and that
DFID is capable of choosing the supplier who offers best value
for money.
80. Over
the next 4 years the Department will make cuts in its administration
costs of £34 million, equivalent to 33% in real terms. These
will include significant reductions in the corporate budget as
well as reduced expenditure on office space, communications and
travel. New technologies are enabling reduced costs in some areas
and there will continue to be reductions in staff in back-office
functions. We commend DFID for making important administrative
savings over the last 5 years and for its plans to do more over
the next period provided they do not undermine DFID's ability
to do its work effectively. The numbers of HR staff have been
reduced from 150 to 89 but this reduced figure looks more than
adequate. It makes obvious sense to reduce the number of back
office staff rather than vital frontline staff. We welcome the
decision to increase the number of policy staff at East Kilbride
as the number of 'corporate' staff there decreases. It will be
important to ensure that in reducing corporate functions, key
roles such as the ability to monitor and manage external suppliers
is not weakened.
81. DFID's running
costs are to be reduced to 2% of its budget over the next 4 years,
but will increase by about 6% in real terms because of increases
in the total DFID budget. The increase in running costs together
with the reduction in administration costs will enable DFID to
employ perhaps 300-400 more frontline staff, according to the
Permanent Secretary.
82. These additional
frontline line staff will be essential if DFID is to deliver effectively
its increased budget, especially if much of the increase is in
bilateral aid. It is important that these staff have the right
skills. Once the results of the bilateral review are known, we
recommend that DFID devise a strategy for how it will increase
the number of its staff in those countries where it intends to
have programmes. A wider range of staff will also be required
if DFID is to successfully take on a new role in conjunction with
the FCO and MOD. This will mean employing staff who have the ability
to influence policy as well as administer aid budgets. We agree
with DFID that it enhances in-country programmes to have locally-employed
staff and that it is important that such staff not only fill lower
grade jobs but are integrated throughout the DFID programme. We
commend DFID on its efforts to do this and encourage it to continue
to make sure "decision-makers" in each DFID office include
some staff-appointed in-country. DFID should focus, in particular,
on how this might be done in fragile and conflict-affected countries.
83. The use
of external suppliers to provide technical assistance fills an
important skills gap. However, we are concerned that the use of
such suppliers may affect the ability of developing countries
to build up expertise. In addition, DFID needs to ensure that
it is selecting the suppliers which are providing the best value
for money and to examine whether, as a major purchaser of their
services, DFID could do more to drive down fee rates. We will
ask the new ICAI to examine whether external suppliers are providing
value for money.
61 NAO, The work of the Department for International
Development, p 7 Back
62
Ibid. Back
63
Q 2 Back
64
Ev 33 Back
65
Ev 33 Back
66
Ev 25 Back
67
Q42 Back
68
NAO, The work of the Department for International Development,
p 11 Back
69
Q 25 Back
70
Q 4 Back
71
Q25 Back
72
Q 19 Back
73
Q 25 Back
74
Q11 Back
75
Q 10 Back
76
Q 9 Back
77
Q 21 Back
78
Q 21 Back
79
Ev 31 Back
80
Q43 Back
81
DFID's 2008-09 Annual Report indicated that that DFID was planning
to cuts its administrative expenditure by £8.9 million between
2008-09 and 2010-11 primarily by reductions in staffing ( International
Development Committee, Fourth Report of Session 2009-10, DFID's
performance in 2008-09 and the 2009 White Paper, HC 48, paras
32-35). Back
82
USAID, Fiscal Year 2009, Annual Human Capital Management Report,
December 2009 Back
83
Ibid. Back
84
Ev w6 Back
85
Ev w7 Back
86
Q 9 Back
87
Ev 40; NAO, The work of the Department for International Development,
p 10 Back
88
Q 4 Back
89
Q 2 Back
90
Q 4 Back
91
Q 2 Back
92
Q18 Back
93
International Development Committee, DFID Annual Report 2008,
para 81 Back
94
Ibid., para 88 Back
95
NAO, DFID: Operating in Insecure Environments, October
2008 Back
96
Q 67 Back
97
Q23 Back
98
Ev 31 Back
99
Q 23 Back
100
NAO, The work of the Department for International Development,
p 12 Back
101
Q 32 Back
102
OECD, United Kingdom (2010) DAC Peer Review Back
103
Q 41 Back
|