Department for International Development Annual Report & Resource Accounts 2009-10 - International Development Committee Contents

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]


61. DFID's staff in the UK are divided between the London Office and the East Kilbride Office—Abercrombie 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 as—effectively a transactional and corporate support function—to 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]


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 activity—technical 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

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