International Development CommitteeWritten evidence submitted by the Department for International Development

Ahead of the 11 December Oral Evidence session on DFID’s Annual Report and Accounts, this memo provides the Committee with additional information on issues the Committee have expressed an interest in.

DFID’s use of Consultants and whether they offer Value for Money (in particular, Information on the Recent Review Commissioned by DFID’s Secretary of State)

The review was commissioned by the Secretary of State in September to assess the level of value for money achieved by DFID in its use of suppliers to deliver the aid programme. The review identified that:

The diversity of services that DFID buys from suppliers to deliver development benefits is striking; more than 70% of contracts are for the delivery of programmes or for managing funds to deliver programmes. DFID contracts with suppliers to do more than provide advice; they can be used to deliver tangible development outcomes and to offer access to innovation.

There has been considerable overall growth in the number and total value of supplier contracts awarded. The size of programmes and of contracts with suppliers is increasing.

Current spend and new contract awards are concentrated with DFID’s existing top suppliers and the vast majority of large contracts directly awarded by DFID go to UK firms.

Benchmarking indicates that DFID daily rates are broadly in line with market rates although premium rates are often paid in some environments, for example for work in fragile and conflict affected states. DFID is working to move the emphasis from “input led” pricing structures (based on daily rates) towards more “output based” pricing with suppliers.

Since 2009, DFID has been working to transform its commercial practices to improve value for money. Good progress has been made but it is recognised that there is more to do, particularly strengthening levels of commercial capability across the organisation.

The findings of the review have been discussed with the Secretary of State and the Management Board and a number of improvement actions agreed. As announced recently by the Secretary of State, these include; the introduction of Ministerial approval for the award of all supplier contracts over £1 million; the Secretary of State engaging directly with top suppliers to DFID to reinforce the need to improve value for money and; the introduction of tougher monitoring of supplier performance.

Whether DFID’s Procedures are too Bureaucratic

Question from IDC clerk: On the bureaucracy bullet point, I think that DFID now requires three separate forms of analysis with respect to new projects: (a) a logical framework; (b) a theory of change; and (c) a business case

Could DFID please:

1. Confirm this is the case

The three documents referred to are part of one analytical process.

A Theory of Change is a key part of any Business Case in which the programme designer articulates and presents (often in the form of a diagram) the possible causal chains from inputs (DFID funding) to development results (the outputs, outcomes and impact of interventions delivered by our programmes), as well as the underlying assumptions about how change may happen in a programme. A Theory of Change is a tool for the early stages of programme design—for generating ideas, for assessing the evidence, and for reflecting on options. There is no standard format for a Theory of Change—authors of Business Cases are free to articulate and present this in the way that they feel best shows how the programme will work.

The logical framework (or “logframe”) flows directly from the Theory of Change, translating the Theory of Change into a formal monitoring framework. Logframes are common monitoring frameworks that have been used by development practioners for many years and are a key document for ensuring programmes are performing as they should be.

At the start of 2011, DFID adopted HM Treasury’s Business Case model. Business Cases set out the rationale for choosing an intervention. They aim to provide a consistent approach to the choices and design of DFID interventions. The Business Case is one document consisting of various parts (five cases), including a theory of change and a logframe.

2. Confirm whether it applies to all projects

Yes, all proposals for DFID funding must be accompanied by a Business Case (including a Theory of Change and a logframe) which sets out the need, justification, and affordability of the intervention.

3. Explain the difference between these documents, with examples

Please see answer to question (1). All approved Business Cases (including Theories of Change) and accompanying Logframes are published on DFID’s website.

4. Explain why you think all three are necessary and how they contribute individually and collectively to cost-effectiveness and value for money

Please see answer to question (1). Since the start of 2011, DFID has used Business Cases to improve the information on which decisions are taken so that we deliver more cost-effective interventions. We use Business Cases to incorporate the assessment of the quality of evidence of what has worked or not in the past, and to bring value for money considerations and expected results up front in the design of all projects.

There is greater scrutiny of how we are using money and resources to ensure value for money, and Business Cases help DFID to demonstrate how we reach our decisions on how we spend our budget.

5. Give us your analysis of any overlaps or redundancies in preparing all three

All three documents are critical and complementary elements of the same process.

6. Give us a response to the criticism that your procedures with respect to these documents impose significant additional costs on contractors

The Business Case process is a DFID internal process to guide investment choices. Logframes are used to monitor the performance of our programmes, including the performance of our partners. A formal review of progress against the targets in the logframe is carried out annually. Our procedures are therefore an essential part of our effort to ensure—and be able to demonstrate—results and value for money from our programmes,

7. Explain how these documents are used for monitoring and evaluation of projects

Each Business Case contains a monitoring strategy. Business Cases (and their associated logframe and theory of change) are revisited every year through Annual Reviews of projects, which are also published. This process includes measuring actual achievement of expected results, assessing value for money, and revisiting the evidence base for a project. Project Completion Reports are prepared when projects close. These also assess performance against the logframe and original Business Case. Information collected through monitoring is a key input to evaluation.

8. Explain how these relatively rigid formats allow for innovation, exploration and flexibility in the course of project implementation

The Business Case (and Annual Reviews) provides a standardised format into which any type of intervention proposal can be incorporated. The format of the Business Case does not preclude any type of intervention being proposed or limit innovation on the analysis to generate evidence to guide investment decisions. Developing theories of change helps project teams to explore and innovate the best ways to achieve development outcomes. The Annual Review process allows for flexibility to respond to recommendations for how to improve project performance during the course of implementation,

9. Tell us what review procedures you have in place, and what the options are to change these formats in the future

The Business Case is based on HM Treasury’s five-case model. DFID’s Business Case guidance is currently being updated and will be published soon. An internal review of Annual Reviews is underway. Such reviews are routinely carried out to ensure our corporate tools remain relevant to the changing demands of our business and to reflect innovation in the way development programmes are managed.

How DFID uses the Research it Funds to Inform Policy

Using evidence to inform policy is a priority for DFID, and the analysis and use of information, with a strong emphasis on using evidence correctly, is a core competency for all DFID staff. We have instigated new mechanisms to synthesise and quality-assure research evidence on behalf of DFID staff so that relevant and reliable evidence products (such as systematic reviews, literature reviews, evidence papers and rapid reviews) are readily available to our staff and partners.

We have developed institutional incentives to make better use of evidence in our decision-making through making it a mandatory requirement in the Business Cases for all new spending decisions. In March 2012, we launched an internal Evidence & Resources portal to provide a one-stop shop for DFID staff to access quality-assured evidence. In November 2012, we launched our “Open and Enhanced Access” policy to increase the uptake and use of research that we fund.

Trends in DFID’s Expenditure and Total UK ODA

This year’s Statistics on International Development (SID) was published on 31 October. This shows how official UK financial resources for development are spent, broken down by destination country or organisation, type of assistance and purpose.

Trends in DFID’s expenditure, including the split between bilateral and multilateral spend are shown in

	2007–08 %	2008–09 %	2009–10 %	2010–11 %	2011–12 %
Admin	4.77	4.10	3.53	2.85	2.86
Multilateral	38.27	39.24	36.75	41.90	42.41
Bilateral	56.96	56.66	59.72	55.25	54.73

DFID’s total operating costs comprise core administration costs and frontline delivery costs. Over SR10, core administration costs will reduce by one third, while the frontline will grow to support delivery of the larger programme budget. The graph below shows total operating costs over SR10.

 

Trends in total UK ODA are shown in the table below.

	2009		2010		2011
	Gross (£ million)	Net (£ million)	Gross (£ million)	Net (£ million)	Gross (£ million)	Net (£ million)
Bilateral	4,865	4,732	5,416	5,191	5,498	5,286
Multilateral	2,491	2,491	3,261	3,261	3,343	3,343
Total ODA	7,356	7,223	8,677	8,452	8,841	8,629

DFID’s Ability to Spend the Large Increase in its 2013–14 Budget Efficiently and Effectively

We have built a strong pipeline of projects and programmes to deliver in 2013 and 2014:

Since early 2011 spending departments have known the results they need to deliver and the resources that go alongside these for each year of SR10.

DFID’s settlement front-loaded additional resource for front line delivery. 500 people have been recruited over the last eighteen months to provide technical expertise on the front-line.

Departments have therefore had the time and the right people to develop an effective pipeline of projects.

Pipeline development has been managed as priority with Management Board oversight.

We have ensured the pipeline is good quality:

We re-engineered business processes to drive value for money, including:

Business cases with strong economic appraisal case and value for money metrics.

New project scoring system linking judgement on actual value for money back to the business case.

Quality Assurance Unit set up to quality assure business cases over £40 million (QAU has now quality assured around £6 billion).

Delivered systematic evidence reviews to inform policy and programming choices.

We have introduced competitive and performance based allocations initially through the bilateral and multilateral aid reviews and embedded in the annual results and resources cycle.

We have strengthened commercial and finance capability (Finance Improvement Plan and Commercial Strategy).

Evidence that we’re in the right place:

Nearly 100% of DFID’s budget is already programmed for the next two years (98.2% programmed for 2012–13; 98.9% for 2013–14; and 97.0% for 2014–15). We are actively building the pipeline further to generate choice and competition and ensure value for money.

Whether DFID’s Staffing Levels are Adequate

DFID’s workforce strategy is driven by a fundamental shift in the size and shape of the workforce to support the growth in the aid programme and the required reduction in core administration costs.

DFID set out ambitious workforce plans for the period 2010–11 to 2014–15, and much of the planned change has already been implemented. By May 2012 the organisation has grown by a net 370 people, including 145 new Advisors who bring important technical skills to DFID. We have recruited almost 500 people, at the same time as almost 130 people have left, the bulk of whom were working in back-office support functions.

We anticipate further growth in staffing levels over the next two years, primarily in country programmes. The Management Board is ensuring careful and regular monitoring of the workforce strategy to ensure we maintain the capability to deliver our work effectively.

Ministerial Approval of Spending Decisions

The Secretary of State has also recently reduced the thresholds for ministerial approval of spending decisions. In particular, Ministers will now approve all programmes over £5 million and—as mentioned above—all supplier contracts over £1 million.

Further details on DFID’s expenditure and other issues can be found on the DFID website: www.dfid.gov.uk

November 2012