1Introduction
1.In recent years, as the UK scaled up its international development budget to 0.7% of gross national income (GNI), the size and number of aid programmes has increased. As a result, the various types of organisations that implement Department for International Development (DFID) programmes have received larger sums—a fact that has been noted in recent media reports and has raised some concerns, particularly with respect to private sector contractors.1 As Figure 1 indicates, the amount spent through contractors has surged in recent years, both in cash terms and as a share of total bilateral expenditure. In 2010/11 contracts represented 12% (£540 million) of bilateral spend and five years later had increased to 22% (£1.34 billion). This reflects a substantial increase and demonstrates the growing use of contractors as a channel for aid delivery over other approaches such as through multilateral organisations, NGOs and CSOs.
Figure 1: DFID spending through contractors by financial year of contract issue
(Figures in parentheses reflect DFID spend through contractors as a share of total bilateral spend that year)
Source: DFID Annual Report and Accounts (various) and PQ 65689
2.In the course of our inquiry into UK aid: allocation of resources, we took evidence relating to the way in which the Department for International Development (DFID) uses private sector contractors to implement its programmes. Questions were raised about the Department’s strategy, whether it was achieving value for money and to what extent procurement processes were operating effectively.2 This coincided with a series of investigations by the media, particularly the Daily Mail, Mail on Sunday and the Times, which raised similar questions and also highlighted concerns regarding the pay practices and conduct of certain contractors. Particularly serious allegations concerning the conduct of one contractor, Adam Smith International (ASI), were in part dealt with in a recent Special Report by the Committee.3
3.In addition to the investigation of ASI, we also considered that the broader issues regarding DFID’s use of contractors warranted further investigation. We had been considering the subject as part of our inquiry into how DFID allocates its resources, but the number of media reports and the scale of the issue led us to separate out use of contractors from the existing inquiry. We launched a separate inquiry on 20 December 2016 and invited written submissions into all aspects of DFID’s work through contractors, but particularly into the following questions:
- Does DFID have an effective strategy for how it works with and through private sector contractors? Does its use of contractors provide good value for money?
- Are current levels of salaries, profits and dividends in the sector appropriate for an international development context? Does the sector conform to the same standards of transparency as the rest of the development community?
- Is there sufficient competition in the sector, and when bidding for individual programmes, to ensure that costs are kept as low as possible? How are the costs of a programme broken down?
- Do DFID’s procurement processes prejudice against smaller contractors (those not in the top ten recipients of UK aid contracts)? Does DFID have sufficient protections against anti-competitive practices and conflicts of interest in the sector?
- What is the shape and make-up of DFID’s supply chains? How well does DFID understand its own supply chains and the business environment of the sector?
- How well do DFID and its partners learn from its contractors? How compatible are learning and knowledge sharing with commercial confidentiality and competitive tendering?
4.Over the two phases of our inquiry we received 32 pieces of written evidence, with five of these received in confidence at the request of those submitting them. The Committee agreed to accept confidential evidence because it appreciated that those who often know most about the detail of DFID’s use of contractors work in the sector. They may have otherwise had reservations in being frank with the Committee for fear of jeopardising working relationships. We held two oral evidence sessions, hearing from:
- Session 1
- Two experienced contractors who will hereafter be known as Contractor A and Contractor B for the purpose of confidentiality.
- Session 2
- Joy Hutcheon, Director General, Finance and Corporate Performance, and Nick Ford, Head of Procurement and Commercial Department (PCD), Department for International Development.
We also sent a set of questions seeking further information from those contractors who submitted written evidence. We are grateful to all those who gave written and oral evidence to us in this inquiry.
5.It should also be noted that both DFID and the Independent Commission for Aid Impact (ICAI) are undertaking their own investigations in this area. ICAI’s work will build upon its 2013 review of DFID’s use of contractors,4 with the initial phase focusing on “reviewing DFID’s approach to ensuring value for money in the management of its supplier pool”.5 In addition to its own forensic investigation into the ASI allegations, DFID has also recently launched a broader Supplier Review. In January 2017, Secretary of State, Rt Hon Priti Patel MP, wrote a letter to the Chair of the Committee regarding the priorities of this review. She wrote:
“[ … ] there should be no room for excessive profiteering or unethical practices. All of DFID’s contractors and partners need to be fully open and transparent with UK taxpayers about where their money is going and how it is being spent to meet development outcomes. They need to uphold the highest standards and be held to account for those standards. DFID needs to reduce its reliance on a limited number of suppliers, and encourage healthy competition in what is often a challenging development sector.”6
The Secretary of State issued a letter to all DFID contractors in December 2016 noting efforts towards greater assurance on contractor delivery, but also stating that “far more needs to be done” and that a “step change” is required.7
1 We use ‘contractors’ to refer to private sector organisations that play a role in advising on and/or implementing DFID programmes
3 International Development Committee, Seventh Special Report of Session 2016–17, Conduct of Adam Smith International, HC 939
4 ICAI, DFID’s Use of Contractors to Deliver Aid Programmes (May 2013)
5 ICAI, Upcoming reviews: Achieving value for money through procurement (accessed 9 March 2017)
6 International Development Committee, Letter from Rt Hon Priti Patel MP, Secretary of State for international development, concerning DFID’s relationship with its suppliers (9 January 2017)
7 DFID, Secretary of State letter to DFID suppliers (December 2016)
6 April 2017