DFID’s use of private sector contractors Contents
Annex 1: Confidential oral evidence
As is outlined in the report, the Committee agreed to accept confidential evidence because it appreciated that those who know most about the detail of DFID’s use of contractors work in the sector and may have otherwise had reservations in being frank with the Committee for fear of jeopardising working relationships.
We held an oral evidence session with two experienced contractors who are referred to in the report as Contractor A and Contractor B. Extracts from this session that are featured in the report are below.
Contractor B
Q2: On the contractor market:
- Q2: “One of my biggest concerns is that not only does this market exist such that DFID is not really able to measure the delivery of its contractors and measure between them, but it is a DFID controlled market, so they are actually the market-makers. They are the regulator. Now, they do procurement and they do it okay, but they make a market and that market does not work well, because they do not understand it sufficiently well. That is not just to say that the contractors are all there trying to squeeze out every last penny and ripping off DFID; there is failure with DFID as well, and frustrations in not understanding how contractors work.”
Q2: On assymetric information in the market:
- “The issues, as [Contractor A] has started to allude to, are systemic in the market. There is some correlation between DFID’s control of its contracting structures to the old classic economics paper, “The Market for Lemons”, in that there is asymmetric information between the supply and the demand. Suppliers know how good they are, know what their availability is and know when they are having to tweak things. Unfortunately, and this comes on to [Contractor A’s] final point there, DFID is not really able to tell how good one person is versus another person, in terms of delivering non quantifiable results. How much better is the governance in Iraq this year than last year? I was once asked for a quantifiable gender indicator on the quality of the Iraqi budget. I said it would be 43% more gender-friendly. It is not going to work that way, so what are you buying? This leads into the safety of quantifiability or quantification, which then loses the nuance of whether we are making a difference to the Iraqi people, the Afghan people or the Tanzanian people.
Q3: On the reasons for issues in the contractor market:
- “Yes, it is human capacity, but it is also institutional systems and how the market actually operates, particularly around procurement. Rambling on just a bit, the point at which a procurement is finalised is an important pinch point in the market, because there is every incentive to win that contract and there is very little punishment for not delivering on the contract. You will say everything you possibly can to win that contract. With the increase in the aid budget and the decrease in the headcount, the arithmetic says that the contract size is going up, so you get bigger, more integrated contracts, which means that the risk of not winning is greater, so the contractors will play every card they have and some they should not have to win the contract.”
Q5: On barriers to market entry for smaller contractors:
- “Starting with existing contractors in the UK, there are probably two particular types of barrier to entry. One is simply access to framework contracts. Where increasing amounts of DFID work are let through framework contracts, if you are not on the right framework, you are simply locked out. There has been an increasing amount of flexibility in the DFID procurement department, allowing people to jump between frameworks, but that still means that you are not at the front of the queue or you do not necessarily have an equal seat at the table.”
Q22: On the treatment of subcontractors:
- “There are a couple of other examples at the procurement stage where two firms […] had pre bid agreements with a prime contractor on two different contracts. They said, “We will consult with you. We will share knowledge on how this bid is put together before we submit.” In one case, there was a rate cut of 25% imposed about four days before the bid submission, on the inputs by the subcontractor. In the other case, the bid was submitted and […] despite there being a pre bid agreement on consultation, saying, “We did not have time to review with you. We submitted the bid. We cut your inputs by 25%. Take it or leave it.”
Q28: On DFID in-house capacity:
- “In answer to Nigel’s question, yes, there is capacity in there. It is not as good as it was in the past. A lot of those 20 year veterans have moved on. There is the potential capacity, but it is not well organised. If you had longer tours, specialists in particular regions rather than somebody popping from Jakarta to Islamabad to Kinshasa, clever though that person is, DFID would have the ability to drill down into what is going on in its projects. There is a degree of complacency among the contractors, because they go, “It is alright. We can outlast any two year posting on our programme so, if we have to deal with a troublesome person who is meddling a bit too much, then we will crack on. We will do it. We will fill in the forms and, in two years, we will get a new programme officer. That is fine.”
Q36: On the Australian Aid Adviser Remuneration Framework:
- “The Aid Adviser Remuneration Framework is the DFAT system, as [Contractor A] went through with the various bands of people. Obviously, you are typically trying to push people to the highest level you can. The main drawback was that, on occasion, I could not get people who I knew were good to work for those rates, so it does reduce flexibility, so I would prefer not to have absolute caps, but to have transparency.”
Q39: On whether examples of poor contractor conduct are commonplace:
- “As somebody who has spent [many years working with large contractors], it is absolutely embedded in the culture—absolutely.”
Q40: On possible conflicts with contractors feeding into programme design then bidding for the contracts:
- “There is one other quick issue on this, which is that it again comes back to lack of in house resources. DFID contracts out design work or they do not contract out design work, but contract out research to inform the design, so they can say there is no conflict of interest. [A contractor] pitched a low ball amount and undercut somebody who was better qualified to do some design work in [a country where DFID has a bilateral programme] recently. They hired freelancers to do it, but I cannot imagine that they produced that low ball bid for any other reason other than to make sure that they were ahead of the game in getting information, which is why everything should be published quickly without waiting. DFID procurement department says, “All the information will be shared at the time of bidding”. That is fine, but if somebody has inside information, asymmetric information or upstream information, they will have already tied up the best consultants, talked to the local partners, got better information, got their consortium together, etc.”
Q40: On possible conflicts with contractors feeding into programme design then bidding for the contracts:
- “I have an idea on it, which is to have an arm’s length organisation for your programme management. As [Contractor A] has said, a lot of really good talent has retired or moved to the consulting sector. I think, if you create some sort of arm’s length entity that can also do this whole of life programme design and management, so somebody who is willing to sign up for 25% of their time for the next six years to design this programme, see the procurement, see it through, recommend what inputs are needed, can be flexible and can be good to the contractors—the contractors are not always just trying to screw us; they are trying to deliver—that arm’s length organisation could bring in people who have left DFID or who want to come from the private sector, or you could bring in people from Australia, Germany, the US, Canada or whatever. You can bring people in with Foreign Office experience, as well as DFID experience, but you would have a cadre of people. The one thing is that those people will never then work for a contractor. We will give you a retainer. We will give you that, but you never sit on the other side of the table.”
6 April 2017