Patrick Fine, the CEO of FHI360, a $650m dollar contractor (one of USAID’s top 25 vendors) posted a piece on Devex.com the other day entitled “Why we shouldn’t be working ourselves out of a job.” His position is a good example of self-interest in the aid industry.
He refers to the view “that if we just do a good job, then prosperous, well-governed communities will quickly take root and eliminate the need for further assistance.” And he goes on to say that “ending poverty is not simply a matter of following the blueprint or reducing institutions and socio cultural norms to a set of discrete tasks, that once completed, will stand like a stone wall against the tides of change. Human history is full of examples of societies that flourished and then regressed or collapsed as a result of natural disaster, external conflict or internal upheaval.”
He adds: “Moreover, in a world where the pace of change requires constant adaptation and lifelong learning, the whole notion of sustainable development as an anchor concept in the development lexicon becomes an oxymoron. Quite literally, in a world of constant change, our work is never done. “
Mr. Fine is of course right that there is no blueprint for development and implies that we cannot impose one. And he is right that development doesn’t have an end point – a time when one says it’s all done. He even admits that our own development in the advanced countries is problematic: “We need to dispense with the fiction that “developed” countries have the answers and our task is simply to export them.”
But a close look at his piece reveals a few contradictory twists that make his more enlightened statements look a bit hollow. First the use of the telltale “we” as in “if we just do a good job, “ and “our work is never done.” What Mr. Fine seems conveniently to forget is the concept of country ownership, the notion – now backed officially by the development agencies and their clients – that developing countries must take responsibility for their development, not just for its conception, but its implementation. If it ever was up to “us” to do the work, it certainly no longer is. Today development is not “our work.” We can help, but the time for “us” in the North as the engine of other countries’ development, is coming to an end and soon at that.
So how does Mr. Fine reconcile his belief that “we” cannot export development, with his equally strong belief that our work is never done? What indeed do “we” have to offer? His fairly anodyne answer is “partnerships,” “co-creating solutions,” and “knowledge sharing.” In short, when push comes to shove, Fine (speaking on behalf of FHI360) re-embraces the very idea he wishes us to believe he repudiates – that “we” know something that “they” don’t and so it is our job to share it. Yes, of course, we do it in “partnership,” a nice word, but isn’t this really a thin rhetorical veneer covering over business as usual? For everyone who has spent time in the field knows how these partnerships look and feel. They are first and foremost unequal – the donors and their agents (Northern firms like FHI360) control the money, and so they have the power. Their partners know this and act accordingly, because willy nilly, they want some of that money. Thus whatever solution FHI360 creates, whatever plan FHI360 wants carried out, is agreed as “co-created” by the subservient junior partner. This pattern, almost as old as the 70 year old development industry, smacks of dependency, something Mr. Fine seems keenly aware of since he vigorously denies it;
“We must eschew the notion that the transfer of resources, knowledge and technology across borders, and the partnerships that enable the dissemination of innovation, means creating dependency.”
Well, we can eschew the notion of dependency all we want, but it is in fact alive and well, and lies at the heart of the dilemma of country ownership. For the best thing “we” can do to promote country ownership is to reduce dependency on us, and by so doing bring back local self-confidence and the strong emergence of local capacity. But for us to do that, we need to back off, control less, and indeed do less. Naturally that will mean less money for us. But that is what working ourselves out of job means. And that, sadly, is why Mr. Fine and most of the rest of us don’t want to do it.
It is simply not in Patrick Fine’s or FHI360’s interest to work itself out of a job. Mr. Fine and his top 21 officers each make over $200,000 per year, and his predecessor Al Siemens who was CEO till mid 2014 brought home close to $500,000 (see their publically available Form 990). Interestingly Mr. Fine came to FHI360 from the now defunct NGO AED (Academy for Educational Development) which got in trouble with USAID in 2010 and was forced out of business. In fact its assets, its people (including Fine), its Washington DC address at 1825 Connecticut Ave, and its contracts were bought by FHI 360, which changed the stationery and the name on the door. But if you walk into 1825 Connecticut today most of the AED people are still there, in the same cubbies they were in before, doing what they did before – making sure the contracts keep on coming.
To show how little inclined USAID and its cohort of US partners like FHI360 really are to reduce their share of the business and work themselves out of a job, one needs to get into the weeds of those contracts.
I use as a simple example a relatively small 22 month project I led for FHI360 that looked at the capacities of local civil society organizations in nine developing countries. Let’s begin with the direct costs — the amount of money that would have been sufficient to undertake the project had it been given to one person or small group of persons to run.
|My fee, hired as a lead consultant, with no benefits; a straight payment against days billed over the 22 months
|Ten other consultants for various terms for various tasks and at differing rates
|A sub-contract to a local NGO to do a particular piece of field research
|Travel (hotels, per diem, air tickets covering visits of 2 weeks each to 9 countries involving two to three consultants for each visit
|Five advisory group meetings including travel and fees to the advisory group
|Miscellaneous other events and costs
However, the actual budget of the project, that is, the total cost to the US taxpayer was $2,200,000. The difference between the $884,000 and the $2,200,000 goes to the contractors – FHI360 (the“prime”), and to one US based sub-prime contractor (MSI). (The reason for having two contractors involved is basically because they had been together in a preceding project, and because this was a successor to that effort, the precedent carried over.) But the important thing to note here is that the 150% premium paid to the two contractors is largely in the name of compliance with USAID’s rules and regulations. While their role is nominally administrative and managerial, they are basically being paid to be watchdogs.
The FHI360’s part of the budget called for 119 days of financial pool time along with 24 days of one of the prime’s senior managers, 36 days of his assistant and an additional 20 days of assorted others – total 199 days. What does the US taxpayer get for these costs? What proportion of the money the contractors get goes to any improvement in development effectiveness? Are the functions performed by the prime and sub-prime in reasonable proportion to the costs? And are those costs even really incurred, or are they partially created or inflated? My answers are respectively, none, no, no, and yes.
How the total of $2.2m is arrived at is not an easy question to answer because as an outside consultant, I was not privy to the full budget details. What follows is thus based on what facts I could gather and on some informed guesstimates. Here is my liberal estimate of the actual time spent by the contractor on this effort, expressed in person days.
|The writing of the contracts for the project, and for the consultants, plus amendments and extensions
|Financial pool time – several people who issue checks, calculate and vet travel expenses, and ensure compliance with USAID regulations
|The processing of travel reimbursements
||32.5 days (26 units X 1.25 days)
|The processing of invoices
|Writing quarterly reports to USAID
||16 days (8 X 2 days)
|Senior manager’s time on emails and oversight
|Other assistant time (several people)
This total is 22% less than the number of days FHI360 budgeted. But let’s give them the benefit of the doubt and accept their figure of 199 days. Using an average salary rate of $400 per day (estimating the senior manager at about $185,000 per annum and the least paid assistant at $45,000, with others in between, and pro-rating these on the basis of 240 paid days per year) these 199 days come to $79,600 in base salary cost.
FHI360, a non-profit, calculates an 18.8% “compensated personal absence rate” on top of salaries for days lost to vacation and sick leave, plus a 28.72% fringe benefit rate. These two factors would add $37,826 to the salary figure for a total of $117,426. On top of this is the Negotiated Indirect Cost Rate Agreement (NICRA) which in this case is 38.44% and this is applied to the actual implementation cost. The NICRA is based on the prime’s presentation of its overhead costs to USAID and it is then “negotiated.” Getting a NICRA is not automatic however. There is a slight catch 22 involved: if you are not known to USAID, you are not usually qualified to apply for this rate. But to be known you have to have had some sort of relationship over time with the agency. Local firms or NGOs in developing countries complain that they do not get the benefit of a NICRA when they do get lucky enough to be part of a USAID funding arrangement – they get money only for direct implementation of the project, and receive little or nothing to cover their rent, office costs, or salaries of their full time personnel. In any case, once established, USAID basically trusts the firm enough to continue allowing them to apply the NICRA rate.
Since in this project there is also a sub-contractor involved (MSI, a for-profit firm) the prime contractor charges an additional 4.01 % to “manage” the sub-recipient award or contract, which involves writing the sub-award agreement and presumably overseeing their compliance. However, since the sub-prime in this case is a venerable firm that has often itself been a prime, and of course has its own NICRA, it understands compliance as well as the prime and does not need the prime to watch over it. In any case, we end up with a figure of 42.45% that needs to be applied to the $884,000 project implementation cost for an additional $375,258. All of this (the $884,000 + the $375,258 + the salary and benefits of $117,426) adds up to $1,376,684. And while I have little doubt that the full details of how the total of $2,200,000 is arrived at would show nothing illegal, it is hard not to conclude that the difference – over $800,000 – between my back of the envelope calculation and the official total contains a substantial amount of fluff – money that is not really productive, is not necessarily needed, but which sustains many employees and the two contractors they work for. In the most fundamental sense this extra money is “profit,” something we don’t begrudge corporations in the business of selling a product, but which is (or should be) questionable in the case of aid for humanitarian assistance and development.
Note that the time that USAID itself spent on this project is not represented in the figures presented here, though this time is also a cost to the U.S. taxpayer. There is the contracting officer who is warranted to vouch for the compliance of the contracting organization. He or she might spend 8 to 10 person days over the life of the project doing routine monitoring and answering queries related to it. The USAID program officer who is presumably interested in the outcome of the work will read the quarterly reports and engage in some back and forth with the contractor – let’s say another 10 to 15 person days in the life of the project. And we need to add in the time of a number of supervisory and other USAID personnel who in the course of the 22 months might be involved in meetings, or other discussions related to the project – another 12 to 15 or so person days. This USAID total of about 30 to 40 person days forms part of the overall agency “operating expense,” which in FY ‘15 was 7.8% of USAID’s total budget of $20.1 billion, or $1.569 billion.
So, USAID’s costs aside, my guesstimate is that 60% of the project’s $2.2m cost goes for indirect and administrative costs, which means the actual implementation of the project is 40% of the total. And while it is legitimate to add some degree of administration and oversight time to the overall cost, it does seem excessive for these functions to amount to 150% of the actual implementation cost. The irony here is that much of this excess is incurred presumably in the interests of protecting the taxpayers’ money, ensuring compliance and keeping costs reasonable. In the budget narrative for this project the contractor states:
“FHI360 strives to ensure that the absolute best value is maintained for our funders. Throughout the budgeting process, every effort has been made to present realistic and reasonable pricing, being based on our significant and long-standing experience in implementing programs worldwide. Additionally, FHI360 focuses on identifying all opportunities to streamline programming and ensure cost-effectiveness and cost-efficiency. We are able to do this through a deep knowledge of program management and implementation, utilizing transparent systems that feature robust logistics, financial management, procurement, and compliance processes.“
The compliance processes that the contractor has “deep knowledge of” consist of a compendium of rules and regulations that, like sedimentary layers in an archaeological site, have built up over decades. They are constantly amended and often added to in response to lobbying and political pressures though seemingly less often in response to lessons about what makes sense and what does not. And while of course some of the compliance rules are indeed straightforwardly about accountability, some are a function of custom and ritual, and some of those reflect a subtle underlying culture of mistrust, if not paranoia – the belief that people and organizations will lie, cheat and steal if they are not watched very carefully. “Trust but verify” makes real world common sense, but in many instances, the modes of verification in USAID’s processes are over-wrought if not plain silly as most people with field experience working on their projects will attest.
Besides bureaucratic inertia (not to be underestimated), a growing aversion to risk (but if development is not inherently a risky business, then nothing is) and a finger-wagging culture that presumes people and organizations are trying to get away with something, one has to ask if part of the obstacle to simplification and less silliness, is a concern for the continuance and growth of the aid industry. If USAID were to put more of its money towards country ownership – grants and contracts going to local organizations, and trust them to use the money carefully, there would of course be cases of inefficiency and waste and perhaps even a bit of cheating. But if a project like the one I’ve described above bears a 150% overload in order to ensure compliance, is it not likely that whatever waste came about in a direct grant to a local organization, without the intervention of a US prime to watch over things, might come out to less? But of course if compliance systems were to be simplified, the first consequence would be a loss of American jobs. Thousands of people in the USAID ecosystem sit at desks wearing metaphorical green eyeshades and look for discrepancies between the stack of regulations, and the equally high stack of contracts, agreements and reports. What would happen to all these people if they had less to do?
In the aid industry working ourselves out of a job is simply not on. It’s too lucrative to stay in business.