Contracting for Development: The Role of For-Profit Contractors in U.S. Foreign Development Assistance

Berríos, Rubén. Contracting for Development: The Role of For-Profit Contractors in U.S. Foreign Development Assistance. Westport, CT: Praeger, 2000.

Concerned over the fact that only a few cents of every dollar of foreign aid ends up in the Third World, Rubén Berríos, who has experience in international development, claims that "development aid has taken a wrong turn" during the 1990s (p. xiii). In 1993, in an attempt to create a more efficient and streamline government, the Clinton administration unveiled the National Performance Review. The United States Agency for International Development (USAID) was instructed to reform its procurement process and improve its management of development assistance. Government officials argued that USAID would become more efficient and businesslike, save money, and provide jobs to domestic firms if it would contract out its development projects and programs to private for-profit companies, large non-profit organizations, and non-governmental organizations (NGOs). USAID, therefore, intentionally became more increasingly reliant on for-profit contractors to carry out government-funded development programs. Berríos, who teaches in the International MBA Program at Point Park College, contends that even though half of USAID funds for development assistance were channeled in the form of contracts by 1997, the goals of efficiency, streamlining, and businesslike strategies have eluded most USAID-funded development projects in the Third World. The "development industry," as the author terms it, has become more self-serving than caring. As such, the development industry has become more preoccupied with its own growth than with the alleviation of poverty in the Third World.

A primary focus of the author's study is how USAID awards contracts for development work in the Third World. According to Berrios, the contracting process is flawed in a number of ways. First, USAID consistently awards the types of contracts that are least favorable to USAID. Rather than obtaining incentive-driven-type contracts that reward contractors for good results and efficiency, USAID frequently awards contracts that agree to a fixed fee, plus these contracts often cover cost overruns incurred by the contractor. In addition, "the procurement process is often neither open nor competitive" (p. 2). Large firms that have already done business with USAID have an advantage. Frequently, contracts are awarded following a negotiating process rather than a bidding process. Second, the basis of which countries receive aid is not based on need. Projects are frequently chosen based on U.S. strategic and political interests. For example, in 1997, Israel and Egypt accounted for "more than half of all U.S. bilateral aid to individual countries (p. 69). Only a small fraction of U.S. aid benefits the poorest regions of the world. Third, by funding U.S. for-profit contractors, USAID makes these contractors the main beneficiaries of development assistance. According to the author, USAID provides these contractors with a "business lifeline" (p. 7). Most foreign aid money is spent to obtain U.S. goods and services. USAID pays contractors at U.S. rates for work in the Third World and consultants receive lucrative per diem rates at their Third World job sites. Berrios explains that the "experts and consultants represent perhaps the biggest slice of official development aid budgets" (pp. 56-7). Consequentially, these large contractors have become a powerful interest group that has the ability to influence the formation of official development policy.

At the conclusion of his study, the author highlights a number of recommendations for USAID. First, solicit more contracts from firms in the Third World. The current method of using mostly U.S. contractors frequently "fails to develop local expertise and keeps most of the aid money out of the local economy" (p. 131). Second, the procurement process should be simplified and less expensive so that small firms have a better chance of winning contracts. Third, fixed-price type contracts should be encouraged for the purchase of materials and incentive-type contracts for the acquisition of services. These contracts would save money and most likely achieve better results.

Although a great deal of research has gone into this study, Berríos occasionally manipulates the quantitative data to make his point. For example, to make his point that U.S. aid has been on the decline, the author contends that, if U.S. aid to Egypt and Israel was excluded, "the United States spends less on development assistance than Denmark" (p. 72). The author, however, is comparing the levels of aid giving in terms of percentage of GNP rather than absolute dollar amount. Thus, although none of the nations listed in the study are giving more than one percent of the GNP in foreign aid, the statistics are presented to make U.S. aid giving appear ungenerous, even though the absolute dollar amount of U.S. aid giving greatly exceeds that of Denmark.