Oral evidence: DFID’s Allocation of Resources, DFID’s use of contractors HC 261Monday 6 June 2016
Oral evidence, 6 June 2016.
Witnesses
Peter Young, Director, Adam Smith International, Sarah Maguire, Director of Technical Services, Governance, DAI Europe, and Mark Foster, ex-Commissioner, Independent Commission for Aid Impact, gave evidence.
Chair
Welcome. All three of you had the opportunity to hear the first panel. We took an hour with two panellists to cover eight questions. We have an hour with three panellists to cover 10 questions, so we are going to need higher standards of brevity, both from those of us asking but also from our panellists. As with the previous panel, when you have the first opportunity to answer, please briefly introduce yourselves. I am going to invite Helen to ask the first question.
Mrs Grant
Thank you, Chair. Good afternoon, panel. You have heard in evidence, and the Mail on Sunday claims, that directors’ salaries and dividends are on the rise and have risen. Do you think there is room for improvement, in terms of contractors giving better value for money? Could I ask that of everyone, please, and maybe starting with Mark?
Mark Foster
First of all, I am Mark Foster, commissioner with the Independent Commission for Aid Impact and lead commissioner for the report that has been widely quoted so far today. I am delighted that so many people have read it. That report was published in 2013. Obviously I was a commissioner until 2015 and saw a lot of further evidence of contractors at work on my travels and in the reviews I did subsequently to that. I will say, in respect of some of the comments that were made by Ian in particular, I was also the lead commissioner for our work on scale-up in fragile states. One of the critical things about that was that we made the point that increased money should be not just more money, but better spent as well. I will come back to that point. It is also worth saying a few things about the fact that, while the report was viewed as being overly positive about the use of contractors, it was not a wholly rosy picture. We talked about effectiveness and also about value for money. I will come back to that specific point. However, there were some very key points to address issues like the balance between small and large players and the fact that we felt DFID should have a clearer strategy about when to use certain players. We made a very clear point that the effectiveness of the contractors and anybody working for DFID would be significantly improved if there was better programme management from their side. When we come back to the issue of value for money, and indeed the whole point about the seniority of people and the pay of people in the field doing work, whether it is a contractor, a multilateral agency or whatever it may be, in the end the key point is that you need to make sure that that person is the right person for the role. It is all about fitness for purpose, in both the use of contractors at the right times, and also the use of the right people in the chain at the right point.
Mrs Grant
You have not answered the question about value for money. Let us assume the right person or the right company is in place; I completely get that. Do you think there should be more done and that there is room for improvement in terms of giving DFID better value for money?
Mark Foster
I am sure there is scope for more value for money with regard to the use of contractors. At the end of the day, any one of the partners who is working inside the value chains that DFID is working with has room for improvement, whether it is the multilateral agencies, the NGOs or the contractors. There is absolutely scope for that. A lot of it is about DFID being clearer about what it wants to do. The clearer it is about that, the better relationships it can have, and the better value for money can come from contractors responding to that. I am also sure that there are wiser and better ways for contractors to use technology and emerging, new approaches to delivery that could also deliver better value for money.
Mrs Grant
Do you think there might be a moral duty as well, bearing in mind where this money is from and what it is supposed to be doing, to forgo profit?
Mark Foster
I would ask my colleagues to comment on that.
Mrs Grant
Not profit—I should say maximum profit.
Mark Foster
That is a judgement for others to make. My view is that, at the end of the day, what we should be caring about is the fact that the best people for the task are doing the task, and that we are comfortable with the amount of money that is being spent on their part of the chain.
Sarah Maguire
I am really grateful for this question. My name is Sarah Maguire. I am the Director of Governance, Technical Services for DAI Europe. Let me spend 30 seconds giving you a bit of background. I actually do work in developing countries and have spent almost 20 years in some of the world’s most fragile and difficult countries, including those that are conflict‑affected, working for DFID, the UN, NGOs and private contractors, and as a private contractor directly for DFID. I was also the CEO of a small consultancy organisation, so one of the very small SMEs that we have been talking about. I get very passionate about this issue of value for money. I would really like us to focus much more on value than we do on money. You can spend the same amount and get a huge amount of value for it, or you can spend less and get so much less for it that the value is dissipated. I welcome what Mark has just said about the use of innovation and technology. I can give you an example from a project that I am involved in in Sierra Leone: the Access to Security and Justice Programme for DFID. We started a project that would bring information about legal entitlements in international law to women and girls living in rural communities in the remotest areas of Sierra Leone. When we first started that project, we were operating purely through radio and the use of little, sub-standard handheld Nokia mobile phones, because that was the level of mobile phone penetration. One of our partners in that project, BBC Media Action, recently launched a WhatsApp means of communication, which has been used by thousands of people, including in remote, rural areas and including those very same women and girls. The value for what we offered in June 2014 when we started the project has gone up exponentially simply because we have been able to make use of the changes in technology, adapt to the context and adapt to the innovations.
Mrs Grant
In that example you are saying, “We did a really good job here, and in my opinion we could not have given any better value for money”.
Sarah Maguire
We could not have at that point. The challenge that we all face, whatever part of the aid world we are working in, is to try and anticipate opportunities, grasp them and create them where we can, and make sure that we are always driving to the value. We have to measure that value in terms of whether we are reaching the people we need to. With all of the projects I am involved in, I always drive our teams to think, “Are we delivering to that 14 year old girl who is illiterate, deeply impoverished, possibly married, possibly already with a child of her own, in the most dreadful circumstances?” If we are changing her life, then we are delivering value for money. If we are not changing her life, and there is no likelihood of our work changing her life in the near future, then we are not delivering value for money. That is how we need to reframe this argument about value for money.
Mrs Grant
I am sorry to interrupt you. Do you think there is a moral duty, perhaps, on organisations to forgo maximum profit?
Sarah Maguire
Yes, I do. There is a moral duty on everybody to forgo maximum profit. In DAI Europe, we try to ensure that the level of profit that we achieve, which is slim—you have seen from the written evidence how slim it is—is balanced with our moral obligation, professional obligation, social obligation, political or human rights obligation—call it what you like—to do the best for the most in the most difficult circumstances.
Peter Young
I am Peter Young, Director of Adam Smith International, which is an SME, by the way. It is often called a large contractor, but it is better called a successful SME. The critical first point is that there is extraordinary value for money currently being delivered. To give a couple of examples, over the last year in Sierra Leone our revenue reform team, at a cost of about £2.2 million, has helped the Sierra Leonean Government raise an additional £55 million through a short-term revenue improvement plan. Over the course of a three year project, we should raise, on a very conservative estimate, an additional £120 million. By 2023, we estimate that the Government will be making about another £200 million each year, so that is on a sustainable basis. Contrast that with budget support to Sierra Leone: we gave £43.5 million between 2013 and 2015. That and is not sustainable. Our assistance, which only costs £6.8 million, is delivering tens of millions of extra pounds into the Sierra Leonean treasury to be spent on basic public services. Apparently, some people say, and I heard it in the first session, that you cannot measure this stuff. Well, there is lots of stuff that you can measure. I absolutely reject the idea that, just because something is aid funded, it does not work. There are lots of things that work, and work very effectively. We do similar work directly on tax, paid for by Governments themselves. Those projects work just as the aid funded projects work. You can see that because you can count the amount of extra money that is raised. Take another example.
Mrs Grant
I am okay on the examples. Do you think there is room for improvement? That is the first bit. I would like a one sentence answer. Secondly, do you think that there is a moral obligation not to pursue maximum profits?
Peter Young
There is a moral obligation, primarily to the beneficiaries of the assistance, to do one’s best and deliver the best results and best impact for them. That is what we do, and that is what motivates the people who work for us. There is a moral obligation not to try to make maximum profits. It is, however, extremely difficult to make maximum profits in this market. This is an extraordinarily competitive market. If you compare the figures between the DFID market and other markets, you would see that something like 48% of the contractor market is held by around 10 companies. That is not taking into account the fact that a lot of that money, if it goes to those 10 companies, is then passed on to others through grants to NGOs and that type of thing. Look at other markets. In Australia, 69% of contracts go to only three companies. There is something similar for Germany and for Canada. If you tried to jack up prices in some way, you would not succeed. Probably the only circumstance where you might be able to do that is if you have just completed phase one of a project, which is a really successful project, with an embedded team delivering brilliant work, and it would be very difficult for anyone to beat you on a re‑bid of the project. Do we then jack up prices to try to take account of that? No, we most certainly do not. The other thing you can point to is that we, in common with other companies, plough money back to DFID. We provide about £1 million of pro bono assistance to DFID every year. About a quarter of that is in the lesson learning and knowledge sharing area. Much of the rest of it is in providing assistance on the ground that is not charged for, for example providing people who worked on the Ebola response for free for six months in Sierra Leone, and providing people at short notice to help with the Nepal earthquake response. Sometimes we are bridging the gap between two projects. If we have done a successful project and suddenly, because of procurement snafus or whatever, there is a delay to the next phase, the benefits will dissipate if you cannot keep some of the basic team in place. We will often keep the basic team in place at our own expense. Those sorts of example show that we do not seek to extract maximum profit. But we are a company and companies need to make a profit. That is the nature of the economic form. We need to fund our working capital. We need to invest in our people and in our systems. We need to be able to expand our services and reach, and so we do need to make a profit. But you are right. No, we are not trying to make the maximum profit.
Chair
Very briefly, what do you say to what Ian Birrell said about salaries and dividends?
Peter Young
We are a wholly employee‑owned company that does not pay dividends to individual directors or anything like that. On the issue of salaries, you can have two approaches. Either you pay market-based, market-related salaries, or everyone in the sector can work for free. That is people working for NGOs, people in DFID and people in contracting companies. You can have one or the other. What we have is a situation where salaries are market-related but not in any way market-topping. I saw a survey of companies operating on a multinational scale, with turnovers between 100 million and 500 million, who were paying their top directors a bit over £500,000. You do not see that in companies like ours or the other companies.
Chair
What are the comparable figures for your company?
Peter Young
You are talking about something around the £200,000 figure. In our company the very top person gets paid £235,000. He took a pay cut to come and work for us. If we and others have very complex operations, in incredibly difficult places where the lives of people are being put at risk, we have to have really sophisticated setups and we are confronting multiple challenges the whole time, then we have to have reasonably competent people at the top.
Chair
This is just for clarity. I am being naughty, because I am extending your question. In The Mail on Sunday, they said of ASI there were salaries up to £239,000, which I think you have confirmed, but then handing out six‑figure dividends to directors.
Peter Young
I do not think that is the case.
Chair
Is it definitely not the case?
Peter Young
In the past we have paid dividends, yes. The dividends have been shared very broadly among a large a large number of employees. We shifted in the last year to being owned by an employee‑ownership trust, which is the new John Lewis form under the Nuttall review, which basically requires us to distribute benefits to all employees on an equal basis.
Chair
So dividends will now be shared equally among all ASI employees.
Peter Young
Correct.
Sarah Maguire
Can I jump in on that point? It is not really to answer this question of how much everybody earns. It may be something the Committee is going to address later, but it is really important. We heard a lot in the first session about these expats who are coming in and telling the world what to do. It is really important to recognise that, in every single programme, certainly any programme run by DAI Europe and any programme I have worked for or been associated with as an individual, the vast majority of the staff, the contractors and the employees are people from that country.
Chair
We will come to questions on that in a moment.
Sarah Maguire
Where that is not the case, it is often regional. You will have a Zimbabwean consultant working Sierra Leone and giving that technical expertise, and vice versa. We need to recalibrate that a bit.
Chair
Ian Birrell said that your company pays no corporation tax.
Sarah Maguire
We have not paid corporation tax for the last couple of years, I think. The reason for that is that we have not made a net operating profit. It is quite simple. There is a whole set of complicated reasons for that. I am a lawyer, not an accountant, but it involves the size of the overheads and the way that our company will prioritise making sure that we are providing the best service. For instance, there is quite a lot of un-billed programme management time that goes in, which ramps into overheads. We are anticipating making a net operating profit and paying corporation tax in 2016.
Fiona Bruce
I have four questions. The first one is to Mr Foster, and then the other three are to Ms Maguire and Mr Young. Hopefully we can have fairly short answers to each. Mr Foster, the 2013 ICAI review found that DFID’s use of contractors “delivered positive results at competitive fee rates.” That is a quote. However, our Committee has received allegations of large mark‑ups on contractor staff costs hidden from DFID and not representing value for money. Was this something you looked into as part of that ICAI review?
Mark Foster
No, it was not something we explicitly looked into. We did do some assessment with regard to the relative input costs that were in the contracts, and reached a view about the judgments being taken in terms of the relative competitiveness of those input costs. We were out in the field. We looked at individual programmes, none of which exhibited that particular thing that you are talking about. No, we did not see that in that particular review.
Fiona Bruce
That takes me to my three specific questions. What is the average percentage margin on a project, between what is charged on DFID and what it is costing to implement the project? What do you think is a reasonable margin, if you cannot give us your average margin? What are you looking for when you put in a bid?
Sarah Maguire
You will understand that that sort of information about specific projects is of course commercially sensitive. We are extremely happy to give all of that and more, whatever you ask for, by written evidence. I can tell you that, if a consultant is earning £300 a day—we have the numbers on this, happily, but this is an average, so it is not like you could go and find that person; it might be a different amount, more or less—64% of that will go to the person as their salary and their benefits. Remember, it is not just salaries. 4% of it will be direct, non-billable project costs, as I have just explained, where we need to do more than we thought we would have to do because something changes. There will be a cost of actually bidding for that work. There are our overheads. Then there is, of course, the profit and the tax paid on that profit when it reaches that level. It is 64%/36%, as a very broad average.
Fiona Bruce
Thank you. Is that whether the person working is from the UK or is more locally based or from that country?
Sarah Maguire
It is across the board
Fiona Bruce
Mr Young, do you have an answer?
Peter Young
Again, I could provide you with direct figures with regard to particular projects in further written information. Broadly speaking, that sounds not far off. It is important to note that DFID, in its commercial proposals, asks those bidding to set out the direct cost paid for the particular expertise, as well as the fixed overheads, variable overheads and profits. It has that information. I am a little concerned about that, because it could lead to cost‑plus contracting. Cost‑plus contracting, unlike competitive contracting, has an inbuilt incentive to inflate costs, because your overhead is paid for and therefore, the more overhead you make, the more money you make. The USAID contracting model is a cost‑plus contracting model, and, if you look at the overheads that are reimbursed by USAID on a typical fee rate, they are of the order of 100% to 150%. That is to be compared with the figure around 36% in the competitive market that Sarah was mentioning. There are real danger bells ringing there about going to a cost‑plus, price‑control model in a highly competitive market. The main thing pushing down prices is competition. It is very fierce competition indeed. If one looks at the actual costs being paid, because that is the important thing for the tax payer, the costs for your typical DFID contractors are around 40% less than the costs of contractors hired by domestic Government Departments. That is despite the fact that, if you are working for a domestic Government Department, you are in relatively nice conditions and you can go and visit your family once you have finished at the end of the day. They are about 50% less than the cost of using DFID staff, and they are variously 100% to 300% less than the cost of using multinational staff such as UN or World Bank staff. They are highly competitive, primarily as a result of the very competitive market that DFID has built up over the years.
Fiona Bruce
You have given some very specific figures there. On what are they based?
Peter Young
The best comparator for the UK domestic market is to take the most comparable parts of the ConsultancyONE framework that applies to UK domestic Departments. As far as DFID and multilateral costs are concerned, certainly in the case of the UN and the World Bank, a lot of information is available on the internet. It is quite difficult to pull it all together into a complete analysis, but if one does that, as we have done in a draft paper that has been circulated to the Committee, you can see that those costs are extraordinarily high.
Fiona Bruce
Can I just ask my second question to you and Ms Maguire? You talked about some information having to be given to DFID about the underlying costs of a programme. Can you tell us how much detail that is? How much is required about the underlying cost structure of a programme, including margins for individual staff when you bid?
Peter Young
That is what I just said. That information on margins and individual staff is currently required by DFID, as well as, obviously, a full analysis of what is proposed to be spent on everything else in the programme, month by month, over the time of the programme.
Fiona Bruce
Do you provide that as well, Ms Maguire? Is that something that you provide in your bids?
Sarah Maguire
DFID does bidding slightly differently, quite often. Sometimes there will be more information required than on other occasions. Sometimes they will ask for more information later, as you are narrowed down through the shortlisting process. They will ask for more and more information, and whatever they ask for, we give.
Fiona Bruce
Would DFID always require information about the underlying costs of a programme, including margins for work, or is that something that may or may not be asked for?
Sarah Maguire
To my understanding, and remember that I work in the technical services department and not the business development units, so forgive me if I get this slightly wrong—I will correct it in written evidence afterwards—they will always ask what it costs to run the programme, and what we are asking them to give us. They will always ask for that margin, broadly. I do not know whether they ask, for example, if we are putting forward Mark Foster as a team leader on a project, how much he is getting over and above what we are charging for him. I do not know that
Peter Young
These days they do.
Fiona Bruce
This is my last question, then, and I will ask it very quickly, because I am conscious of time, Chair. Do you ever benchmark your staff and subcontractor costs against local market rates and rates used by other donors to ensure that you are providing value for money?
Sarah Maguire
Absolutely. Since I have been working in international development, since 1995, one of the issues that we in the community have always had to grapple with is, on the one hand, making sure that there is equity between nationals and internationals, and, on the other hand, not distorting the local economy. I cut my teeth, as it were, in Kosovo way back when. There was a real issue there. It was a country that had seen a massive level of volunteerism. People looked after each other because they were all living under suppression. Then in came the UK, in came the UN and in came NATO, et cetera. Suddenly people were saying, “I am not going to store the nappies for my paraplegic neighbour.” It was all confused. Now we all have to engage in very careful benchmarking, nationally as well as internationally, to make sure that everybody is being paid the right wage, and that that right wage does not also mean that you create these massive gaps between a professional working, particularly, in government, and a professional working for an aid organisation. You do not want to extract people and end up with a brain drain.
Fiona Bruce
That is very helpful. Do you do the same in your organisation?
Peter Young
Yes, we do extensive benchmarking. Generally speaking, although it is not always required in DFID, DFID itself does the benchmarking. If you do that benchmarking exercise against, for example, the type of professional expertise that is provided in the private sector in developed countries, you will find that the cost of the contractors’ expertise is considerably less than those comparable costs. That is because of that factor that we referred to earlier: whereas people basically want to be paid a reasonable amount for doing this work, they are prepared to take a significant reduction over the market rate they could earn in their own country, because of what it is that they are achieving. It is much more satisfying and motivating to be working somewhere you can change the lives of lots of people. I will give you an example. There is a chap called Alan Pearson, who is a retired civil servant in his late 70s, in point of fact. He is an absolute expect in putting public financial management systems in place in conflict affected countries. Recently, there was a huge achievement where he led his team to get public financial management systems up and running in three new states that we helped to put together in Somalia, which had been recaptured from Al-Shabaab. Those states can now bring in proper revenue and have public services. He is paid a day rate, but he is living in a shipping container that could be mortared at any time and his life is in real danger. Is he doing it because of the money? How could you compare what he is paid to someone working in Australia or another developed country? He is paid a deal less, but he is not doing it because he is trying to make a fortune. There are easier ways of spending your late 70s, to be quite honest. He is doing it because he is committed to making a difference, and he has made a huge difference.
Jeremy Lefroy
I have some fairly specific questions, to start with. There is this claim in the Mail on Sunday article that DAI has not paid corporation tax for a number of years. I have looked at the accounts and it seems to me that you have declared losses in each of the last three years, and therefore you would not be expected to pay tax, so that is not really a question to ask. What I would ask is this: in the accounts—and this applies to ASI as well—I see where the figures are coming from, but there is a very big figure in each case, cost of sales, which is not broken down at all. Presumably, it is what the contracting costs are. Would you not agree that, if this were to be broken down in some more detail, for instance to show how much of that is going to local contractors as opposed to contractors based in the UK or Europe, it might help to answer some of the questions that were raised in the last session, rather than saying, for instance in the case of last year, DAI’s turnover was £84 million and its cost of sales was £74 million, but not breaking that down at all?
Sarah Maguire
It would be really helpful, because it would help people to understand not only the cost but also the importance of doing international development and supporting the 0.7% target.
Jeremy Lefroy
What I am saying is that I think it is in your hands. You have the ability. At the moment, to some extent, you are providing absolutely the right information to Companies House, but you are providing the minimum. The same applies to ASI, which, by the way, is paying corporation tax at the required rate. That is absolutely clear and straightforward, but, if both you and others were to provide a bit more information in terms of where that cost of sales, which is the vast bulk of your turnover, was spent, it would help answer some of these questions.
Sarah Maguire
It may well help answer some of those questions. The downside of it, of course, is that somebody would have to sit in their office, work out all those costs, do it on a very detailed basis and report them accurately.
Jeremy Lefroy
With modern accounting systems, these things are very possible. I am just suggesting that this might be a way of countering and providing the kind of transparency we were speaking about.
Peter Young
You are right. Provision of more information along these lines is important, although you have to be careful as to how it is presented. It is amazing the ability that some people have in misinterpreting information and turning into something that it is not. But that would be a good idea. You can tell lots of things from our accounts and, as you mentioned, we pay corporation tax well above the due rate, because of various factors. We have paid over £20 million in the last 10 years or so, possibly more than some large multinational corporations whose names begin with “A”. Trying to draw out and present some of this information is something that definitely needs to be done. Perhaps companies like ours have been too busy getting on with the job and not thinking about some of these communication issues.
Sarah Maguire
What you have raised—and one of the points behind your question—is really important. You mentioned that a lot of the cost of sales is in fact subcontracting and grant‑giving in the countries in which we operate. There have been all these questions, issues and allegations that all the money sits here, and the issue about whether the aid is untied, because it is not actually going to organisations. I can tell you that, in the financial year 2015‑16, for DAI’s DFID contracts, we subcontracted 35% to SMEs, and I mean real—really small—SMEs. Those were mostly local organisations working in their own countries. That untying of aid is getting there, because of the consortium structure. 67% of our FCO contracts were subcontracted. When I say they are subcontracted, I do not mean that all we do is a management check. There is a consortium in which these organisations are involved.
Jeremy Lefroy
These are local organisations in the countries.
Sarah Maguire
These are organisations working at the national level.
Jeremy Lefroy
That is helpful and that obviously has not come out. There is a question that has been raised: if you register in a developing country, whatever vehicle for registration you use, whether it is a limited company or a not‑for‑profit, so that you are operating in the developing country and contributing, by operating there, to the local economy, how do you do that in a transparent manner, where you are paying the local taxes and so on?
Sarah Maguire
That is a really interesting one. In a lot of the countries where we work, particularly the most fragile, the poorest and most conflict affected, those systems are lacking. Peter has just talked about the ASI tax project in Sierra Leone. It is 2016 and their conflict finished properly in 2002, so it has taken all that time for the country to get itself up to a level where it can make the best use of the sort of services that Peter’s company provides to help it do that. For a lot of countries, you will find that their national revenue authority is trying to work out what a goods and services tax actually is. Somebody earlier mentioned visas. Having a proper up‑and‑running immigration authority so that, when you come into a country, you know what you are doing there and can make sure you are compliant can take countries a really long time, particularly if they are recovering from conflict. What I can say for DAI Europe is that under no circumstances whatsoever will we ever seek to not comply. If there is a rule or regulation in position, then we will strain every sinew to make sure that we do comply with whatever is going on and whatever is required of us locally.
Chair
It would be great to hear Peter’s answer as well.
Peter Young
We too would obviously comply with all the local rules and regulations. I would say that sometimes it is not particularly clear what they are; there are alternative interpretations, and perhaps some of the officials involved benefit from the alternative interpretations. Some of the countries in which we operate are corrupt—some, indeed, are fantastically corrupt—and it is best if there is an agreement in place between DFID or another donor and the host country that specifies what the obligations of the implementing agent are so that this lack of clarity does not cause problems. There are times when a municipal authority might turn up and say, “You have a tax bill of £700,000. Please pay up now.” We are operating in the wild west in a number of these places, so there are difficulties around these issues that can distract from smooth implementation.
Jeremy Lefroy
One question that has troubled this Committee for some time, both in this Parliament and the last Parliament, is the apparent inability of DFID to work with small organisations, which is by DFID’s own admission. I have lived and worked in Tanzania for 11 years and seen some excellent work done by organisations that have a very limited amount of funding and achieve enormous impact; we are talking about a very substantial impact, in many ways much bigger than what I have seen through DFID. Can you suggest to us how DFID might be able to work better with small local organisations in the countries in which you operate as well? At the moment, they claim they cannot do that, because the amounts involved are almost below their radar and it is too difficult for them to deal with these organisations. That is something that has really concerned us. We are talking about £50,000 or £100,000 per year for very significant health or education projects that are reaching large numbers of people and are very often working with very dedicated local people. We find a bit of a blockage when it comes to that.
Chair
Shall we come to Mark first, partly because I am conscious that you have not had a chance to say anything for a while?
Mark Foster
That is fine; in fact, it has been fascinating. First of all, you are on to a key thing here. We have a very strong view that the best development involves as many of the local people as possible; it needs to be beneficiary‑centric and to use the smaller local players. We felt there was an issue about smaller players being squeezed out by the overall model. In a large part, it comes down to our view about the kind of DFID that we want. If it is going to be a commissioning DFID with its staff numbers being constrained as to the role it can play, in the end, the small numbers of relatively junior people you find operating in these countries simply could not cope with managing multiple small relationships in an effective way. They struggle as it is to deal with some of these larger relationships. The real question around making that happen would be through real bolstering and investing. If you want to make that happen, I would have us invest in more capability in DFID, in country, so it had the capacity to deal with a broader base of local people. Again, there are lots of models, but at the heart that is a real and fundamental challenge.
Peter Young
I absolutely agree with Mark on that point. One thing one must understand is that this contracting modality of DFID is the modality that requires the largest number of DFID staff, is driven by DFID and is at the heart of DFID’s capacity, because it designs, oversees and adapts the interventions. It is quite different from writing a cheque to the UN, the World Bank or whatever. This is the heart of DFID’s capacity. DFID could not do it itself, with civil servants. It would have to hire 30,000 people, and they would probably be the wrong people because it would not be able to get the specific expertise on board, but to strengthen DFID as a commissioning organisation would enable one to take on more of this work, particularly the smaller prime contracts. I do not know whether we are going to get on to talk about the issue of local capacity and local contractors.
Chair
Yes, we are.
Peter Young
We are later, okay. It is very important to note that the vast bulk of the work done by the so‑called large contractors—and we are an SME, despite being called a large contractor—is done by SMEs. The form that we submitted on how much was subcontracted to SMEs showed that, of 38 programmes, 36 were 100% subcontracted to SMEs; for the other two, it was 61% and 90%. It is pretty much all subcontracted to individuals or small firms, many of them local firms. There is a critical role that people have in building up the capacity of those local firms, but I think we are going to cover that in a different question.
Sarah Maguire
You have raised a really important point. I remember when I was sitting on the expert group for drafting the how‑to note for DFID on tackling violence against women and girls. One of the key principles we stressed through that was that women’s civil society organisations are the ones that are best equipped to know what the situation is on the ground; are best able to navigate the space, so as to reduce the amount of backlash that comes both to the programmes and to the individuals concerned; have the information at their fingertips; have the reach; can deliver; and can feed back properly and reliably. Our exhortation at that time to DFID and others was to say: work with and through, in this case, women’s civil society organisations, because they are working on these issues, but generally through civil society. We see it now: throughout all the conflict‑affected states that I have ever worked in, it is civil society organisations, particularly women’s civil society organisations, that have the granularity of information, have the access and know exactly what they are doing when they are going out and doing the work. The challenge is this. We support, through the Access to Security and Justice Programme in Sierra Leone, a fantastic women’s organisation called the Koinadugu Women’s Advocacy Network. It is without a parallel. It is brilliant at what it does. It does not have sufficient electricity to run its website. It does not have a website, effectively. It still, frankly—and they will forgive me for saying this—lacks good monitoring and accounting capacity, but we can help with that. You asked for a short answer; I am giving a longer answer.
Chair
We need answers to be much shorter, or we will run out of time, I am afraid.
Sarah Maguire
A much shorter answer to this is to say that DFID should and could impel and compel any organisation, whether it is the UN, a large NGO or a contractor, to prove that it is working to build a capacity and support ongoing capacity of civil society on the ground. The more that we, as contractors, are rewarded for using and supporting civil society, the more it shifts the culture towards that avenue, and I would certainly welcome that.
Chair
My question, to which I will need short answers, follows up neatly on those answers just now. An issue that has been raised with us by a number of people is about the use of exclusivity clauses with regards to subcontractors that bind them to a particular bid at the bidding stage. Can each of you tell us how often you use exclusivity clauses?
Peter Young
There are circumstances where you would and circumstances where you would not and it would be inappropriate.
Chair
Which of those circumstances is more common?
Peter Young
It is almost impossible to answer that question. Almost everyone who works on these programmes is a subcontractor. You would not want to have your whole core team, the people who are staffing the project, to be in everyone else’s tender because otherwise all the tenders would be the same. Also, all the commercial confidential information like your proposal would pass to the other tenders. It would be the same for a large subcontracting firm or NGO that took part and helped develop your proposal: you could not allow them to be with another tenderer, because you would lose your advantage in the proposal, competition would decline and the public interest would not be served. However, if some particular expertise is held by one organisation and cannot be replicated, then it should be more widely shared. I can give you a good example of a current bid that we have in.
Chair
Make it a quick one, because we are going to run out of time.
Peter Young
There is a university in Kenya, Strathmore University, that has an extractives industry centre, with specialists who have expertise. We said to them, “We do not want you to be exclusive. You can go with all the other bidders, because, with your expertise, you are a one‑off and we should not be trying to take that.” Similarly, in Malawi, the African Institute of Corporate Citizenship has specialist expertise in the oil‑seeds sector that we were going for. We said, “There is no need for you to be exclusive.” In some circumstances, a subcontractor might well want to be exclusive because it says, “We can really help you with your proposal. We want to form part of your team.” They are the ones pressing to be exclusive.
Chair
What would the problem be in the decision simply being made on the basis of who the prime contractor is and then dealing with the subcontractor issues at a later stage?
Peter Young
These days, it is rarely just the prime contractor. There is a prime contractor, but then large parts of the work will be delivered by a wide consortium. You could not just decide on the prime contractor alone, because you are deciding on the abilities of the B, C and D parts of the consortium. Some consortia might involve 10 different organisations and you have to evaluate all their expertise. It is largely a red herring, this thing. If an organisation carried on stitching people up by saying, “Hey, come into our bid” and then refusing to use them afterwards, soon enough no one would ever deal with them.
Sarah Maguire
When I was CEO of Social Development Direct in 2010‑11, the latter problem that Peter has just mentioned was quite a significant problem. DFID has really helped the smaller consultancy firms and organisations, whether British or otherwise, to improve on that. To your question, Mr Twigg, about what would be wrong with judging it just on the quality of the prime contractor, that would contradict all the other stuff about how important it is to encourage and to ensure that there is use of the right consortium members
Peter Young
Including smaller ones especially.
Sarah Maguire
Exclusivity can be a bargaining chip, putting it crudely, for the smaller organisations.
Chair
A smaller organisation goes in with a bid that does not succeed. Are you suggesting that it could then join the bit that has succeeded?
Sarah Maguire
That very often does happen. They will make that phone call and say, “We are here now” because everybody knows.
Chair
Does that not support the point I was making in my question: that expecting people to sign up to one bid or another is not fruitful?
Sarah Maguire
No, because, when you write a bid, you can say to DFID, “This is what we are going to offer. We are going to offer you this particular quality of all of this crafted complementary expertise—national, regional and international.” DFID can then judge you according to what you bring within your consortium, rather than operating on a “trust me, it will be alright on the night and we can do management” basis, which you would have if you only ever bid as a prime.
Mark Foster
I am going to bring another lens to it, looking at what we saw was working in the field, not just in terms of private contractors but more broadly. Generally speaking, proven relationships that have been tested are better than forming completely new ones every single time you do something. Mobilising these programmes is generally a very difficult thing. Frankly, most programmes, whether using contractors, multilateral agencies or others, find that, at that first stage, there is lots of forming, norming and storming going on between the players. If you look at the quality of relationships between the players when they are looking to bid, in many cases that gives you confidence they are more likely to work together again well than not. That is a different lens on the same problem.
Chair
We are due to finish in five minutes. Are Committee members okay to extend that slightly and take another 10 minutes or so? We will cover three more areas in 10 minutes, if that can be borne in mind for questioning and answering.
Mrs Grant
I have three quick questions. First, how common is it for the implementation team for a programme to change between the original bid and implementation? Secondly, how common is it for the cost of a programme to change after the original bid, during the course of the programme? Thirdly, does DFID ever refuse any requests to amend terms of a programme in the situation, for example, of overrunning or overspending?
Sarah Maguire
For clarification, when you say the implementation team, do you mean the consortium or do you mean that the team leader has to drop out, the deputy team leader gets sick or something like that? Do you mean the construct of the consortium of people?
Mrs Grant
Yes.
Sarah Maguire
In my experience, it is rare that there is this sudden shift. As Mark said, if you are bidding in a consortium, you are clear that you will work together. You are all committing to each other, as well as to the client that DFID is. In my experience personally, it is not massive.
Peter Young
It does happen, often through changes on the ground. For example, in our Nigeria Infrastructure Advisory Facility work, after a period we hit heavy resistance from the then Minister of Works for the work on roads: “You are just not going to get anywhere.” We had to drop that; then the new Government have come in, a year later, and it has started up again, but the subcontractors working on that were stood down.
Mrs Grant
I have got that. It is a really good example.
Peter Young
The other point is that you will have design‑and‑implement contracts, where you will set forward a general range of expertise and how you will go about design, and then, six months into the contract, you will produce an implementation plan, which is agreed or done jointly with DFID. That might involve more of some expertise and less of another, or maybe none of some particular area of expertise.
Mrs Grant
In your opinion, is a change rare?
Peter Young
I would not say rare.
Mrs Grant
Percentage wise, how often does it break down in your situation?
Sarah Maguire
It is far from common.
Peter Young
There are often changes in team members. Some team members do not work out, or maybe the Minister you are working with does not like this person, however good he is, so you have to pull him out.
Mrs Grant
But in terms of the partners that you work with.
Peter Young
That is relatively rare, but some would be used more than others and some might be used only in year three. It is not the same as a grant. It is not the same as being handed a large amount of money and being left to get on with it. There is close DFID control of how the resources are planned out.
Mrs Grant
I have to come back, because I have the two other bits. Mark, is it rare or is it quite common?
Mark Foster
We did not see that as being the bigger issue. The biggest issue we saw was DFID shifting the goalposts of what was being asked for after the contract had been first put out there. A new adviser comes into the country and has a completely different view of how to fix something, and therefore throws it all out. If you have this contract locked in stone, with people locked in stone and a thing over here now being asked for, that is a big thing. Where we did often see a breakdown and people changing was between the design and implementation phases. In all the cases we looked at, it went into almost a loop of despair between design and implementation, which, in many cases, put six months of a gap into things. I would say, as an area for general improvement, the end‑to‑end management of the process could be better.
Mrs Grant
What about costs? I suppose that would follow on in some respects from what you said. If the plan changes, if the goalposts move, then costs will.
Mark Foster
The annual review process and the review of the programmes cover some of that. Our main point was that we did not see the kind of change control disciplines you would see in many other situations where, if there is a change of scope and a change of cost, that is formally recognised through a step. In many cases, that is much less formal. To some extent, it is good; you do not want to have tonnes of process in country. At the same time, our feeling was that it could step up more around that so it is all pointing in the same direction for longer over a contract.
Mrs Grant
Does DFID amend the contract? Are they prepared to?
Peter Young
Yes, there are changes to contracts in response to changes in circumstances. The whole thing these days is to focus on a flexible and adaptive approach and to shift resources around.
Mrs Grant
Do they ever refuse?
Peter Young
Yes. Where you have said you are going to commit to do something with a certain amount of resources, if you have not done it and it is your fault and not some external thing, they will refuse.
Mrs Grant
Is that the same for you?
Sarah Maguire
Yes, absolutely. In Sierra Leone, we had to make radical changes to the programme because we had Ebola, which derailed a whole heap of stuff, although we kept working through the crisis and I kept going; it was fantastic. In other circumstances, DFID has said, “You could have done this more quickly, sooner and better, and it is down to you. You carry the can for it.”
Mrs Grant
You get noes sometimes as well.
Sarah Maguire
Yes.
Mark Foster
It is worth pointing out that there is so much process that DFID has to go through for the team on the ground to get a project approved back at the centre. There is a desire to unpick that. There is a huge inertia in the system, which should be borne in mind for this process. Our feeling was that we have to find a better way so there is more freedom of movement of information up and down that chain. Frankly, redirection of things that were off course needs to be much freer, rather than people being afraid to go back up the chain.
Chair
I now go to Fiona on something we have touched upon but we feel so strongly about that it is important it is asked explicitly.
Fiona Bruce
Ms Maguire touched on this issue, so I am going to address my question initially to Mr Foster and then, if you want to come in, Mr Young, please do. It is about the advantages of using locally‑based contractors as opposed to UK contractors. In your report, you looked what proportion of money was spent via DFID on contractors locally, directly and indirectly. Is that something that you looked at? Do you think it is enough? Just bundling up a further supplementary because of time, do you think that increasing the use of local contractors could improve local ownership of development in developing countries, and private‑sector development in those countries, on which, as we are all aware, ICAI also did a report in the last Parliament?
Chair
Can we have nice short answers, please?
Mark Foster
First of all, we did look at the locally‑based picture, and all the examples we looked at very much reflected the proportions we have just heard down the table. Virtually all the cases we looked at were largely relying on locally‑based NGOs for delivery of large parts of what was going on. At the end of the day, it is always a balancing act in terms of how much local you have, if local does not have the expertise to bring to the table. I was doing the review in Pakistan, where they put a deliberate bias on having more and more use of local suppliers, and they found they had almost gone too far because they had gone beyond the competency range of that particular skillset in the marketplace. At the end of the day, the key thing here is that hopefully, when it is working well, the few key non-local people are massively leveraging the local opportunity and driving that forward. Of course, this has to be fundamental to building ownership. I would say it is at the core of why these organisations use local people: it is the only way to get things done. It is certainly the only way to get things to stick. There almost certainly is more to be done around the building up of local private players in many of the spaces we are talking about here, and that is worth standing back from. In the areas of health, education, et cetera, we should think generally about whether we are building enough capacity around businesses that would help us in those areas.
Fiona Bruce
Earlier, you touched on the fact that there are younger and shorter‑term placements in country inhibiting this. Should DFID be looking at the type of contract it is offering to people who are working in country?
Mark Foster
This is a very long standing point that ICAI made many times. We feel that there is too much churn of too many junior people in the model. It therefore makes you more dependent on the contractors and their seniority. There is a number of things there. If you really want to build local capability and you want to balance this out much more effectively, then you have to invest in DFID’s senior capability on the ground in country.
Fiona Bruce
Are you asked to provide in your bids a pro forma contract with terms and conditions—obviously they vary from country to country—when you offer work to subcontractors? Are those terms and conditions something that you are required to supply to DFID?
Peter Young
We are required to match DFID’s terms and conditions, which is a problem for small companies because they have been made twice as long as they were before, and there are all sorts of insurance requirements and so forth. In our written evidence, we suggested some ways of making it a bit easier for smaller firms and local firms, by cutting back on some of this complexity.
Fiona Bruce
There is a document that you have in terms of pay and risk, which you work from when you are offering subcontractors contracts.
Peter Young
Absolutely. The buck stops with us. We have the duty of care and we have to have all of those things in place.
Fiona Bruce
Would you be willing to supply the Committee with one of those or a selection of those comments.
Peter Young
Not on a written‑evidence basis. We will send them to you, as long as you do not publish them—no problem.
Fiona Bruce
Yes. That would help answer our final question on this. Thank you.
Mrs Grant
To what extent do contractors have a role to play in developing programmes and business cases on behalf of DFID, and are they ever contracted out?
Peter Young
It is broadly done by DFID staff. Sometimes individuals are contracted in to work on bids. Usually, it is the smaller firms that work on this stuff. If you going to go on to ask if there is a conflict of interest, I do not think there is. Everything is brought out of this early‑market‑engagement thing, where people discuss the business case and the approach; it is all circulated to everyone. That is the situation as I see it.
Sarah Maguire
Can I add something that Peter has reminded me to say? The early‑market‑engagement process, which is relatively new, is where DFID gets people together and says, “We are thinking about this. What do you think? Do you think we could do it? Do you think we should do it? Do you think you could do it? Help us to design.” It is a pre, pre, predesign, if you like. To clear up the misinformation that you had in the earlier panel, most of those, in my experience, are held in the countries where the programme is going to be delivered. The last one I went to in Pakistan was an early early‑market‑engagement discussion about whether and how DFID should work in FATA. The whole room was people who were locally based. Peter’s organisation was there, and so was I, but predominantly it was Pakistani NGOs and Pakistani consultancy businesses that were present. They were able not only to raise their flag and mark their card, but they were also able to contribute that knowledge and get that intelligence.
Mark Foster
A key recommendation in our report was that there should be more early market engagement with players because we saw it as a critical thing, to avoid this standstill that occurs during mobilisation, if you are not careful, without engaging people up front.
Chair
You do not think there is a conflict of interest, potentially.
Mark Foster
As long as, at the end of the day, you are evaluating people and their purpose at each step, no, I do not think there fundamentally is.
Chair
Thank you so much. We really have covered a lot of ground in just over an hour with the three of you, and just over two hours with the two panels. I am very grateful. It is really helpful. Thank you for your oral evidence, as well as the written evidence that you have all provided. Again, feel free to provide further written evidence, if you want to clarify any points made during the discussion today.
Peter Young
We will do that. There were some statistics raised earlier that I do not recognise.
Chair
I am sure there will have been.
Peter Young
This is not a UK‑centric, 90% UK market.
Chair
I was not inviting you to say more now, but please feel free to get in touch afterwards. Thank you everyone. Oral evidence: DFID’s Allocation of Resources/DFID’s use of contractors, HC 261 21