Global Region, DAI

Why Contracts are an Integral Part of the International Development Ecosystem

The debate over who—nonprofits or contractors—should implement more of our foreign assistance programs is the wrong argument; the more useful question is what type of implementation instrument is most effective for a given program.

International development companies proudly identify as mission-driven firms. We provide specialized technical expertise and high-quality project management services to USAID and other U.S. government clients working to improve the lives of people and communities around the world. As businesses, we invest in the talent and capabilities crucial to the work of development, allowing us more effectively to support America’s development objectives.

USAID has three main instruments at its disposal to fund foreign aid programs: grants, cooperative agreements, and contracts. Grants and cooperative agreements (known as “assistance” instruments) facilitate the transfer of money, property, or services to a recipient in order to achieve a public purpose or benefit; the main difference between these two assistance instruments is that a cooperative agreement provides for substantial involvement by USAID.

A contract, on the other hand, is a mutually binding legal instrument for acquiring goods or services for the direct benefit or use of the U.S. Government. Contracts are traditional procurement (or “acquisition”) instruments subject to the Federal Acquisition Regulation (FAR). In 2019 and 2020, two thirds of all USAID funding obligations went to assistance awards, with the remaining third going to acquisition awards. Each instrument is associated with different levels of government control over how taxpayer funds are used.

Process and Benefits

With contracts, USAID designs the scope of work, approves key personnel and salaries of project staff, and has the means to cancel the award for convenience or non-performance. While both assistance and acquisition instruments have important roles to play, contracts are often the most suitable instrument in challenging overseas environments where accountability, political sensitivity, and results are paramount.

Key attributes of contracts include the following: Competition

Most contracts are competed openly, and the competition for projects is intense. We welcome competition—from all types of development organizations—because competition yields lower costs, best value, superior technical innovation, and more diverse technical choices. International development companies, accordingly, are by nature cost-conscious, innovative, and entrepreneurial. Our standing—and thus our ability to win new awards—is based on the performance and results of our projects.

Cost-effectiveness

If contractors are not cost-competitive, the market will quickly let us know. With respect to the cost to the U.S. Government, there is little difference between nonprofit and private sector development firms, and no evidence that nonprofits enjoy any cost advantage over for-profit firms.

Alignment with U.S. foreign policy

Development contractors carry out their work on behalf of and under the supervision of the American government. Quite literally, we deliver interventions and results in the name of USAID, the Millennium Challenge Corporation, PEPFAR and, most importantly, “from the American people.”

Accountability

U.S. Government contracting is a tightly regulated and highly scrutinized industry. Contracts provide the greatest level of ethical and performance accountability because they are rigorously controlled and routinely audited for waste, fraud, and abuse. By law, contractors are subject to annual independent and government audits, as well as to potential review by the Inspector General.

Conclusion

CIDC member firms believe that U.S. Government interests are best served by nurturing the highest possible level of competition and innovation among a large, diverse ecosystem of service providers. There is a role for both assistance and acquisition awards in that ecosystem, and room for all types of international development organizations, from contractors, NGOs, and charitable organizations to think tanks, academic institutions, and development-focused enterprises. The American government and its citizens benefit when its overseas Missions have maximum flexibility to utilize the mechanism best suited to their distinct objectives, and the freedom to select from the widest possible array of providers, based on their ability to deliver superior results in an accountable, cost-effective way.