Out of every $100 of U.S. contracts now paid out to rebuild Haiti, Haitian firms have successfully won $1.60, The Associated Press has found in a review of contracts since the earthquake on Jan. 12. And the largest initial U.S. contractors hired fewer Haitians than planned.
Discouraging news from an AP article out this week. The article tells the story of one 40-year old Haitian construction supply business. Despite playing by the rules and working to establish a reputable business, owner Patrick Brun says he hasn’t won any US government contracts:
“You can imagine that if we can’t win the contracts ourselves, we become totally dependent on foreign companies and nonprofits, and there is not much hope in that,” he said. “We may not have the extended capacity of a U.S. company, but we are respectable. We keep good books and records, we have foreign suppliers, we have good credit, we pay our taxes and our customs dues.
The piece also quotes Clare Lockhart, of the Institute for State Effectiveness, whom we’ve featured on this blog. Drawing on her experience of missteps in Afghanistan, she argues that contracting with local firms is a vital step in reconstruction:
“You can’t just provide manual jobs. You need to contract with companies so that the middle tier managers and owners of companies have a stake in the legal system and rule of law, and ultimately a stake in the success of their political system and their economy,” she says.
So why is so little US funding going into the local economy to help build the capacity of local, Haitian businesses, while the overwhelming majority ends up with foreign firms? Dealing with known contractors theoretically lets USAID act quickly and avoid corruption, as the article points out. But also to blame are outdated procurement practices that fail to encourage USAID to engage local firms.
USAID’s plan for procurement reform, included as part of its ongoing reform effort “USAID Forward” as well as the whole QDDR fanfare, does acknowledge that in order to “strengthen local civil society and private sector capacity,” it will need to actually contract with more than a handful of local NGOs and businesses. The specific targets USAID has set for itself are not cited in those publicly available documents, but an internal USAID document sent to Aid Watch shows how far the agency has to go:
By FY 2015, USAID will increase its direct grants to local nonprofit organizations from 2.46% to 6% of its program funds and will increase the number of partners from 424 to 1000. By FY 2015, USAID will increase its direct contracts to local private businesses from 0.83% of its program funds to 4% and will increase the number of partners from 322 to 600.
Now, hopefully USAID’s laborious procurement reform process will end up benefitting deserving businesses like Patrick Brun’s, waiting in the wings in Haiti.
7 Comments
“It’s our money so it should be spent on us”.
that’s the way aid works and that’s why it should be binned.
Several issues tend to block local firms from effectively participating:
1/ Large consulting firms around DC hire retiring USAID officers at significant salaries supposedly for their project management skills but in reality to have direct ears into USAID’s thinking and planning: small firms get contract generally because they are associated with larger firms that share the information against being later included as sub-contractors;
2/ The large size of some of the RFPs (especially those for ex-IQCs types) favor selection of larger firms;
3/ I have seen USAID prepare their annula budget request by drafting a map of the purchases associated with its activities by electoral districts in the US (i,.e indirect pork!); do local firms have a US Rep. or Senator in their pocket?
In short, current good intentions by USAID, even if sincere, are going to run into the cold reality of the business.
I understand the point that hiring local firms to do local jobs is a “double benefit”: the needed service is provided and it employs someone local. Is the needed service alone worth it?
Would you consider this any more excusable we saw it in the light of aid in the form of non-transferable services?
Let’s imagine a Haitian entity (the government, an NGO, whatever) had the resources and incentive to finance a particular project which creates a social benefit. Let’s further imagine a foreign firm could complete that project cheaper than any domestic (Haitian) competitor. In this context, would it not be advantageous for the Haitian entity to hire the foreigner? How, then, does this change if a foreign government is financing the project?
Quicksilversurfer, Thanks for your observations. On #2, USAID is now saying that they are going to go with smaller contracts and use IQCs much less frequently (in-depth discussion of that here: http://blogs.cgdev.org/mca-monitor/2010/12/usaid-enables-results-based-programming-by-reforming-ho-hum-procurement-processes.php); but in general I agree that these are major constraints.
Daryl, No, I don’t think so. Maybe in the immediate aftermath of an disaster or humanitarian emergency where it really is a simple question of quickly supplying something that is temporarily missing. But usually the problem goes deeper than just a needed item or service, so that an aid project that doesn’t help stimulate the local economy, doesn’t provide any employment, and doesn’t help build the skills or add to the knowledge of any local people…probably won’t have much lasting impact on people’s lives.
It varies with the various country aid agencies involved. Hiring local has its pitfalls as well: see – Barkman, Steve. “The World Bank and the Gods of Lending”.
Generally speaking, if the projects are up for multinational public tender coupled with a robust system of audits, you will generally get value for money.
The first line quoted in this story is quite deceptive. “Out of every $100 of U.S. contracts now paid out to rebuild Haiti, Haitian firms have successfully won $1.60″ refers only to contracts awarded directly by USAID and does not refer to subcontracts. However, USAID does not normally buy the cement blocks, doors, and sand bags that the one quoted entrepreneur was selling. Instead, they give contracts to companies like Chemonics and DAI who then purchase the supplies. Even now, we still have a great deal of difficulty finding enough cement blocks and sand on the local market to satisfy our needs. Chabuma and others are selling all that they can produce. Just not directly to the US government.
For a more detailed analysis of what we can expect from USAID’s procurement reform, see Mead Over’s post here:
http://blogs.cgdev.org/mca-monitor/2010/12/usaid-enables-results-based-programming-by-reforming-ho-hum-procurement-processes.php?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed:+cgdev/mca-monitor+(Rethinking+U.S.+Foreign+Assistance+Blog)
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