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Haiti: Relief and Reconstruction

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With Poor Track Records For-Profit Development Companies Team Up to Fight Reform Print

This is the final part of a series of posts analyzing USAID's increasing reliance on contractors and how this has affected efforts to provide greater oversight, implement procurement reform and improve the efficacy of U.S. aid. Part one is available here, part two here.

As was discussed in the previous post, the lack of oversight of large USAID contractors makes tracking the percent of funds disbursed to local subcontractors nearly impossible, yet this is not the only reason for increased transparency. It is also justified given that many of these contractors have previously been found to have performed their missions inadequately. Without increased efforts to monitor their actions, the likelihood of increased waste, fraud and abuse is only heightened. In addition to their work in Haiti, Chemonics has received hundreds of millions of dollars for activities in Afghanistan, including a $153 million contract in 2003 to improve the agricultural sector.  In 2005, the GAO found that Chemonics had failed to "address a key program objective", and that "consequently, during its first 15 months, the project’s progress in strengthening Afghanistan`s market chain was limited."

Despite this, Chemonics received a contract in 2006 for $102 million. Once again, the USAID Inspector General found significant problems with the program:

Chemonics reported results for all eight indicators for the first year of the program. However, the audit identified that for two of the eight indicators, reported results fell considerably short of intended results. Targets had not been established for the other six indicators making it difficult to tell how well the project was proceeding. In addition, Chemonics did not have documentation to adequately support reported results for six indicators. In two of the six cases, the support was inadequate, while in four cases there was no support at all. For example, Chemonics had inadequate support for the reported result that 1,719 individuals had received short-term agricultural training, and no support for the reported result that project activities had generated an economic value in excess of $59 million. In addition, the audit found that a major program activity—the Mazar foods initiative—was behind schedule. This $40 million initiative to cultivate 10,000 hectares for a commercial farm was not finalized in time to take advantage of the summer planting season as initially planned.

The Inspector General has also found problems with Chemonics’ performance in Haiti. The AP reported at the time of the report:

And an audit this fall by US AID's Inspector General found that more than 70 percent of the funds given to the two largest U.S. contractors for a cash for work project in Haiti was spent on equipment and materials. As a result, just 8,000 Haitians a day were being hired by June, instead of the planned 25,000 a day, according to the IG.

Additionally, the IG noted that Chemonics was using cash-for-work programs to remove rubble from private lots, contrary to USAID policy. The report states:

[T]he audit team observed workers removing rubble from the lots of private residences next to two of the four Chemonics rubble removal sites visited during the audit. Chemonics officials later confirmed that it was clearing the residential lots in conjunction with a road renovation project. USAID program officials confirmed that there are no formal procedures for selecting private homes for clearance, that private homes do not meet USAID/OTI’s site selection criteria, and that the implementing partner had not notified USAID/OTI of the exceptions.

The most egregious part of the IG report, however, is that Chemonics and Development Alternatives International (DAI), another for-profit development firm, were operating in Haiti with no oversight. The IG report found that USAID/OTI had not conducted financial reviews of their implementing partners, concluding that “Although DAI and Chemonics were also expending millions of dollars rapidly on CFW [cash-for-work] programs in a high-risk environment, USAID/OTI had not yet performed these internal control reviews.”

The fact that these internal controls were not applied is especially troubling given information in the contract that Chemonics was operating under at the time. Specifically, the contract required that detailed financial information be provided.

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Investigation Finds Evidence of Violations of Union Rights in Garment Industry Print

On the same day as a high profile event laying the corner stone of “one of the largest and most modern” industrial parks in the Caribbean, an investigation by Better Work Haiti found "evidence of violations of freedom of association" at other Haitian textile factories. Alison Macgregor of the Montreal Gazette reports:

Gildan Activewear Inc. has ordered its Haitian subcontractor to reinstate four workers after an independent investigation concluded they were illegally fired in September because of their involvement with a local union.

The union members worked for the Genesis S.A. factory near the Portau-Prince [sic] airport. The tax-exempt plant, owned by the powerful Apaid family, produces almost exclusively for Gildan. The investigation found there was "evidence of violations of freedom of association" at the factory, Peter Iliopoulos, Gildan's senior vice-president (public and corporate affairs) said in an interview Tuesday.

[It is also worth noting that the workers’ reinstatement follows pressure from the International Labor Rights Forum, United Students Against Sweatshops, Workers Rights Consortium and other labor solidarity groups.]

Until this past September there was only one union in the Haitian garment sector, and none in Port-au-Prince. In September, the Sendika Ouvriye Takstil ak Abiman (SOTA) union was formed as a sector wide movement. On September 16, SOTA obtained registration from the Haitian Ministry of Labor and Social Affairs, yet as the Better Work investigation states:

Between 23 and 30 September 2011, six members of the Executive Committee of a new trade union formed by workers in the garment sector in Haiti (SOTA) were terminated by three factories in Port-au-Prince.


In each case, Better Work found that the “employer has not provided sufficient information to counter the allegations of anti-union discrimination”. The report suggests the re-hiring of those fired with back pay and concludes:

There is strong circumstantial evidence to demonstrate that the officers of the SOTA trade union were terminated based on their trade union affiliation. The fact that 6 out of 7 officers of the SOTA union were fired by three employers within two weeks of the registration of the union with the Ministry of Labor and Social Affairs strongly suggests an effort by employers to undermine the new union, and to curtail its growth before it had the opportunity to expand its membership.

With the garment industry heavily promoted by the Haitian government and international donors, it will be imperative to ensure that worker’s rights are respected and strengthened.

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Leaked Contract Reveals Inadequate Oversight of Beltway Contractors; Haitian Firms Remain Sidelined Print

This is the second part of a series of posts analyzing USAID's increasing reliance on contractors and how this has affected efforts to provide greater oversight, implement procurement reform and improve the efficacy of U.S. aid. Part one is available here.

Procurement Reform – Moving Forward?

One primary aspect of USAID Forward is procurement reform. The goal is to “Increase use of reliable partner country systems and institutions”, strengthen local capacity by allocating more grants to local NGOs and increase the “percentage of total dollars through direct contracts with local private businesses.” The program also aims to “[d]ecrease both the number and/or dollar value of large indefinite quantity contracts” which have been labeled as “high risk”.

These reforms deserve to be supported, and there is some evidence that efforts are being made to implement them. The GAO report (discussed in the part one), for instance, acknowledges that procurement documents indicated, “whether those activities will be targeted at local firms or organizations or use traditional partners.”

Nevertheless, in Haiti, only .02 percent of contracts from USAID have gone directly to Haitian companies, while the largest contracts have gone to for-profit development contractors in the form of “high-risk” indefinite quantity contracts. The overwhelming majority of contracts have gone to companies in the Washington DC area (Beltway), as can be seen in Table I. The percentage that has gone to local firms in Haiti is even lower than USAID’s worldwide average, which over the past three years has been 0.63 percent. Through USAID Forward, the agency aims to reach 2 percent by fiscal year 2013.

Table I.

Contractor Location

Amount Received

Percent of Total

Beltway

 $ 242,204,401

82.96

Haiti

 $           48,641

0.02

All Other

 $   49,691,198

17.02

Total

 $ 291,944,240

100

Source: FPDS, author’s calculations.

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GAO Report Suggests that USAID Remains "More of a Contracting Agency Than an Operational Agency" Print

“But I think it's fair to say that USAID, our premier aid agency, has been decimated. You know, it has half the staff it used to have. It's turned into more of a contracting agency than an operational agency with the ability to deliver.” – Hillary Clinton, Senate Confirmation Hearing as Nominee for Secretary of State

This is the first part of a series of posts analyzing USAID's increasing reliance on contractors and how this has affected efforts to provide greater oversight, implement procurement reform and improve the efficacy of U.S. aid.

The United States Agency for International Development (USAID) has changed drastically over the past 20 years. Beginning in the early ‘90s and continuing through the 2000s, USAID saw its reliance on contractors increase drastically. From 1990 to 2008 USAID experienced a 40 percent decline in staff, from 3500 to 2200. Over the same period, funds under their responsibility skyrocketed. The American Academy for Diplomacy noted in a 2008 report that, “[i]mplementation of programs has shifted from Agency employees to contractors and grantees and USAID lacks the technical management capacity to provide effective oversight and management.” The Academy also noted that “USAID employs only five engineers worldwide, despite a growing number of activities in that sector.” However it was not just NGOs that benefited from the increased use of contracts and grants; the for-profit development industry has gained as well. From fiscal year 1996 to fiscal year 2005, “the share of funds awarded to for-profit contractors rose from 33 percent to 58 percent.” These companies, generally based in the greater Washington, DC area, have taken a leading role in U.S. foreign aid.  In a 2008 Senate hearing on USAID, Senator Patrick Leahy stated (PDF):

USAID’s professional staff is a shadow of what it once was. We routinely hear that the reason USAID has become a check writing agency for a handful of big Washington contractors and NGOs is because you don’t have the staff to manage a larger number of smaller contracts and grants.

Sometimes these big contractors do a good job, although they charge an arm and a leg to do it. Other times they waste piles of money and accomplish next to nothing, although they are masters at writing glowing reports about what a good job they did.

Meanwhile, the small not-for-profit organizations are shut out of the process. This is bad not only for U.S. taxpayers but also for the countries that need our help.

With the election of Barack Obama and a change in the leadership of the State Department and USAID, this situation was supposed to change. Incoming USAID director Rajiv Shah announced the USAID Forward project, which aims to “change the way the Agency does business.” Additionally, in 2008 Congress appropriated funding for the Development Leadership Initiative that aimed to double USAID’s Foreign Service workforce by 2012, overturning the previous decades of declining staff. However both the USAID Forward program and the Development Leadership Initiative have not led to drastic changes on the ground as of yet, and potential funding cuts from Congress will only exacerbate the slow pace of reform.

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Slow Pace of Reconstruction Leads to Lower Economic Growth Print

The level of grant support is only marginally higher than in 2009, before the earthquake, while overall spending levels are actually below 2009 levels. Despite the billions pledged in aid, budget support for the Haitian government was lower in 2011 than it had been in 2009.

The January 12 earthquake, which caused an estimated $8 billion in damages, led the Haitian economy to contract by 5.5 percent in 2010. With the prospect of large reconstruction projects backed by donor pledges of $4.6 billion, the economy was expected to begin growing rapidly in 2011. The IMF projected growth of over 8.5 percent in their first review of Haiti’s economic program in May:

Real GDP is expected to grow by 8.6 percent, assuming concerted strong efforts by the authorities and the international community to speed up the reconstruction.

As we have written about previously, disbursements from donors have been slow to materialize, a problem only exacerbated by the five months it took to form a new government. In addition to the effects on the ground, over 550,000 still living in tarp shelters with little services, the slow pace of reconstruction is also slowing economic growth. Updated projections from the IMF now expect slower growth of 6 percent in 2011.

Surprisingly, given the immense needs, government spending contracted sharply in 2011 compared to 2010. In 2010, with substantial grant support (including direct budget support) from donors, government spending reached 27.5 percent of GDP. In 2011 expenditures were significantly lower at 19.7 percent of GDP as grants decreased by ten percentage points to just 7.5 percent of GDP in 2011. The level of grant support is only marginally higher than in 2009, before the earthquake, while overall spending levels are actually below 2009 levels. Despite the billions pledged in aid, budget support for the Haitian government was lower in 2011 than it had been in 2009. The decreased expenditure most drastically affected capital expenditures, which fell from 16 percent of GDP in 2010 to below 10 percent in 2011.

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