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

December 01, 2011

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.

The Development Industrial Complex

As USAID’s staff has continually diminished, the reliance on for-profit contractors has increased drastically. Chemonics has been one of the largest benefactors of this phenomenon worldwide. In 2001, Chemonics received nearly $40 million in government contracts; by 2011, that number had risen to nearly $700 million. Despite the success, Chemonics and other for-profit contractors are clearly threatened by the rhetoric of reform that has come from USAID. Although it is clear that USAID Forward has not made a drastic difference in the behavior of USAID in Haiti, the plan is only a few years old, and is expected to take five years in total to fully implement. Preparing for the upcoming battle, for-profit development firms formed a lobbying entity this past July, the Coalition of International Development Companies (CIDC). Josh Rogin reported for The Cable at the time:

The firms involved are also members of other large coalitions of development advocacy organizations, but the CIDC is meant to focus on for-profit businesses that have a stake in development but until now haven’t felt the need to establish their own advocacy in a public and organized manner. 

Over the next few weeks, the CIDC is planning an extensive outreach to lawmakers and administration officials to make the argument that development is a crucial element of national security and economic prosperity. The member companies have so far committed about $300,000 to the effort and are also using their in house legislative staffs and communications staffs to help.

In another recognition of the need to be more public and do more outreach, the CIDC has hired the Podesta group to aid its public relations and media outreach effort.

[The Podesta Group, incidentally, was founded by Tony Podesta and his brother, former Clinton chief of staff John Podesta, who also headed President Obama’s transition team.]

In Haiti, firms belonging to CIDC have received over 70 percent of all contracts from USAID, the vast majority of which have gone to Chemonics. With the entrenched interests of large development companies, which are often staffed heavily with former USAID officials, it will take more than just rhetoric from USAID to significantly alter the way aid is administered.

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