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					Applying USG Contracting
Principles to International
Assistance Programs

Breakout Session # 613
Name: Gerry Nash, Senior Director, Procurement,
      Millennium Challenge Corporation (MCC)
      Kim Kotnik, Principal, Booz Allen Hamilton
Date: July 20, 2010
Time: 4:00 – 5:15 PM


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                                                   1
Purpose of the Briefing


• Examine how overarching US Government procurement and
  contracting principles apply (or don’t) to international
  assistance programs




                          2
  Every year the USG spends over US$50 Billion on
  international programs through dozens of agencies

• The various government agencies coordinate investment
  planning
• Each uses different implementation models and procurement
  and contracting practices




                                                      3
   Source: Office of Management and Budget Department of State and Other International Programs Budget information 2008-2010
The USG agenda mirrors that of other governments,
international organizations and private foundations


• US Government agencies also coordinate investments with
  other organizations
• Procurement and contracting rules and practices vary
  significantly depending on the source of funds




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We (USG and taxpayers) invest in foreign
assistance programs for a variety of reasons


• Advance US foreign policy goals
• Constructively engage with foreign governments, private
  sector, non-governmental organizations and citizens
• Contribute to improved economic, political and social
  conditions, and the standard of living
• Reduce poverty
• Increase stability
• Create favorable perception of America and Americans
• Strengthen current and potential future US trading partners




                          5
 Important changes are underway to improve
 international assistance results


• Hard + soft power = “Smart               Recent Remarks by Secretary of State
                                                   Hilary Rodham Clinton
  Power”                                “Building the architecture of global
• Convergence of Defense,                 cooperation requires us to devise the
  Diplomacy and                           right policies and use the right tools. I
                                          speak often of smart power because it is
  [international] Development             so central to our thinking and our
  -- the “3 Ds”                           decision-making. It means the intelligent
                                          use of all means at our disposal,
• “Whole of Government”                   including our ability to convene and
• Bush Administration                     connect. It means our economic and
                                          military strength; our capacity for
   – Created the Millennium               entrepreneurship and innovation. It also
     Challenge Corporation                means the application of old-fashioned
• Obama Administration                    common sense in policymaking. It’s a
                                          blend of principle and pragmatism.” July
   – Advancing engagement,
                                          15, 2009
     partnership and promotion of
     universal values

                                    6
Success and results depend (in large part) on
effective procurement and contract management
s
• Notwithstanding the UNCITRAL model law, there are no
  global standard practices/procedures for procurement and
  contracting
   – Principles, rules, regulations, procedures, processes,
     tools, training, certifications, etc.
• Ample vulnerabilities related to fraud, corruption, waste and
  abuse – intentional or otherwise
• Hard to ensure effective procurement and contract
  management in diverse environments and without common
  standards




Note: We recognize that there is harmonization of some standards and principles, however, this harmonization generally does not
extend to developing countries.
                                                     7
In this session, we share 2 examples where USG
principles were adapted for developing countries


  • Case #1: Millennium Challenge Corporation – example of new,
    innovative US foreign assistance program that is leading the
    way in many regards

  • Case #2: Private Foundation Public Access Computing
    Program for Libraries – example of private efforts to advance
    similar goals




                             8
Your speakers today are:


 • Gerry Nash
    – 30 years experience in acquisition/procurement, including
      26 years experience with DoD weapon systems acquisition
    – 4 years experience with MCC
    – 4 years with Booz Allen Hamilton
    – Work experience with MCC in 7 countries across Former
      Soviet Union, Pacific Islands, Asia and Africa
 • Kim Kotnik
    – 15 years experience in international economic development
    – 12 years with Booz Allen Hamilton
    – Work experience in 30 countries across the Americas,
      Europe, Former Soviet Union, Middle East, Asia and Africa
    – 6 years experience in procurement and contracting

                           9
We represent 2 organizations intimately involved in
adapting US practices to fit foreign circumstances


 • Millennium Challenge Corporation (MCC) (www.mcc.gov)
    – Founded: 2004
    – Mission: Poverty reduction through economic growth
    – So what? Forefront of innovation in international
       development; creating new procurement and contracting
       framework that adapts US principles for use in/by
       developing countries
 • Booz Allen Hamilton (www.bah.com)
    – Founded: 1914
    – Mission: Deliver results that endure
    – So what? Working with several clients including the MCC to
       evaluate and adopt innovative procurement frameworks
       suitable for international development programs
                           10
Case 1: Millennium Challenge Corporation: innovative
foreign assistance institution designed to “reduce
poverty through sustainable economic growth”


              MCC is managed by a Chief Executive Officer and a
              public-private Board of Directors comprised of:
                 • MCC CEO
                 • Secretary of State
                 • Secretary of the Treasury
                 • U.S. Trade Representative
                 • USAID Administrator
                 • Individuals from the private sector
              Two forms of grant assistance with original
              commitments totaling $7.5 Billion:
                 • Compact Programs: US$7.0 billion
                 • Threshold Programs: US$470 million
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The “MCC model” is based on several overarching
principles



              1. Sound governance, economic and social
                 policies:
                 • Support countries who can use assistance
                    effectively
                 • Spur private investment and increased trade,
                    the real engines of growth
              2. Country ownership:
                 • Increases responsibility
                 • Builds capacity
                 • Yields better results
              3. Clear objectives and measurement of results:
                 • Increase accountability
                 • Contribute to development success

                                                           12
                          12
MCC adheres to and promotes four key procurement
principles in its operations worldwide


 • Open, fair and competitive procedures
 • Solicitations based on clear and accurate descriptions
 • Contracts awarded only to responsible suppliers and
   contractors
 • No more than a commercially reasonable price shall be paid




                                                            13
                           13
Applying the principles has not been an easy
undertaking


• MCC must apply the aforementioned principles in 20
  Compact countries, many of which have limited prior
  knowledge, experience or appreciation for the concepts;
• And apply the principles effectively, efficiently and
  consistently;
• And satisfy various oversight agencies that the principles
  are being applied properly;
• And work through and with new country representatives,
  bidders and MCC staff overseeing each new country
  investment.




                           14
There are still some very important key
constraints


• Five year implementation period to procure, implement,
  manage and close out contracts funded by MCC in a particular
  country
• Program must be “country led”
• Predominantly complex projects with many risks at all stages
  of the project lifecycle
• Agency has a staffing limitation of 300




                          15
MCC analyzed alternative procurement frameworks
based on what would best advance the principles and
mitigate risks




      Who procures?                 How do they procure?
• MCC                             • Centralized or
• Foreign government                decentralized?
  ministry                        • Under an international, US
• External 3rd party agent          (FAR) or “country system”?
  (hired through a
  competitive process)
• Hybrid




                             16
 Ultimately, several frameworks were tried
 before MCC began standardizing the approach

Who procures?
• 70% - a host country competitively procured procurement
  agent services contractor
• 20% - procurement specialists on the staff of the host country
  Compact management team (Millennium Challenge Account)
• 10% - hybrid frameworks using government ministry
  procurement specialists alongside competitively procured
  procurement agent services contractor
How do they procure?
• MCC developed “Modified World Bank” procurement
  guidelines that eventually became the MCC Program
  Procurement Guidelines
• MCC developed “Standard Bidding Documents” based on
  World Bank bidding documents
                            17
The MCC Program Procurement Guidelines are based on
World Bank Guidelines with a US Government twist
                           Fair

 Transparent            Principles          Competitive

                          Open



  Similar to World Bank Procurement Guidelines except:
   • Prohibits national preference
   • Verifies bidder eligibility under U.S. laws and policies
   • Requires price reasonableness determination
   • Provides broader advertising requirements
   • Requires that technical scores be based on consensus of the
      panel vs. averaging individual panel member scores
   • Tightens restrictions on currency use

                                                             18
                            18
MCC outreach to potential bidders emphasizes
some of the unique aspects of the MCC model


• Open and competitive procurements.
• No preferences for U.S. or domestic contractors:
  Compacts are “untied”.
• Past performance and demonstrated experience with
  environmental, health, safety, labor standards matter.
• Award decisions made by consensus decision of
  technically qualified experts.
• MCC checks and balances to guard against abuse.
• Professional independent oversight of contract
  performance.
• All funds are obligated when Compacts enter into force.
• Contractors paid directly by USG.



                                                            19
                          19
Results in MCC’s first five years have been positive …

  •   Over 1,500 kilometers of roads contracted
  •   Over 109,500 farmers trained
  •   Over 44,400 hectares of land under production
  •   Over 45,000 rural parcels of land mapped
  •   Launched 21 threshold programs in 19 countries totaling
      approximately $470 million




                              20
We have also gathered numerous “lessons learned”
applicable to future MCC countries and other
international assistance programs

• Lessons learned
   – Need to place increased emphasis in the early years on
     capacity building of the host country team
   – Need to provide additional training and tools to support
     host country contract administration efforts
   – Need to require early long term planning and improve
     effective budgeting
   – Difficulty of translating and transmitting procurement
     principles in foreign environments that are culturally
     different from the US
   – Flexibility in procurement procedures is key to meeting the
     challenges that change from country to country


                           21
Case study 2: Private Foundation Public
Access Computing Program
This program aims to improve quality of life
through increased internet access via libraries
• Program background
   – Specific program within a large private foundation
   – Goal: Improve the quality of life through increased internet
     access and use, and through the strengthening of libraries
   – Program funds hardware, software, networking equipment
     and training
   – Libraries self-fund maintenance (no program funds)
   – Partner countries and individual libraries within countries
     are selected competitively
   – Great emphasis on “national penetration” including rural
     and poor areas outside the capital cities



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Program success depends on many factors
including effective procurement

• Key success factors:
   –   Competitive country selection
   –   Competitive library selection
   –   Competitive staff selection
   –   Procurement framework and corresponding responsibilities
   –   Control mechanisms for contract management, inventory control
       and logistics/distribution
• Some of the challenges:
   –   Each country has its own procurement “system” - variable quality
   –   Each country has its own process to exempt from country system
   –   Varying levels of political will at the national and local levels
   –   Varying degrees of corruption and social acceptance of corrupt
       practices


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 Program leadership determines procurement
 strategy for each country…



      Who procures?                 How do they procure?
• National government            • Centralized or
• Local government                 decentralized?
• Libraries (centralized or      • All at once or in “waves”?
  decentralized)                 • Using local systems,
• Foundation staff                 foundation guidelines,
                                   specific foreign or
• 3rd party service provider
                                   international “system,” or
  through a contract or grant
                                   hybrid?




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… and must consider multiple factors as part of
the procurement planning process


•     Market research and appropriate bidder targeting
•     Transparency and competition
•     National laws, restrictions
•     Government system strengths and weaknesses
•     Logistics and distribution
•     Ongoing support
•     Warranties and guarantees
---
•     Since private funds are being invested, there are no public
      sector procurement rules that [must] apply




                               25
 The program considered a similar set of options for
 Ukraine and Romania, and reached different
 conclusions due to circumstances


          •   Grave concerns about            •   Did not allow local procurement
Ukraine       corruption                      •   Followed World Bank Guidelines
          •   Limited government support          to attract international
          •   Procurement law suspended;          companies
              no operational system           •   Procurement managed internally
          •   Weak procurement capacity           by the program with Ukrainian
          •   Less developed IT sector            evaluation panel members
                                              •   Sufficient industry response

          •   Moderate concerns about         •   Followed local procurement
Romania       corruption                          rules
          •   Strong government support       •   Procurements run by national
          •   Stable national procurement         and local government entities
              law & system                    •   Training provided to program
          •   Moderate procurement                staff who provided oversight
              capacity                        •   Strong industry response
          •   Very well-developed IT sector
Lessons learned from Ukraine and Romania have
already benefitted other participating countries


• “Best value” is understood in very different ways
• Centralization vs. decentralization and large vs. small volume
  procurement are BIG questions for this (and other similar)
  program
• Need better, earlier consensus on “social goals”
• Payment term expectations vary widely by country – local
  credit availability and “normal” terms must be considered
• Evaluation of both cost and technical quality is needed and
  may be new
• Although predominantly a goods purchase, training and
  ongoing support are also key



                           27
In both of the cases, we encountered serious
challenges …


• Advancing US and “best practice” principles
• Explaining those principles and making them relevant in
    foreign contexts and cultures
• Local capacity gaps
• Ambiguity of roles, responsibilities and decision rights
• Cultural norms sometimes at odds with procurement and
    contract management principles
---
• Because these are ongoing challenges, we welcome your
    thoughts and input -- either today or in the future!




                          28
… that are common to a whole host of other
organizations that are also looking for lessons
learned and appropriate best practices

•   World Bank
•   United States Agency for International Development
•   Other United States government agencies
•   Government of the UK, Netherlands, Germany and others
•   Other private foundations
•   Health assistance
•   Disaster relief
•   International defense and security sectors




                          29
International events and trends will continue to
influence US thinking and international practice


• International trends point to greater use of country systems as
  defined by the 2008 Paris Declaration on Aid Effectiveness
   – Eliminating duplication of efforts and rationalizing donor
      activities
   – Reforming and simplifying donor policies and procedures
   – Defining measures and standards of performance and
      accountability in procurement, fiduciary safeguards and
      environmental protection
   – Better protecting programs from corruption and better
      encouraging transparency
• But instability in the host country Governments will complicate
  the use of country systems


                           30
Where might we go from here?


• At the macro level, we need continued strong international
  engagement and results
• In terms of tactics, success of overseas investments is
  intimately tied to procurement and contract management
• Next steps in international assistance programs are also
  relevant domestically:
   – Financial capacity guidance for procuring entities
   – Collection, use and protection of past performance
      information
   – e Procurement




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Conclusions, Questions, Comments…




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