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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 1 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 4 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 11 11 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 22 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 23 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? 24 … 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 31 Conclusions, Questions, Comments… 32
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