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Contracting for Development: The Role of For-Profit Contractors in U.S.

Foreign Development Assistance

by Ruben Berrios

There is more to this book than the title suggests.

Rueben Berrios summarizes the research on development aid and finds mixes results. Aid in general has not been particularly effective, though in some individual cases it has been extremely beneficial. The success stories include literacy programs, primary health care and the building of local infrastructure. To prevent gross corruption and incompetence in the future, the focus on specific programs that have sufficient evidence for success will become greater.

Ignoring the issue of how large a role contractors should have, there remains the fact that some, if not most, aid funds go to domestic contractors. One brochure brags that 90 percent of food aid funds stay in the United States.

Not surprising, Berrios finds that our government has done a terrible job contracting. Of the three types of contracts used by the government, the worst, and unfortunately the most common, is the cost-plus contract. In a cost-plus contract our government "negotiates" a price with the contractor for delivering goods or services or both. When costs overrun (big surprise), our government negotiates to pay even more.

Worse, the contractors are allowed to negotiate bad grades they receive for their performances. (Talk about grade inflation.) The contracting process itself is filled with Byzantine rules and interest group pressures. The GAO reports a gross lack of monitoring and enforcement. The money that is "thrown down rat holes" is mostly thrown down homegrown rat holes.

When the government hires a business to do a job, it does not guarantee good results anymore than if a government agency had done the job.

Worst, contractors are rarely judged on criteria that give high weight to the things that would most benefit the least developed countries. A contractor who helps a country become more self-reliant might get ignored.

The author conducts an analysis of contract types and concludes that fixed-price contracts are the best at providing goods. Incentive based contracts are the best overall and the best for providing services, though the sample size used by the author was small due to the fact that incentive-laden contracts are so rarely used.

His recommendations are on the too general side, but here is what he suggests: Better measurement of results, fewer government friendships with contractors, greater use of fixed-price and incentive based contracts, stricter grading of contractors, fewer renewals for poor performers, greater reliance on firms in very poor countries, greater emphasis on long-term criteria, greater openness and competitiveness in bidding.

The author's writing style does not have much emotive content, yet these can be emotive issues for those with imagination. And, of course, the lessons of this work apply to contracting for purely domestic purposes. This is a boring, yet outstanding book. Highly recommended.

—Book review article by J.T. Fournier.

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