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

Foreign Development Assistance

by Ruben Berrios

Ruben Berrios delivers more in Contracting for Development than his title suggests.

Summarizing development aid research, he finds mixed results. Aid, in general, has been ineffective, though in some cases it was beneficial. 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 programs having sufficient evidence for success becomes greater.

Setting aside 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 surprisingly, Berrios finds that our government does 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 (surprise!), our government negotiates to pay even more.

Worse, the contractors are allowed to negotiate bad performance grades. The contracting process itself reeks of Byzantine rules and interest group pressures. The GAO reports a gross lack of monitoring and enforcement.

All major government activities require excellent regulations and enforcement. Or free riding results.

Even worse, contractors are rarely judged on criteria that give high weight to goods most beneficial to least developed countries. A contractor helping a country become more self-reliant gets ignored.

Berrios conducts an analysis of contract types and concludes that fixed-price contracts are 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 seldom used.

His recommendations are on the too general side, but here they are: 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 lessons of this work apply to contracting for purely domestic purposes. This is a boring, yet outstanding book.

—Book review article by J.T. Fournier, last updated July 26, 2009.

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