Contracting for Development:
The Role of For-Profit Contractors in U.S.
Foreign Development Assistance
Ruben Berrios delivers more in Contracting for Development than his
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
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.