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Why are USAID's awards so big?
Everyone knows USAID writes giant checks but not everyone knows why. The short answer: too little time to allocate funds & too few officers to write awards. Congress can fix this. Here's how.
Welcome to Unlocking Aid, a new, semi-regular newsletter by Unlock Aid about how we can solve big global challenges by reforming foreign aid agencies around the world. My name is Walter Kerr and I’m the new Executive Director of Unlock Aid.
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In our first missive I’m taking on a question I get a lot: why are USAID’s awards so big? Critics complain that, when the agency writes awards in the tens, hundreds of millions, and even billions of dollars, only a handful of its very large legacy partners have the systems in place to absorb them. This discourages new players from bringing their innovations to the agency. USAID’s bigger awards also tend to pay for inputs and not results. Why not just write many more targeted, results-oriented awards of smaller sizes?
Answer: USAID would love to work this way but it’s difficult to do for a couple of reasons: first, Congress, the White House’s Office of Management and Budget, and the State Department typically give USAID just a few months to allocate – or “obligate” in governmentspeak – the bulk of its annual $20+ billion outlay; and second, USAID has relatively few people who are authorized to write checks. While designing awards to promote better outcomes is the ideal, it takes a lot of extra up-front work to define what ambitious but achievable success metrics look like. Faced every year with the sudden need to move an avalanche of money, executing massive awards that pay for time and materials becomes the most expeditious way, and often the only way, to move large sums.
In theory, USAID is supposed to have more of both: time and people. When Congress appropriates funding for USAID every year, it gives the agency what’s known as “two-year” money, meaning USAID has until the end of the next fiscal year to obligate its $20+ billion appropriation. The FY22 State Department and Foreign Operations spending bill gives USAID until September 30, 2023 to obligate money appropriated for the current 2022 fiscal year, for example. The problem, though, is that Congress usually takes a long time to pass USAID spending bills, if it passes one at all. The House has already passed the FY22 bill… but the Senate hasn’t moved on it yet and we’re already one-third of the way into the US Government’s 2022 fiscal year.
But even if the Senate passed the FY22 spending bill today, USAID couldn’t just start spending the money. First, the Office of Management and Budget and the State Department’s Office of Foreign Assistance will step in. They’ll have a look at what Congress appropriated USAID and other foreign affairs agencies and make decisions about how to further divvy up USAID’s appropriation (with USAID’s participation). They then have to negotiate these allocations with Congress, and only when this process is complete can USAID bureaus and missions begin to obligate the funds. In recent years this process has taken a year or more to complete, and you can imagine some of the reasons that will hold up discussions this year: in hotspots like Ukraine, Myanmar, and Ethiopia, officials will have heated debates about how much money should go to these and other geographies, while ensuring that all of Congress’s other funding directives are met. All the while, USAID will have to wait, unable to obligate funds.
Let’s take an optimistic view, though, that the Senate will pass the FY22 spending bill by the end of March 2022 and the Office of Management and Budget and State Department subsequently move at a record nine-month clip to get their funding guidance to the agency. Even in this rosy scenario, USAID will only be able to start obligating funds around January 2023. While the agency may be getting what’s called “two-year” money, in fact they’ll have just nine months to allocate the bulk of $20+ billion because the US Government’s fiscal year ends September 30, and if the funds are not obligated by that date, they cannot be used.
Wouldn’t more contracting officers help USAID deal with this anticipated crush of money, enabling it to bring down the average award size and write more results-based awards? Yes, but USAID can’t just go on a hiring spree. When it authorizes USAID’s budget each year, Congress sets aside a limited pot of money for agency operating expenses, which includes funding for personnel.
So what can be done?
USAID is trying to do what it can given the circumstances. In recent years, it has designed new policies and programs that have succeeded in cutting down average award sizes which, in turn, has made it possible for new organizations to work with the agency. Administrator Power recently found a creative way to boost contracting capacity by delegating contracting authority to locally-employed staff at USAID missions around the world, so this may help, too. Her December pledge to “de-sludge” the agency also has great potential, especially if USAID makes simplifying grants and contracts a major priority. But internal reforms will only get the agency so far.
For big and long-lasting reform, USAID needs help from Congress. Amending the current FY22 spending bill (and all subsequent spending bills) to increase USAID’s “two-year” funding window to three years or more would make an enormous difference. This would give agency officials the breathing room they need to design more thoughtful, results-oriented awards that attract the world’s best to USAID. Congress already gives other US development agencies like the International Development Finance Corporation and Millennium Challenge Corporation “three-year” funding, sometimes longer. Why not USAID?
Increasing funding for USAID’s operating expenses budget to hire more contracting officers would also help a lot. As Administrator Power has pointed out, USAID contracting officers currently manage four times more money per officer than their counterparts at the Department of Defense.
USAID and the big prime contractors and international NGOs that absorb most of the agency’s money often become the punching bags for critics of foreign aid, who bemoan that too much of USAID spending goes to too few players. The system is inefficient and doesn’t deliver the results that we expect, they say. I’ve made many of these critiques myself. While there is considerable room for improvement at the agency and among its biggest partners, many of these issues are symptoms of a larger problem. The good news is that it’s one that Congress can fix by giving USAID more time and people.
P.S. I’ve only just started in my new role with Unlock Aid and would love your feedback. Do you have ideas about how we can make foreign aid more innovative, transparent, and results oriented? Please get in touch. You can reply directly to this email or write to me at walter at unlockaid.org.
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