The Department for International Development should establish a formal contract management regime so it can better monitor the performance of its aid suppliers, the aid watchdog has said, in a report that warned its existing approach limits its ability to manage the performance of suppliers.
DfID has an “appropriate overall approach to procurement with good performance in most areas of tendering”, the Independent Commission for Aid Impact said in a review of procurement for aid services today. The department spent £1.4bn, or 14% of its budget, through commercial suppliers on aid contracts in 2016-17.
However, the review identified contract management as “the major weakness in DfID’s commercial practice”, with no senior official or group responsible for overseeing this function.
“The function is not well defined or adequately resourced, which limits DfID’s ability to manage supplier performance,” the watchdog found. Often the only addressed poor performance after suppliers have scored poorly in an annual review, rather than taking preventative action, it said.
The problem is exacerbated by overly rigid contract terms and too-short inception periods, it said. This means contracts are frequently amended or extended beyond their advertised length and value.
The watchdog slapped DfiD with an amber-red score on its contract management and called for an overhaul. A senior official should be put in charge of the new regime, which should include staff training and more flexible contract management techniques, it said.
Despite this “significant weakness”, the aid watchdog awarded an amber-green rating to DfiD’s overall approach to procurement. Since 2015, the department has implemented several initiatives to strengthen procurement processes and “progressed towards a more mature procurement approach”, it said.
These include changes brought about since the department’s 2017 supplier review, including a new supplier code of conduct and contractual terms.
However, ICAI said the department’s failure to consult with suppliers for the review had “heightened the risks of unintended negative consequences”. DfID consulted with donors, public sector bodies and businesses outside the aid sector but not with its existing suppliers, and “put its regular supplier dialogue on hold”.
The freeze-out “caused unnecessary friction with suppliers”, ICAI found. It was intended to avoid the appearance of collusion, according to DfiD, but went against Cabinet Office guidelines on consultation.
The commission found suppliers were concerned about the extent to which they were expected to ensure their subcontractors complied with the reforms. There was also a risk the rules could discourage smaller firms and NGOs from bidding for DfID contracts, reducing competition and therefore value for money, it warned.
The review found no evidence that the reforms have yet reduced competition for contracts to any measurable degree. However, the watchdog said unintended consequences may take some time to emerge and urged DfiD to monitor the situation.
It said the department must consult with its existing and prospective suppliers before its next major rule change for suppliers and contracts.
The department was also told to speed up its efforts to acquire a new management information system for procurement. Recent reforms mean DfID now approaches procurement for major projects in a “more strategic way”, including the use of early market engagement to increase competition. However, procurement processes are still hindered by an “antiquated" management information system, the report said.
“DfID is over-reliant on quicker procurement methods, rather than using negotiated processes that would enable it to define its needs more clearly and potentially increase efficiency and effectiveness,” it added.
In a statement to CSW, a DfID spokesperson said: “ICAI’s report rightly recognises there have been positive changes to DfID’s procurement approach over the past decade, including the strengthening of contract terms and conditions and the new Supply Partner Code of Conduct.
“DFID is committed to making sure every penny spent on helping the world’s poorest delivers value for money for the taxpayer.”
The government will respond to the ICAI report “in due course”, the commission said. The International Development Select Committee will also conduct a hearing into the review.