Doubling direct foreign aid could bite U.S. vendors

May 20, 2012

American contractors risk losing business under a U.S. plan to double the share of international aid awards given to overseas entrepreneurs and governments.

The U.S. Agency for International Development awarded $2.12 billion, or 15 percent, of its foreign assistance budget to the overseas groups last fiscal year, compared with $1.94 billion, or 12 percent, in fiscal 2010. The agency has set a goal of spending 30 percent of that aid on such entities by 2015.

The shift may reduce awards to U.S.-based contractors, which received 59 percent of USAID’s $14.5 billion in foreign assistance spending in the fiscal year that ended Sept. 30. The remaining 26 percent went to other institutions, including universities and vocational schools.

Rajiv Shah, the agency’s administrator, says boosting direct investment in developing countries will save money and strengthen foreign institutions. “We became far too reliant on contractors,’’ he said in a March 7 speech.

The agency wants to work with local entrepreneurs and developing countries’ governments “instead of costlier Western consultants and contractors,’’ Shah said.

Shah’s remarks are “tarnishing the image of an entire sector,’’ said Alan Chvotkin, executive vice president of the Professional Services Council, an Arlington-based group that represents contractors.

Pressure to meet the 30 percent direct-assistance goal may force the agency to provide funding to foreign groups “when the capability and infrastructure isn’t there,’’ Chvotkin said.

The agency’s total foreign assistance spending was $14.5 billion in fiscal 2011, a decline of 8.7 percent from with the year before.

Nonprofits receive less

USAID, an independent agency that administers foreign aid programs, awarded contracts to almost 1,000 vendors last year, according to federal procurement data. They included publicly traded companies such as Tetra Tech, a Pasadena, Calif.-based technology consulting company, and L-3 Communications Holdings, a New York-based electronics and communications company.

After the agency announced its policy change in 2010, spending on U.S. nonprofit groups declined 11 percent, to $4.54 billion in fiscal 2011 from $5.12 billion in fiscal 2010, according to USAID.

U.S.-based for-profit contractors didn’t experience a decline. They received $3.97 billion in the year that ended Sept. 30, a 5 percent increase from $3.78 billion the prior year, the agency said.

The agency’s biggest contractor is Chemonics International, a Washington-based company that has worked on boosting Afghanistan’s agriculture exports. The firm was awarded $684 million last year, a 36 percent increase from the previous year, according to procurement data.

Martha James, a spokeswoman for Chemonics, a for-profit company, declined to comment on the USAID’s direct-assistance goal.

The agency’s push to spend more money directly with groups and governments in developing countries won’t necessarily reduce U.S. contractors’ awards, said Donald Steinberg, USAID’s deputy administrator. USAID may instead choose to cut grants to U.S.-based nonprofit groups or lower contributions to international organizations, he said in a phone interview.

— Bloomberg Government

With assistance from Brian Friel in Washington.

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