DFID must do more to encourage greater participation in contracts

It’s been nearly nine months since DFID released the results of their Supplier Review, bringing with it a raft of changes that include a new set of terms and conditions for commercial contracts, and a Supplier Code of Conduct.

The Review was designed to cut waste, stamp out unethical behaviour, and achieve greater value for money by diversifying DFID’s supplier base. But research released last month reveals that the “Big Four” accountancy firms have secured government contracts worth over ¬£1bn since February 2015, including ¬£517m from DFID.

Following the publication of these figures, the government has been criticised by MPs for its habit of awarding huge contracts to a “cosy club” of organisations. And the findings cast a light on the scale of the challenge facing DFID if they really want to open the market up to a diverse range of suppliers.

Reducing barriers to compete

The Independent Commission on Aid Impact found last year that DFID spending through all suppliers doubled between 2012 and 2017 to ¬£1.5bn. The recent events that befell Carillion have proven that huge contractors are not immortal. Now more than ever, DFID needs to do more to ensure that the Supplier Review achieves its goal of broadening and diversifying DFID’s supplier base.

A recent survey from Bond and the Centre for Development Results has indicated that the review may actually be having the opposite effect. 83% of respondents reported that they expect DFID’s new terms and conditions to negatively affect smaller NGOs, and 100% expect the cost and administrative burden of bidding for DFID contracts to increase.

NGOs are showing an increasing desire to compete for commercial contracts from the government but they are still in a tiny minority, crowded out of the market along with small-to-medium enterprises (SMEs). The market has been distorted by diverse supplier interest without there being reasonable entry points for small-to-medium, specialist, and local organisations. This creates the false impression that all potential suppliers have an equal opportunity to compete.

Of course, all organisations have a role to play in positioning themselves commercially. NGOs could be better at providing evidence of their positive impact and how they offer value for money. The private sector also needs to demonstrate that it can offer the efficiencies that it is often presumed to have, and that it is able to deliver results for development.

Commercial contracting is a new world for many NGOs, but the government also has to accept a share of the responsibility for maximising diversity across suppliers. Indeed, the UK committed to working more through local and national organisations when we signed up to the Grand Bargain in 2016. Putting more stringent requirements risks excluding these types of organisations.

Levelling the playing field

In order to create a truly level playing field DFID needs to aspire to better procurement policy, reducing asymmetries between local and foreign companies and between large contractors and SMEs.

How contracts are awarded matters a huge amount. If done well, good procurement policy can be an excellent development tool, creating incentives for not-for-profit and for-profit organisations to behave in a socially and environmentally responsible fashion. “Non-traditional” suppliers, including national organisations, offer incredible value to the market, working through local actors, building capacity, and leveraging existing relationships to make local voices heard and improve accountability to citizens.

The recent announcement by the government that it will strengthen the Social Value Act so that it must “explicitly evaluate” the wider value added to society by each bidder is a step in the right direction. Contracts will now be awarded “on the basis of more than just value for money, but a company’s value’s too, so that their actions in society are rightly recognised and rewarded”. The move is an attempt by the government to rebuild trust following the collapse of Carillion. We will be following the Act’s requirements to see if they work as intended and level the playing field for CSOs when competing with the private sector for contracts.

As it stands, the stringent government requirements placed on suppliers, which have only been exacerbated by DFID’s Supplier Review, lead to exclusion of smaller NGOs, SMEs and other organisations who struggle to reach the bar. If DFID can succeed in really widening its supplier base and creating a fair and transparent marketplace, the result would surely be greater strides towards eradicating poverty, mitigating climate change, and sustainable development.

Interested in bidding for contracts? Join our Commercial Contracting working group and check out our two training courses: DFID commercial contracting essentials and Winning and delivering DFID commercial contracts. We’ll also be discussing wider funding trends at the Funding for Development Conference in October.