Senate aims to restrict USAID contracts

A proposed restriction on U.S. Agency for International Development contracts has sparked a lobbying fight between Reagan-era global development institutions and government contractors.

The Senate-passed $31.8 billion fsical 2006 State-Foreign Operations spending bill would cap USAID contracts, a victory for development institutions as they compete for democracy-building contracts.

During the Bush administration, contractors have received a larger share of the democracy-building budget. The provision would cap the total for USAID contracts for democracy activities, particularly political development, at $250 million.

"The committee remains concerned with the cost effectiveness of USAID's reliance upon large contracts," said the report accompanying the bill. "The committee expects USAID to rely on [non-governmental organizations], operating under assistance mechanisms, whose experience and accomplishments in democracy promotion activities are unparalleled -- and underutilized by the agency."

The report names several NGOs, including the International Republican Institute and National Democratic Institute, established during the early Reagan years that generally use AID grants -- as opposed to contracts -- to help build democratic institutions. Their boards of directors read like a Who's Who of Washington glitterati -- Sen. John McCain, R-Ariz., heads up the IRI board while former Secretary of State Madeleine Albright chairs the NDI board.

A congressional aide said AID has relied increasingly on contractors, "which devalues the total amount of democracy dollars because overhead costs start eating into programmatic costs" as companies subcontract their business.

And contractors do not have the institutional knowledge that NGOs do, advocates say.

"In general, the contractors are in this business to make money. Now I'm a Republican -- there's nothing wrong with that. But there's no real commitment to the country," said IRI President Lorne Craner, former assistant secretary of State for democracy, human rights and labor in the Bush administration.

But AID argues the contract cap could hamper efforts in dangerous areas, such as Iraq and Afghanistan. Ed Fox, assistant administrator for legislative and public affairs, said the agency needs flexibility to choose the appropriate funding method for projects "where people's lives are at stake, where we have boots on the ground and we are dramatically involved in trying to change the circumstances."

Also lobbying to remove the cap are contractors such as North Carolina-based RTI International, a non-profit with ties to nearly every government agency, and for-profit firms such as Chemonics International, whose principal client is USAID. The Professional Services Council, the trade group for government contractors, is lending its 185-member base of support. Consider RTI, which received a $167 million USAID contract for local governance work in Iraq in fiscal 2003. That amounts to more than half the $250 million that would be allotted under the fiscal 2006 funding restriction for all AID democracy-building contracts. By contrast, the fiscal 2006 bill would distribute about $1.4 billion for democracy-building activities at USAID and other agencies. That means total contract funds would be 17 percent, down from 38 percent in fiscal 2004, while grants -- primarily the NGOs domain -- would rise to 83 percent.

"That doesn't seem to me to be good public policy," said Ron Johnson, vice president for international development at RTI. "There's no shortage of funds going to the NGOs."