USAID reviews for-profits’ role in foreign assistance grants

The U.S. Agency for International Development is reviewing its long-standing practice of allowing nonprofit assistance grant recipients to subcontract with for-profit companies, in a move industry representatives say would starve projects of needed expertise.

USAID is re-examining 22 CFR 226.81, the rules governing the administration of assistance awards to nongovernmental organizations, an agency spokeswoman confirmed. The rules state that, under assistance grants, "no funds shall be paid as profit to any recipient that is a commercial organization." This traditionally has been interpreted to cover only the direct award recipient, but the agency is considering expanding it to sub-recipients.

The agency is "conducting this review to ensure our practices for managing USAID grants and cooperative agreements are clear, consistent with applicable law and policy, and support USAID's foreign assistance objectives," spokeswoman Tara Rigler said.

Because the potential changes relate to the interpretation of the rules, rather than the rules themselves, they would not need to go through the formal regulatory review and comment period.

USAID awards about $4 billion annually in federal contracts and grants. The agency uses contracts primarily for technical assistance and logistics such as equipment and transportation. According to industry sources, nonprofits often turn to for-profit companies when they lack the in-house capability to manage elements of massive humanitarian projects.

An industry source who spoke on the condition of anonymity said nonprofits are as concerned as contractors about any potential policy change because they view it as a threat to their ability to get the support necessary to provide foreign assistance. The former USAID employee said the nonprofit community is "wonderfully capable" in handling large assistance projects but sometimes needs help in administering complex economic development activities.

A change in policy or interpretation "will sideline an enormous pool of development expertise that USAID has purposefully developed and cultivated to make up for the reduction of direct-hire staff from roughly 16,000 employees when I joined USAID to the current 1,000 today," he said. "When these grantees perceive the need to enter into subcontracts with the for-profit community to better achieve their grant purposes, it is flat wrong for USAID to block this."

USAID officials announced the potential change on April 23 in Washington during a meeting between nonprofit and industry groups and USAID's office of acquisition and assistance, said several sources in attendance. They said representatives of contractors and nongovernmental organizations expressed concern about any policy modification made without input from the private sector.

Rigler noted there has not been any change yet.

On April 30, Jean Horton, ombudsman for USAID's office of acquisition and assistance, sent a letter to stakeholders announcing agency plans to hold a follow-up meeting to "continue the discussion and allow a greater amount of time to hear partner concerns." The meeting will take place between May 16 and June 16.