Overseas Aid (UK-based Consultants)

Baroness Featherstone Excerpts

Tuesday 20th November 2012 Westminster Hall

[The Parliamentary Under-Secretary of State for International Development (Lynne Featherstone)]

It is a pleasure to serve under your chairmanship, Mr Howarth. I thank the hon. Member for Hackney North and Stoke Newington (Ms Abbott) for calling a debate on such an important topic. As she and the hon. Member for Workington (Sir Tony Cunningham) said, it is important that we deliver effective aid and get value for money—something the Government have made their watchword in relation to development aid. I was a little disappointed in a way to hear terms such as trousering money, creaming off the aid budget, lords of poverty and hardship tycoons.

I think that the hon. Lady did her case a disservice, because the real test is whether there is value for money. As to what those lords of poverty get, if the sum delivers the aid and it is effective, the quantity is not the issue. The issue is whether it is effective and whether we get value for money, as both Opposition Members who spoke said.

[Ms Abbott]

The Minister may think that I sound a little harsh about the lords of poverty, but she needs to hear a rising class of intellectuals in Africa, the Caribbean and the far east talking about those same people. They are more than harsh; they are scathing. They query the value of aid altogether. If the Minister is concerned about my tone, she needs, on her travels abroad, to meet some of those rising young intellectuals and hear their critique.

[Lynne Featherstone]

I assure the hon. Lady that I do meet and will meet members of the rising intellectual classes, or whatever she termed them, and that I would give them the same answer: the point is whether aid is effective and whether the British taxpayer gets value for money. That is important.

The good part of what the hon. Lady said was that the Opposition are committed to the 0.7% aid target, or are glad that the coalition have made that commitment. We will be the first country to deliver that, as set out in our manifesto and the coalition agreement, in 2013. She is right in what she says, in the sense that that is the percentage that we as a first-world developed country should give, not just because it is right, but because it is smart. It is a wise and good thing to do because it helps us and others. I am glad that both sides agree about that. The hon. Lady spoke of safety for all, and that is part of it.

There have been political shenanigans to do with aid recently, and as the hon. Lady has taken to reading The Daily Telegraph, she will have noticed that it often levels a salvo or two at the 0.7% target, and not only at the consultants. However, the whole point of a percentage is that it is geared to the fortunes of the country as they go up or down. We can maintain our commitment to the figure, because it is geared to our economic fortunes.

I want to put the debate in context. When the coalition Government came to power in 2010 we made it clear that we would ensure maximum development impact on the ground, and full accountability to British taxpayers, so that their money would be well spent. We have done much to improve value for money for UK taxpayers, and for the poor people who receive our aid and development assistance. As the hon. Lady mentioned, that has included, through the bilateral and multilateral aid reviews—which are revered across the development spectrum throughout the world for the work they have done in examining value for money, a full assessment and analysis of where and how we spend the aid budget to ensure that it gives maximum value for money. That has adjusted the focus so that it is now on a smaller number of countries, and funding to some poorly performing international agencies has been cut, in a move that gets life-saving help to many more people.

I prefer the term “suppliers” for those to whom the hon. Lady refers as consultants, because, as she said, while a global figure is given to them, only a percentage of it is administration, and the vast majority of it is for delivering the programme in-country. It is important to recognise that the direct engagement of contractors, or suppliers, is only one of a number of channels that we use to deliver development assistance on the ground. We strengthened the business case process in January 2011, to ensure that there would be good decision making about when and how to use contractors in our programmes, and we must also acknowledge that the suppliers engaged by DFID undertake a wide range of activities to support the delivery of the development programme. The majority of those suppliers’ contracts are managing the delivery of programmes, or managing the distribution of funds to deliver programmes on behalf of DFID. Those were some of the examples that the hon. Lady raised.

[Sir Tony Cunningham]

I understand the point that the Minister makes, but I wonder how she can justify salaries of £1 million or £1.5 million to some of those people.

[Lynne Featherstone]

The proof of the pudding is in the eating: it is a question of what they delivered, whether it was value for money, whether it could have been got cheaper elsewhere, what the processes were, whether they were rigorous and whether the arrangement delivered, on the ground, the enormous programmes that we are carrying out throughout the world, in-country, across Africa and Asia. As to the suppliers we use, yes, UK firms win a significant proportion of our work, and the vast majority—90%—of the larger contracts. Technical capacity is one of the major deficits in the poorest countries, and the market for professional services and technical assistance in developing countries runs to tens of billions of pounds a year. British firms have strong expertise in the area and compete effectively in that big, global market—including for contracts awarded by DFID, but also right across the world.

UK aid is, as the hon. Member for Workington said, untied, and almost all our contracts are subject to competitive tender. When UK firms win contracts from DFID it is because they have offered value-for-money solutions to the requirements in the contract. We encourage firms from developing countries to compete for DFID business. However, local markets often lack the capacity, especially for programmes where specialist skills and experience are required to maximise results. That is particularly relevant as we have increased our focus on working in fragile and conflict-affected states. However, it is important to note that local firms and staff benefit from DFID contracts when our suppliers establish local teams in-country to deliver the programmes and to advise, just as we employ members of the local community to work in DFID offices, for the very reasons that the hon. Lady gave: they have local knowledge and experience. However, often it is not possible for local firms to mount the sorts of applications that can deliver.

[Ms Abbott]

The reason the firms in question can compete is their size, which is due to the bloated DFID contracts. The Minister seems to imply that the work goes to UK-based consultancies because the skills and knowledge are not available locally. I remind her that there are in her constituency, as in mine, thousands of people from the same areas of the world to which she dispatches UK-based consultants, and that they have the relevant skills, knowledge and potential; but nothing in DFID policies encourages them to go home and set up the consultancies that could meaningfully bid for the contracts.

[Lynne Featherstone]

The contracts and tenders are open and anyone can compete for them. If there is a fair process that encourages local employment I do not see how the hon. Lady can argue that it is not a fair and due process. However, it is true that 90% of the larger contracts go to UK contractors, who have a lot of experience in the field. That is not to say that others could not make a bid that would beat them; but the percentages are the way it is. That is the result of the tenders.

Suppliers such as Population Services International can deliver significant results and value for money. In the Democratic Republic of the Congo—and not everyone knows how to work and deliver in such fragile states—97% of the population live in areas with high rates of malaria, and the prevalence is as high as 80%. The hon. Lady raised the question of bed nets: a supplier contracted by DFID is providing and distributing bed nets. That will provide more than 4 million bed nets to people in remote locations and educate the recipients to ensure that they are used effectively. Such programmes, although a British company may contract them, will be delivered locally.

The challenge for us and our suppliers is to ensure that we maximise the results achieved and the overall return on investment from each contract, and on every programme. With that in mind, we want our suppliers, in some priority areas, to do more to support our goals. We want them to reflect our objective of building local capacity by ensuring that programmes develop sustainable solutions and encourage self-sufficiency, and we are looking for that in those bids. Given our change in focus towards fragile and conflict-affected states, we increasingly look to our contractors to develop the capability to deliver effectively in more challenging environments.

The hon. Lady raised the question of transparency. It is of course hugely important to us. We want contractors to operate transparently and to reflect that important principle in the programmes that they run for us.

[Ms Abbott]

The Minister has admitted, or confirmed, that 90% of the contracts go to UK-based consultancies.

[Lynne Featherstone]

The larger contracts.

[Ms Abbott]

To avoid doubt, is the Minister saying that she is happy with that high proportion, and that she has no plans over time to try to bring it down? I want to be clear about that.

[Lynne Featherstone]

I have the ambition of delivering value for British taxpayers’ money. That is the objective. Within that, we want more of our contractors to show us how they will use local people, and we want that to be encouraged and embedded. DFID is a great skills educator, in terms of the work that it does in-country to educate and train people to take on roles and become more experienced, so that in time, they will be able to win a larger proportion of those contracts.

On improving value for money overall, we want our contractors to recognise more explicitly and to reflect more clearly our common objective of reducing poverty. We want them to take action to demonstrate that: for example, by focusing on value for money and by sharing with others their learning and knowledge of what works, in order to improve the effectiveness of our development work. It is an iterative process.

I want to try to answer some of the hon. Lady’s specific points. I agree that the British public are generous. They are proud of both our record on international aid and development and the work that we do, and they look to support us. That is why in DFID, and as a coalition Government, we make such strenuous efforts to deliver value for money and aid effectiveness. As she said, there are political and dark forces out there that might wish to destabilise that commitment, but only by delivering effectively and ensuring that we provide value for money for the British taxpayer can we defend ourselves and the work that we do.

The hon. Lady said that she was not going to raise issues about decisions being ideologically driven—I think she was implying that there was a switch to private contractors. I want to ask, however, whether she and perhaps more directly, the hon. Member for Workington, were ideologically opposed to the use of contractors, because in my book, it is about whoever delivers the best results.

The hon. Lady asked about Triple Line Consulting’s assessment of the application for £250,000. Triple Line manages the global poverty action fund on behalf of DFID. Applications are reviewed in accordance with criteria set by DFID to maximise the effectiveness and value for money from the budget, in line with the Department’s policy priority. Most of the money that goes to Triple Line is passed through to fund projects, as we have said. It was interesting that the hon. Member for Workington said, in questioning whether we have value for money, that poverty reduction should be looked at as one of the criteria. However, one reason for rejecting WellFound’s application was that it made no mention of poverty reduction; it did not demonstrate to Triple Line’s satisfaction that poverty reduction could be delivered.

I actually thought that the argument that clean water and sinking wells should be enough, and that we should not seek anything to do with innovation or new thinking, was quite poor. The sum of £250,000 is a lot of money, and in any contract that DFID lets, or that goes through any funds that are managed for us, we want to see how that thinking can develop and how it can be scaled up. It may not be a matter of just doubling wells, as the hon. Lady suggests. It is dangerous to go into the detail of how or why things were rejected and whether they should have been, when neither she nor I have the details of the bid in front of us. We cannot just look at the broad picture—“We will sink wells”—and then criticise the bid’s rejection, because three things were asked for, one of which was how poverty demonstrably would be reduced. If that was not in the bid, I cannot see why that should not be a reason to reject it, when the hon. Gentleman made such a point of its being a critical criterion for DFID to consider.

[Ms Abbott]

For clarity, I am not saying that digging wells and innovation are mutually exclusive. My point was simply that DFID refused to dig the wells, which would have cost a mere £250,000, but the people who managed that refusal process took a profit of £1.9 million. The public cannot understand that.

[Lynne Featherstone]

As I said, Triple Line is in charge of the whole global poverty action fund, and an administration fee is not that unusual. The real question, as both Opposition Members said, is whether effective aid is delivered.

The hon. Lady raised the issue of the scale and size of projects excluding small firms from competing, and asked whether we wanted to reduce the current 90% of large contracts that are contracted to the UK. We would like to use local staff and firms more, but we need to recognise that some of that will be achieved through contracts directly awarded by DFID. We also need our large suppliers to do that down their supply chain, and we are pressing them to do so. I shall move on to what we are looking at in future in due course.

The hon. Lady asked about transparency. Future contracts are all published on the Her Majesty’s Government’s Contracts Finder website to provide suppliers with the opportunity to bid. I asked about that the other day, as I was inquiring how people anywhere would know that a contract was out that could be bid for. They are all published on that website. All payments over £500 are published, as are business cases for the programmes and the details of the contracts awarded. We want to use it to improve the way we do things, and transparency is very important to us.

The hon. Lady also raised the issue of former DFID staff becoming contractors or suppliers. The Department’s staff are loyal, passionate and committed, and they develop massive expertise, so it is not surprising that after five, 10, 15 or 20 years with DFID, they then move on within the industry or market. Some movement between staff and organisations is to be expected and salary levels are determined by the labour market. I do not seriously think that she would say that someone who worked in DFID for 10 or 20 years, and is committed and passionate, should not then go on to use that expertise in the industry. The Department has business rules in place covering the appointment of civil servants when they leave, and there are controls on conflicts of interest. New controls have been introduced to ensure the appropriate tax treatment of interim staff, and the new PEAKS framework—professional evidence and applied knowledge services—will strengthen controls on the engagement of short-term specialist contractors. If I have misinterpreted what the hon. Lady said, I am sure that she will tell me.

[Ms Abbott]

I do not doubt that many people in DFID are committed and passionate. Years ago, when I was a graduate trainee with the civil service, the most committed and passionate people chose DFID, for example, over the Treasury. I would argue, however, that in the countries that we are trying to help, there are committed, passionate and knowledgeable people, some of whom have to migrate overseas in order to gain employment opportunities. We could do so much more for those countries if we were committed to a policy of developing the capacity of local people, rather than shovelling money at Adam Smith International.

I have listened carefully to what the Minister said about transparency, but how does she explain that the International Development Committee raised concerns about DFID’s use of contractors and external partners and that it has complained about the lack of publicly available information? If the information is available, clearly the Committee does not know about it.

[Lynne Featherstone]

I will return to that issue in due course. The hon. Lady keeps returning to the point about local employment and local opportunities, but we agree about that. It is a question of making it happen and encouraging that, but I have explained to her how that is being done.

On the implication that somehow a tsunami of contracts is now going to management consultants, there is an increase, but there is an increase to what we are doing in all our areas. There is an increase in what we are doing through budget support. There is an increase through sector support. There is an increase to NGOs and there is an increase in the use of suppliers. That is because, as we build towards the 0.7% figure, we are having to scale up and ensure that we deliver. Having different channels through which we deliver is probably the best way forward. A mixed economy of development assistance ensures that we are working and firing on all guns.

Of course DFID’s use of suppliers has grown in recent years. That is because our overall programme has grown and because we are doing more in fragile and conflict-affected states, where the risks are such that we have to retain more control ourselves, rather than channelling money through Governments. In some places, it is just not possible to work through the Government system, and NGOs are not always in place, so we have to work through those with specialist expertise, who can work in these very difficult circumstances. We do that by using suppliers who are accountable to us; it is to us that they are accountable.

We have asked ICAI to review the use of consultants. It is in the early stages of conducting a review of DFID’s use of suppliers to deliver programmes. The report is due in May 2013. The scope of the review is such that it will examine how DFID uses contractors. I am referring to the make-or-buy decision in relation to the business case: how do we decide whether we are going to do something ourselves or whether we need to buy in the service? The review will examine how we select contractors and secure value for money in the procurement process and how we hold them accountable—the contract and supplier management. The ICAI methodology for the study is to select and review a sample of five or six contracts as case studies to identify whether DFID is achieving impact and value for money in its use of contractors.

[Sir Tony Cunningham]

Will the Minister commit to publishing the report in full?

[Lynne Featherstone]

I am coming back to that report. The ICAI report will be published in May 2013.

In terms of the response to the IDC, I do not have the information to hand. I shall have to write to the hon. Member for Hackney North and Stoke Newington on that point.

The hon. Lady referred to the lack of clarity about outputs from DFID programmes. In terms of how we ensure that UK aid money is spent effectively, the main tools are the new business case process, which has brought value for money and results up front in the design of all programmes; annual reviews, which enable us to monitor the value for money of programmes during implementation; and research and evaluation to identify what works best and to learn lessons both from our own projects and from those of others.

In terms of measuring value for money, the value-for-money framework ensures that the value for money of a programme is assessed at various stages of the programme cycle, from business case to DFID’s annual review process, and projects are then scored on whether they are achieving value for money. DFID has also invested heavily in building the evidence base and conducting research and evaluations of programmes to learn lessons about impact and drive greater value for money in future programmes. That is one of the biggest changes in aid and development assistance since the days of the Government whom the hon. Lady supported. There has been a shift in focus on to the evidence base and an insistence that almost everything can be measured and we can look to outputs. The evidence base is critical to evaluating what works, so that when we spend more money, we ensure that we spend it in the most effective way.

There was an assertion from the hon. Lady that consultants add little real value and do not do real work. Contractors actually perform a very wide role. Most of the supplier contracts are buying people and services that support delivery, either by managing the implementation of programmes or by managing the distribution of funds. Sometimes that includes in-kind aid distributed by suppliers. Examples include bed nets and cash—the 40p or 50p a week given to extremely poor people by suppliers contracted by DFID. We also use contractors to provide technical assistance to country Governments to support them in the development of local capacity. Others are used to undertake monitoring and evaluation of programmes or to conduct research to help to improve the effectiveness of our aid. Many of these suppliers play a key role in DFID delivering tangible development outcomes in the world’s poorest countries. I have made clear the importance that we attach to value for money, but also the importance of delivering for the poorest.

I do not have a date for when the report commissioned by the Secretary of State will be finished. I know that the Secretary of State has announced the details of the actions being taken as a result of the review. The recommendations of the report—so it must have been finished—are still being considered, and work is ongoing to plan for implementation. The reason why the report is not in the public domain is that it comes under advice for Ministers and it includes commercially sensitive information, but what the Secretary of State is doing as a result of the report will be published; in fact, I think it has been published already.

The hon. Member for Hackney North and Stoke Newington asked why some of the suppliers working for DFID do not appear to pay enough UK tax.

[Sir Tony Cunningham]

The hon. Lady suggests that the report cannot be published because it contains sensitive material. Is she prepared to produce and provide this information? She can redact the delicate, sensitive information. We want information that is as full as it can be in order to prove that the Department is as transparent as it should be.

[Lynne Featherstone]

I am afraid I have forgotten the point that I was addressing to the hon. Member for Hackney North and Stoke Newington, because the intervention came then.

[Ms Abbott]

Tax.

--- Later in debate ---

[Lynne Featherstone]

I shall come back to tax. I am coming to the response to the report. There was a freedom of information request, which was answered in the same way—that advice to Ministers is exempt from FOI. However, I will come on to what the Secretary of State is proposing to do, in due course.

In terms of tax, which I have now lost the sheet about—I shall come back to that as well. I am sorry; I have managed to juggle the sheets and where I have put down that one I do not know.

[Ms Abbott]

Will the hon. Lady give way?

[Lynne Featherstone]

Let me progress, because as hon. Members have seen, it is better to let me speak all in one go.

The information on tax has come to hand. Almost all large supplier contracts are awarded following an open and competitive tender process under standard HMG rules. DFID clearly states in the invitation to tender terms and the contract terms that the supplier is responsible for meeting its requirements for Government tax. If a company is found not to be meeting its tax requirements, it will be excluded from tendering for future DFID contracts. The amount of tax that an individual supplier pays will depend on its corporate structure. For example, one of our suppliers has advised that it is set up so that it pays tax in the countries where it operates. That is an argument that it has made, but as I said, if a company is found not to be meeting its tax requirements, it will be excluded from tendering for DFID contracts. Right now, we are looking at the way in which a number of corporations pay tax—not particularly in DFID but across the board. That is at the top of everyone’s agenda because we all think that it is unfair and inappropriate.

The questions raised by the Opposition were mainly about value for money and whether the money going to suppliers where there is an administration fee is well spent or is creamed off. That was the inappropriate—I hope—language used by the hon. Member for Hackney North and Stoke Newington. Our new Secretary of State has made it clear that this is a top priority and has further increased the focus on it in the Department. As well as lowering the threshold at which projects come to Ministers for approval from £40 million to £5 million, the Secretary of State is reviewing DFID’s use of contractors to see how we can improve value for money. She has taken action, further to having brought down from £40 million to £5 million the threshold at which projects must have ministerial approval, by introducing new controls so that ministerial approval is now needed for all supplier contracts worth more than £1 million. She is writing to our top suppliers to reinforce to them the importance of ensuring value for money in their work for DFID. She will also meet them to tell them that the Department will look for even better value for money when deciding to award new contracts in future. Our suppliers will have to show that they are not in it only for the money; we want evidence of their commitment to poverty reduction and to the cause of development assistance.

The Secretary of State is also taking steps to introduce tougher monitoring of the performance of supplier contracts, to enable us to review value for money throughout contract delivery and take action accordingly. Instead of having wide gaps in the contract, we will be able to bring up issues at any point and as often as necessary. We will look carefully at our future outsourcing strategy, including the choice of delivery channels and our make-or-buy decisions. The hon. Lady asked about what we do in-house as opposed to what we contract out.

[Ms Abbott]

The Minister has been generous in giving way. I want to remind her of a point I made: concerns about the efficacy of aid are not confined only to the TaxPayers Alliance in the UK. A New York Times bestseller by Dambisa Moyo, a Kenyan former Goldman Sachs trader, called “Why Aid is Not Working and How There is a Better Way for Africa”, points to £1 trillion of development-related aid over 50 years and little to show for it. I am pleased to hear about what the Secretary of State is planning, but if she does not move forward as the Minister indicates, there is a danger that scepticism here will be matched by scepticism abroad and the weakening of the international commitment to aid.

[Lynne Featherstone]

There is no weakening of our commitment to aid. It is important to send that message loud and clear. I do not agree that there is little to show for aid; the hon. Lady prays in aid a book. Even Opposition Members will agree that since the coalition came in, a vast amount has been done to ensure value for money, such as the multilateral and bilateral aid reports and the review work we are doing now.

The hon. Lady mentioned the report on schools programmes in Nigeria. In a sense, the report seems to demonstrate that we spent all this money and have very little to show for it—that is the link I am making—but it was a very limited inquiry. The team visited only 1% of the schools, most of which were in only one state, and they did not take into account the most recent evidence of the projects’ progress. We will obviously review the report’s recommendations and respond in due course.

On that point, I want to say something more generally about the millennium development goals, one of which was about getting children, particularly girls, into primary education. It was a simplistic goal, but it sure focused the world’s attention. Of course, enrolment has been successful, but development is more sophisticated and complicated than that, because it also requires completion, and it requires us to ensure that children learn while they are in school. When the millennium development goals came in, we all said, “We will put a proportion of our money into that.” The programmes are now much more sophisticated and we look at development more broadly. We will obviously look at the report and at what happened in Nigeria.

The whole world has grown up in terms of aid; it is no longer about giving money in the traditional, old-fashioned way to starving poor people, but about working in countries to enable them to become sustainable and look after themselves. That is the point of development aid. To say that we have little to show for the work we are doing is an insult.

[Ms Abbott]

I did not say that, the writer said it.

[Lynne Featherstone]

Whoever said it, it is an insult to the work going on to change people’s lives, deliver on the ground and make future prosperity sustainable.

The private sector is part of the solution. A growing economy that can lift its people out of poverty, as well as the technical assistance that more developed countries can offer, is important.

[Sir Tony Cunningham]

rose—

[Lynne Featherstone]

I will not give way, because I am coming to my peroration.

In conclusion, contractors can perform an important role supporting the delivery of programmes that make a difference on the ground. They can, and do, deliver impressive results, often in incredibly challenging environments, but we look to them to do more. If they read the debate, they will know that they need to think about how they bid, knowing that our focus will be even sharper and our demand for value for money even greater. Our demand that they put more emphasis on how they will encourage local people along their supply chain to bid for work for them and for us is important. I am adamant that we will strive to maximise value for money, results and impact in every possible way. I am acutely aware of how important that is to those whose lives we seek to improve, as well as to UK taxpayers.