A recent article in the Federation of American Scientists’ newsletter makes the case for requiring USAID to use firm, fixed-priced contracts, tying payments to measurable outcomes and results rather than cost-plus-fixed-fee (CPFF) type contracts. The writers from CollaborateUp and Instiglio argue that CPFF contracts focus more on administrative compliance at the expense of performance.
While the article does not get bogged down in Federal Acquisition Regulation (FAR) nuances, it’s a point worth considering. Under FFP awards, USAID and the implementing community may be able to relinquish some of their staff in involved in tracking receipts for expenditures over $75, drafting and re-drafting prior approval requests, and other compliance-driven requirements. They will still need to cover the real costs of implementation – salaries, benefits and allowances, equipment & supplies, travel, costs of corporate offices, financing costs (otherwise recovered in fixed fee), investigating allegations of fraud, legal costs for establishing an office in-country, etc. Their FFP proposal will also include contingency costs for unanticipated expenses or additional work. Most Contracting Officers opt for managing the risk of additional costs through a CPFF type contract rather than pay for it regardless of what happens in a FFP award.
At this point, the USAID monopsony is not an attractive market given the risks and thin margins. Structuring awards to focus on results rather than receipts is compelling but allocating greater risk to an implementer may make it less attractive to those new to development and wishing to break into the market. If the next Administration is intent on shaking things up, they can start making awards to qualified entities based on firm, fixed prices – how much development delivered per dollar. That would drive change in the sector beyond cost & pricing manuals.
USAID’s Office of Acquisition and Assistance is intent on doing things “better, quicker, cheaper.” They are well positioned to at least pilot firm, fixed priced awards on larger projects.
Read the article in the Federation of American Scientists here.
