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Social Science & Medicine 71 (2010) 1357e1365

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Social Science & Medicine

journal homepage: www.elsevier .com/locate/socscimed

The “aid contract” and its compensation scheme: A case study of the performanceof the Ugandan health sector

Valeria Oliveira Cruz a,*, Barbara McPake b

a London School of Hygiene and Tropical Medicine, London, United KingdombQueen Margaret University, Edinburgh, United Kingdom

a r t i c l e i n f o

Article history:Available online 11 August 2010

Keywords:Aid effectivenessContractingUgandaCase studyCompensation schemePenalties and rewardsPerformance

* Corresponding author.E-mail address: Valeria.Oliveira-Cruz@lshtm.ac.uk

0277-9536/$ e see front matter � 2010 Elsevier Ltd.doi:10.1016/j.socscimed.2010.06.036

a b s t r a c t

Current literature on aid effectiveness describes increasing use of a more contractual approach to therelationship between donor and recipient government in which a system of rewards and penalties forgood and bad performance operates. The purpose of this case study of the Ugandan health sector was tounderstand the extent to which this approach is influencing processes and effectiveness. This qualitativestudy used a conceptual framework based on agency theory and ‘realistic evaluation’. Our results showedthat the main official mechanism to assess and reward performance established through the Sector WideApproach lacked objective criteria and was based on an unstructured system of discussions and agree-ments among donors. The achievement of a satisfactory performance rating was facilitated by theagreeing to undertakings that were under-demanding, vaguely formulated and lacking quantitativebenchmarks against which progress could be measured. However, even when poor performance wasreadily observable, penalties failed to be applied by donors. This was always the case in relation to healthsector performance and mostly so in relation to general governance and accountability. Funds continuedto be disbursed despite the lack of progress made in achieving targets and undertakings and otherevident performance problems (e.g. in the area of governance). A series of explanations of the failure topenalise were put forward by donor representatives in relation to this behaviour including the need tomaintain long-term relationships based on trust and not to undermine health sector performance bywithdrawing aid. Thus there are likely to be incentives to disburse funds and report success, irrespectiveof the realities of aid programmes in the context of large foreign aid volumes associated with increasedpolitical visibility of aid in donor countries.

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Introduction

The volume of International Development Assistance (IDA) tothe health sector has increased from $5.6 billion in 1990 to $21.8billion in 2007 (Ravishankar et al., 2009). Alongside increases inquantity, there has been greater attention given to the quality of aid(Adam & Gunning, 2002; Hecht & Shah, 2006, chap. 21; de Renzio,2006). This shift is mirrored in changes in mechanisms andapproaches of IDA. In the past, projects were used to channel aidresources to a specific sector and/or programme of interest. In the1990s and 2000s donors introduced the new aid modalities ofGeneral Budget Support (GBS) where funds are channelled torecipient government budgets (often earmarked for poverty alle-viation strategies) and sector support or Sector Wide Approach(SWAp) where funds are pooled to support a sector.

(V. Oliveira Cruz).

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Despite a growing interest in contractual approaches to aid(Barder & Birdsall, 2006; Hecht & Shah, 2006), no study in thehealth sector has documented how the delivery of aid through thismechanism operates at country level. The study reported by thispaper aimed to make an in-depth examination of this issue usinga case study of the Ugandan SWAp between 2002 and 2005. Thispaper investigates the nature of the performance appraisal system;how it operated; and how donors explained their responses to theway it operated.

“Contracting” in aid

The use of a results or performance-based approach in the aidenvironment has led to the interpretation of the aid relationship(between a donor/development agency and a recipient govern-ment) as a contractual one. Adam and Gunning (2002) refer to theuse of performance indicators in the design of “aid contracts”.A more explicit contractual approach to aid was adopted by theGlobal Fund for AIDS, TB and Malaria (Global Fund) and the Global

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Alliance for Vaccines and Immunisation Alliance (GAVI) whichdisburses funds contingent on contractually defined indicators ofprogress. The SWAp and GBS mechanisms of international aid canalso be conceptualised as forms of contract where donors commitfunds and recipient governments are responsible for achievingagreed undertakings (process oriented) or targets (outputs/resultsoriented).

New Institutional Economics and more specifically, agencytheory (Arrow, 1985; Jensen & Meckling, 1976; Ross, 1973; Stiglitz,1974) offers theoretical underpinnings for the performance-basedpayment approach (Eldridge & Palmer, 2009) and for contracting ingeneral. The value of such a framework lies in its ability to inves-tigate the incentive structure embedded in the aid delivery process(Martens, Mummert, Murrel, & Seabright, 2002). In agency rela-tionships, there is always an explicit or implicit contract betweenparties, and principals use incentives to guide or tomotivate agents’actions towards agreed desired outcomes. The compensationscheme agreed between the parties establishes how the agent willbe rewarded for good performance. In an agency relationship bothparties have independent utility functions and act so as to advancetheir expected utility.

The design of effective compensation schemes (rewards andpenalties) is complex. Actions performed by agents are not directlyobservable or easily inferable by the principal, and cannot bedetermined indirectly by observing outputs because these areinfluenced but not totally determined by the agent’s action (Arrow,1985).Where actions are not observable, they cannot form the basisfor the incentive scheme and outcomes are an imperfect alterna-tive, given random influences. Furthermore, output-based incen-tive schemes transfer risks onto agents. This carries inefficiencies ifagents are risk averse. Two categories of agency problem arise fromthis set of difficulties: moral hazard arises from informationasymmetry in relation to actions; adverse selection arises frominformation asymmetry in relation to information. In both casesinformation asymmetry favours the agent (Arrow, 1985).

‘Relational contracts’ (MacNeil, 1978) may provide an avenue fordealing with some agency problems because repeated transactionsover time increase the level of evidence available to the principal incomparison with isolated (single) exchanges and reduce informa-tion asymmetry (Williamson, 1985). Allen (2002) argues that trustand cooperation can play a crucial role in effective relationalcontracts, substituting for the difficulties of observation. However,more complex formulations seem to be required for the analysis ofthe conditions under which trust and honest dealing develop inpreference to monitoring and opportunism. Not all relationalcontracts are characterised by honesty and trust (Palmer & Mills,2003).

The conceptual underpinnings of agency theory have beenapplied in the analysis of development aid, in more general termseat times explicitly (Martens et al., 2002; Svensson, 1997; Zinnes &Bolaky, 2002) and sometimes only implicitly (World Bank,2004a). Agency theory has also been applied to the relationshipbetween recipient governments and donors, for example: aid as aninteraction between incoherent agents (Mackinnon, 2003);performance indicators in the design of aid contracts (Adam &Gunning, 2002); and conditionality contracts (Killick, 1997),which are premised on agency theory (Martens et al. 2002).

Nevertheless, empirical evidence is lacking on micro-institu-tional relationships in international aid organisations (Martenset al., 2002) and the multiple stages of the aid delivery processinvolving many actors (principals and agents) with various (oftenconflicting) objectives and constraints (Zinnes & Bolaky, 2002). Fewstudies in this area have examined the incentive environment ofthe aid implementation process. Most have focused on the perfor-mance of recipient countries only.

Study design and methods

A qualitative case study approach was adopted in order tounderstand, explain and disentangle the complex nature of the aidenvironment in Uganda. The study was subject to ethical approvalby the London School of Hygiene and Tropical Medicine and theUganda National Council for Science and Technology.

We applied the epistemological approach of realism whichemphasises “the mechanics of explanation and . attempt(s) to showthat the usage of such explanatory strategies can lead to a progressivebody of scientific knowledge” (Pawson & Tilley, 1997, pp. 55e56).Research rooted in this scientific philosophy is not focused onelucidating cause and effect but recognises that in social processes,a more frequently useful conceptualisation is one of patterns ofresponse occurring on a probabilistic basis.

We investigated the context and the interrelated (and some-times conflicting) motivations involved in the aid contract inUganda using agency theory as a conceptual framework. Thisresearch was not about the impact of new aid modes (or morebroadly aid effectiveness); it was rather concerned with how theenvironment changed with the concept of a compensationscheme, what changes it brought within the Ugandan context,and why some elements of the contractual relationship couldchange and others not (unravelling behaviours, processes,contexts). Fig. 1 helped in visualising the various principaleagentrelationships prevalent in IDA and the complexities of thisenvironment.

The research involved three periods of fieldwork: 10 monthsbetween 2003 and 2004 and short visits in 2002 and 2005. Thefollowing methods were used:

A) 30 different meetings were directly observed. These included:annual Joint Review Missions (JRMs), a forum in which the fullrange of stakeholders in the health sector is invited; PublicExpenditure Reviews which bring together stakeholdersinvolved in the poverty reduction strategy; the Health PolicyAdvisory Committee (HPAC) where key national level govern-ment officials and donors in the health sector meet monthly;and Health Development Partners Group which monthlyassembles donors in the health sector. Observation helped inmapping the organisations involved in the field and familiar-isation with formal structures and processes (Allen, 2000);informing the choice of key informants; and gatheringevidence in relation to the nature and processes of interactionof the different partners and their behaviour and views inrelation to events (which threw light on or challenged state-ments made during interviews).

B) Documents relevant to the research topic (e.g. health sectorplans and reviews, minutes of meetings, sector and budgetperformance reports) were reviewed. Documents and reportswere accessed through: participation inmeetings, the email listof the Health Development Partners Group, and interviewees.The use of documents as a data source allows for a broadcoverage in terms of time (spanning long periods), and space(national, regional, local levels) (Yin, 2003). In this study,documents were helpful in providing a historical chronology ofpolicy implementation at the national level.

C) 36 in-depth interviews were carried out with governmentofficials, donor representatives and other groups (technicalassistants, consultants and representatives from civil society).These were tape-recorded and transcribed, except in cases ofrefusal by interviewees (2) or technical problem (1): in thesecases hand-written notes were taken. Five of the 36 inter-viewees were key informants (KIs). In addition to a formal/semi-structured model, we also used informal discussions

Population in ‘donor’ countries

Population in ‘recipient’ countries

‘Donor’ NGOs

Govern ment of ‘donor’ country (local or central)

Recipient Government (central or

local)

Recipient NGOs

Bilateral agency

Multilateral agencies

For profit organisation

Service Delivery Units (governmental,

private or donor sponsored)

Principal-Agent (financial) relationship

Principal-Agent (regulatory) relationship

No Principal-Agent relationship

Foundations or charities (funded by

private for profit companies)

This entire figure reflect t he sets of relationships in the area of international development assistance at the macro level; at the meso level are the relationships between organisations; the relationships within organisations are those at the micro level.

Fig. 1. Sets of principaleagent relationships in international development assistance. Source: Oliveira Cruz, 2008.

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(unstructured interviews) with key informants (Robson, 2002).The sample of interviewees followed a purposive approachcombined with a snowball technique (Patton, 2002).

The analytical process followed theFrameworkApproach (Ritchie& Spencer,1994, chap. 9) and the thematic content approach (Patton,2002). This involved familiarisation with the data (including datacleaning and checking for consistency), development of a codingscheme (or indexing) based on the identification of a thematicframework, and charting and interpretation. The analytical processcontinued during writing up as chains of events were assembled,contrasting perspectives were examined, and behavioural patternsassessed. Pieces of evidencewere questioned (as to how they relatedto other data sources), possible associations were tested and drawn,explanationsdeveloped, andgeneral inferencesweremade (iterativeprocess of analysing, structuring and writing).

Objective and comprehensivemaintenance of records and carefulaccount of the analytical process (Mays & Pope, 2000, chap. 8) werefollowed to ensure reliability. Respondent validation was sought bypresenting the preliminary research findings during a disseminationworkshop inUganda inOctober2005 (Silverman,1993). Deviant caseanalysis (Patton, 2002) was incorporated into this research. Thetriangulation of different data sources (interviews, observation anddocumentary analysis) was carried out to allow for one sourcebalancing the scope for errors and bias of the other (Allen, 2000).

Findings

Mechanisms of performance appraisal

The main instrument of performance assessment used by theSWAp was the annual JRM. A range of stakeholders would take part

in these reviews, including Civil Society Organisations (CSOs). Theoutcome of the review (a declaration of satisfactory progress issuedby donors) triggered the release of funds for the developmentagencies providing financial support to the health sector. Thesystem agreed between donors and the government of Ugandacomprised the review of:

e Progress vis-à-vis 18 national level indicators agreed betweenthe parties and presented in Annual Health Sector PerformanceReports, with particular focus on five indicators (utilisation ofout-patient services; immunisation rates for DPT3 (Diphtheria,Pertussis and Tetanus); deliveries in health units; HIV preva-lence; and proportion of posts filled by qualified staff) that thehealth sector was accountable for in the Poverty EradicationAction (PEAP) Plan.

e Joint (donor and government representatives) visits to selecteddistricts, which included visits to different types of facilities,with a view to assess progress in areas such as humanresources, financial flows, information and managementsystems, and agreed technical priority areas.

e Review of undertakings (which are key priority actions inspecific areas agreed between the parties to be accomplishedwithin one year); one or two priority programmes, anda tracking study for the following year.

However, the process of performance assessment lackedobjectivity as it was not based on explicit criteria or conditions.According to key informants and observations, the process involveda review of whether specific issues had or had not been solvedduring monthly meetings between the parties (HPAC meetings)through the year; unstructured discussions of progress held duringthe JRMs; and a ‘general feel’.

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Which is horrendously subjective but we sit round as a donor groupand we have long discussions about this. (Donor representative)

Progress in relation to the 18 performance indicators was pre-sented in the Annual Health Sector Performance Reports, butreporting of themwas incomplete e about a third of the indicatorswere not reported on in the 2002/2003 report (MoH, 2004a).

Undertakings were adopted as part of the SWAp framework andrepresented commitments agreed between the government anddonors on key actions related to strategic areas deserving priority.Typically undertakings should be achieved within one year, butthey could also require longer term action, broken into stages thatwould be assessed during the yearly reviews. Undertakings werealso intended to introduce explicit criteria to the process but wereincompletely reviewed and used.

Actually we don’t go by the undertakings agreed and technically Iam not sure we’ve ever got all the undertakings completely ach-ieved. (Donor representative)

In general, undertakingswere only partially achieved in anygivenyear over the period reviewed for this study (Table 1). On averageonly 37% of the agreed undertakings were fully achieved (varyingbetween 9% in the 3rd JRM in 2000 and 100% in the 9th JRM in 2003).

The degree of partial achievement of undertakings was alsoinconsistent (Table 2). In some cases a draft report was availableinstead of a final report. In other cases, only initial steps had beenreported towards establishing ‘a coordination mechanism’, forexample. It was also not clear what was meant by initial steps, as inrelation to this undertaking: “to develop a mechanism for coordi-nation of on-going research in the health sector to support evidence-based policy formulation, planning and implementation of the HSSP”(MoH, 2002b).

In addition, undertakings tended to be vaguely formulated(Table 3) and lacked quantifiable measures of progress. For instancean undertaking that read: “initiate the scaling up of training ..of

Table 1Number of undertakings achieved or not vis-à-vis total number of undertakings per JRM

Reportingfrom JRM

Total number ofundertakings

Number ofundertaking

10th e Oct. 2004 9 5 (howeverfacilitating rprogress e

9th e Nov. 2003 Aide memoir states that “all four of the undertakings from Octoberlist of undertakings, means of verification, and progress made aga

8th e April 2003 6 1

7th e Oct. 2002 9 (1 undertaking had no report of progress) 3

6th e April 2002 10 (1 undertaking had no clear report of progress) 1

5th e Oct. 2001 Given that the investigator didn’t have access to the aide memoirundertakings were not agreed for review during the 5th JRM. Thithe performance of the MoH and districts should be ideally assessedon the achievement of undertakings.” Difficulties in achieving previdecision to focus on workplans.

4th e April 2001 Data not available

3rd e Oct 2000 12 1

Source: MoH (2001a, 2002a, 2002b, 2003a, 2003b, 2004b).

health workers” (MoH, 2002b) could well be achieved by trainingone or two health workers since further criteria were not specified.

Where progress towards undertakings was reported by govern-ment, therewasno systemof verification to test forperformance andquality of the activities reported. Accountability todonors tookplacemainly by means of presentations during the JRMs.

Who is challenging the fact that they [undertakings] were reallytaking place, that a quick and dirty presentation was made duringthe JRM to say what they did about this. (Technical assistant)

Terms of reference were provided for joint district visits, whichoccurred prior to JRMs to enable participants to update themselveson developments in a particular district. There was considerablevariation in the data (and their quality) collected, analysed andreported. The monitoring of performance through district visitsallowed for an overall impression but it could not provide a basis forcomparison with other districts or assessment of trends over time.

I was surprised here in Uganda, during this JRM [district visit(2003)], about lack of focus on quantitative measures of progress.No targets or benchmarks to measure or assess progress against.(Technical assistant)

Above the sector level, there were the appraisal systems forGeneral Budget Supportprovidedby theWorldBank (for thePovertyReduction Support Credit e PRSC) and the European Union (EU).

The appraisal process for the PRSC was centred on theachievement of prior actions (World Bank, 2004b). Prior actionswere similar to undertakings as stakeholders agreed on these oneyear before. However, they functioned as conditionalities for thePRSC, their assessment determining its final negotiations and itssubmission to the World Bank’s board for approval (World Bank,2004b). The appraisal process was based on the review of a seriesof documents and data [e.g. Public Expenditure Reviews (focusingon the assessment of budget performance), aide memoirs of JRMs(World Bank, 2004b) and discussions with key stakeholders

.

s achievedNumber ofundertakings notachieved orachieved partially

some undertakings were very vaguely worded thuseport onsee Table 2)

4 partially achieved

2002 JRM had been achieved”. A detailed table with theinst them was not provided in the aide memoir.

5 partially achieved

1 partially, 4 not clear ifpartially or not achieved

4 partially and another4 partially but only veryincipiently

of the 4th JRM it was not clear but it appeared thats JRM reported that “there was general consensus thaton the MoH and district total workplans rather than solelyously agreed undertakings might have led to the

7 partially achieved and 4not achieved

Table 2Examples of partially achieved undertakings.

Undertaking Means of verification Progress

Basic package

Reproductive health- Initiate EmOC in the 19 districts where needs

assessment was done (only 5% of HC IV metthe criteria for basic emergency obstetric care)to achieve at least 80% of all hospitals able toprovide basic EmOC,

- Complete the needs assessment of EmOC in theremaining 37 districts

- Reports on percentage of hospitals inthe 17 districts able to provide basic EmOC

- Report of needs assessment for theremaining 37 districts

- Constituted Regional Technical SupportTeams to go the 10 hospitals where basicEmOC was found lacking,

- Draft roll out EmOC plan for the rest of thecountry prepared

- Needs Assessment for the remaining 37 districtsand data analysis completed. Report writing inprocess but to be ready for Oct. 2004 JRM

Community mobilisation- Finalise and initiate implementation of guidelines

for community dialogue, mobilisation andparticipation in health promotion and healthservices delivery

- Final field implementation guidelines forcommunity dialogue: community dialogueimplementation strategy, field manual forimplementation, facilitation manualand brochure.

- Documentation of implementation ofcommunity dialogue in 8 districts(reports, video, reports)

- Field and facilitation manuals and brochuredeveloped and pre-tested

- Technical assistance recruited for strategydevelopment. Draft strategy in place

- Documentation report and video for twodistricts (Mubende and Bugiri) available

- Report on community dialogue ready

Source: MoH (2004b).

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(various KIs)]. But the assessment also relied on the generalperception of progress among stakeholders, particularly for thehealth PRSC (donor representative).

Usually, the prior action for the health sector was the ‘satisfac-tory implementation of the undertakings agreed in the healthsector review’ (World Bank, 2003). Hence, technically the appraisalwould be based on the outcome of the JRMs with regard to theachievement of undertakings.

An example of prior actions not achieved included thosereviewed during the appraisal mission of the fourth PRSC, when outof eight prior actions two were not on track at the time of themission. These were in the water and sanitation sector and onbudget performance (see Table 4).

The EU compensation scheme was different from the PRSC inthat it was graduated1: disbursements depended on the degree ofprogress achieved towards the agreed indicators. For the healthsector, these were the five PEAP indicators (see Mechanisms ofperformance appraisal).

However, this system presented some limitations. The perfor-mance measure of ‘considerable positive development’ was onlyvaguely defined. In 2004, two targets were not fully achieved(donor representative): posts filled by qualified health workers andutilisation of out-patient services. However the EU requestedrelease of the full first tranche on the basis that the targets had beenrevised during later discussions (donor representative). In addition,processes like the JRM and its outcome (whether rated overall as

1 Adam and Gunning (2002) describe the formula as follows: “for each of theagreed outcome indicators a score is calculated: one point if the agreed objective isattained, 0.5 if this is not the case but there is evidence of a “considerable positivedevelopment” and otherwise the score would be zero. Performance is then measuredas the (unweighted) average of the individual indicator scores. Disbursement isproportional to this average score, with the maximum disbursement reached when80% of the maximum performance is realized: each 1% (of the maximum score)increase in performance triggers the release of 1.25% of the tranche (up to themaximum of 100%). For example, in the case of four indicators this would imply thatif the score was 0.5 for each indicator then 62.5% of the tranche would be disbursed(1.25 times 50%, the actual average score as a percentage of the maximum). If theobjectives for three of the four indicators were attained while the score was 0.5 forthe fourth one then the full amount would be disbursed”.

2 Additional sources included: reports and assessments by the Government, IMF,World Bank, Bank of Uganda, annual public expenditure review, office of theAuditor General and other independent audits and evaluations (EU, 2004).

satisfactory or not, undertakings achieved or not) were used toassess performance, even if partially,2 and to inform decisions onthe release of funds.

It is a rigid system but the local advisors have some leeway, it isvery much up to them to decide and convince Brussels, it is a longprocess but it is possible to release funds even if targets have notbeen met, but of course it will need to be duly justified. (Donorrepresentative)

Implementation of the performance appraisal system

Despite the lack of clear criteria for evaluation within the SWAp,poor performance was still observable in some cases. An obviousexamplewas the non-achievement of undertakings shown inTable 1.In spite of these problems, penalties were not applied and progresstowards achieving the agreed undertakingswas declared satisfactoryfor all four JRMs between 2002 and 20043 triggering the release offunds.

Similarly for the PRSC, although not all agreed prior actionswere achieved, it appeared no releases were reduced or withdrawndue to unsatisfactory progress.

While the EUmade an attempt to move towards a more explicitsystem of performance appraisal it also relied on a subjectivesystem of evaluation to permit disbursement (reward) in spite ofa lack of objectively measured progress.

A further example is provided by the ‘Tracking Study of Pro-gramme 9’. Tracking studies were envisaged (as part of the SWApprocesses) to provide an in-depth analysis of an area, witha problem solving and participatory approach and should formulaterecommendations to be followed up by the parties. Programme 9was implemented by the MoH and focused on tracking procure-ment of supplies to districts.

The Programme 9 Tracking Study revealed that new releases offunding were taking place despite lack of accountability for previ-ously released funds (MoH & Business Synergies, 2004). In someprogrammes there were accounting problems in approximately70% of the transactions sampled. There were instances of

3 Source: MoH (2000, 2001b, 2001c, 2002a, 2002b, 2003a, 2003b, 2004b). Basedon these sources, it also seems that undertakings start to be consistently reviewedas of the 7th JRM (MoH, 2002b).

Table 3Examples of vaguely worded undertakings and progress reported.

Undertaking Means of verification Progress

Human resources for healthInitiate the scaling up of training andimprovement of the quality andoutputs of health workers for the HSSP

- Document detailing planto scale up HRH production

- Monitoring reports on outputsof various training schools.

- Training to increase outputs of HTIs being scaled up through:Improving infrastructure, increasing number of tutorsand financial backup for disadvantaged students.

- Quality of HRH produced from HTIs being improved through: tutordevelopment, provision of training & health learning materials,support for practical fieldwork, support to inspectorate activities ofMoH and MoES, reviews of the various curricula, and support toin-service training.

Basic package HIV/AIDSScale up capacity for ART managementand uptake to all hospitals and achieveaccreditation to at least 50%.

- Action plan for scaling upART to all hospitals

- Accreditation system or criteria

- Action plan for scaling up finalized and being used for implementation,- 58 health facilities in 20 districts accredited to provide ARVs,- 26 health facilities (including all the 11 Regional Referral Hospitals)

providing free ARVs (target 2700 adults)

Source: MoH (2004b).

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reallocation of funds from one sub-budget line to another withoutprior approval (for which guidelines were absent).

Some of the problems highlighted by the study were likely to berelated to weaknesses of the budgeting and accounting systems.However, there were accounts of lack of commitment from seniorlevel management in the MoH to resolving the identified problemsand suspicions of corruption (various KIs).

The tracking study encountered difficulties in obtaining work-plans and records from sub-programmes. This was probably due toa combination of poor record keeping and unwillingness to shareinformation (various KIs). There was a six month delay in presentingthe results of the study. In addition, there were delays in the prep-aration of a follow up response to the recommendations of the studyby the MoH and in implementing the study’s recommendations.

The relevant undertaking agreed during the JRM 2003 was tohold a stakeholders workshop to finalise the study’s report and toimplement its recommendations (MoH, 2003b). Progress reportedduring the 2004 JRMwas that the draft report was discussed amongstakeholders and a final report produced on the basis of thediscussions held. However, the implementation of the study’srecommendations had tobedeferred to another undertaking agreedin the 2004 JRM. A programme of work for the implementationwasto be presented by the end of January 2005 (MoH, 2004b).

The response by donors was to threaten to apply sanctions bystating that if the study was not presented by June (2004), thiswould affect the transfer of donor funding (MoH, 2004c). However,despite the delays observed and problems revealed by the study,progress was declared satisfactory during the 10th JRM in October2004 (MoH, 2004b) and funds were not withheld.

In contrast to the experience within the health sector, there wereexamples of poor performance elsewhere that led donors to applypenalties. In 2001/2002 support to the budget by Belgium wasinterrupted due to Uganda’s military intervention in the DemocraticRepublic of Congo (donor representative). The bilateral agreement atthe time envisaged a total transfer of approximately US$ 4million, ofwhich US$ 1.3 million was disbursed in 2000/2001 (MoFPED, 2001).While there were conditions set out in the agreement, these did not

Table 4Non-achieved prior actions.

Prior actions agreed during pre-appraisal mission Progre

- In the annual public expenditure review, the Government has agreed withdonors on the Medium Term Expenditure Framework (MTEF) for2003/2004e2005/2006, and has executed the 2003/2004 budget throughthe first three-quarters consistent with budget allocations.

- Thifor(corun

- Satisfactory implementation of undertakings agreed in water and sanitationsector review in September 2003 and confirmed by March 2004 review.

- Thi

Source: World Bank (2004b).

include penalties for military actions but focused on the perfor-mance of the health sector (donor representative).

In FYs 2002/2003 and 2003/2004, the UK, Ireland andNetherlands withdrew support to the general budget followinga 23% cut in the rest of the government budget to fund increaseddefence expenditure (MoFPED, 2003, 2004). In FY 2003/2004, thereduction in disbursements by these donors was 10% of their pro-jected contributions (MoFPED, 2003, 2004). Also penalised by theUK in 2002/2003 was the government’s failure to release a DefenceReview Report (which should have provided defence expenditureinformation) (Donor representative).

There has been no discussion and we said if there isn’t a discussionthen there won’t be money. (Donor representative)

The political environment was reported to have deterioratedconsiderably as the 2006 elections were approaching and parlia-ment discussed a change to the constitution to allow the presi-dential mandates to be extended to 3 terms (various interviewees).No penalties were applied over this period.

The World Bank showed awareness with respect to the lack ofprogress on anti-corruption measures:

Corruption remains high and the mission is concerned thatthere are worrying indications, including legal actions ques-tioning the legality of the IG’s [Inspector General] work on theLeadership Code and Cabinet’s proposals to curb the power ofthe IG. It is of particular concern to the mission that theinstitutions dealing with corruption face a range of obstacles,which weaken their ability to work and undermine morale.(World Bank, 2004b)

Yet, it considered the agreed prior action in the area of gover-nance/accountability to be on track (World Bank, 2004b) at the sametime.

Prior to the elections, problems were also reported in relation totechnical goals being overridden by political ones and slackeningcommitment to monitoring at higher levels, including in the healthsector.

ss towards achievement

s is not on track. While overall expenditures amounted to 91% of programmed levelsthe first two quarters, overall PAF releases only amounted to 84% of pro-rata budgetmpared to 96% at the same stage in 2002/2003), with public administrationning at 123%

s is not on track.

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At higher levels there are problems of political interference in theassessment of performance. (Government official)

It seemed thus that while institutions had been put in place todeal with issues of opportunistic behaviour, their effectiveness hadbeen at best partial and penalties were generally not invoked.

Donors’ rationales for their responses

Donors tended to justify their continued disbursements of aidflows by presenting a number of difficulties in relation to alterna-tive options. Various interviewees (donor representatives and KIs)considered that there was a difficult balance in judging whencorruption and governance problems exceeded ‘acceptable’ levelsand when it was time to take action. In contrast to a contractualview of the relationship, many invoked a more relational one: aidwas a long-term process of building capacity and improvingexisting systems.

The courses of action feasible and available were contested.Donor representatives were not in agreement or certain about theappropriate response to corruption: should they seek to activatelocal accountability mechanisms (for example legal, media orpolitical processes) or should they suspend aid? The latter wasargued (technical assistant) to have the disadvantage of disruptingservice delivery and poverty reduction targets. In the case of theformer, it could also be speculated that donor representativesmight be afraid of adverse consequences, such as expulsion fromthe country or other retaliation. Robust evidence would be requiredfor any legal mechanism to be invoked.

Some looked to the World Bank, perceived as ‘heavyweight’, tolead on governance issues (technical assistant). However, theWorldBank was seen as lacking expertise in political analysis (technicalassistants). DFIDwas also said to be lacking this expertise (technicalassistants). Their advisors felt, for instance, that they spent tooshort a period of time in each country to build a sufficiently strongknowledge base.

Some donor representatives interviewed felt powerless (atadvisor level) to take action regarding accountability problems butalso on issues like poor performance within the MoH. Ultimately,disbursement is decided at the headquarters of multilateral andbilateral agencies rather than by local advisors.

We have less power than people think as donors. We can say thingsat HPAC. but if I can’t persuade something then it won’t happen.(Donor representative)

Another argument was that lack of funding rendered poorperformance acceptable.

There is an unwritten rule that you can’t deal with poor perfor-mance because part of the deal is that if you are going to performwell, you are paid well and that’s the sort of argument that you willgo back to. Their civil service systems are like ours were. Somebodydoes not perform well then he moves them or promote(s). Doesn’tmake (for) the great performance overall. (Donor representative)

Therewas also the argument of ‘interference’. Donors seemed tofear being accused of meddling in domestic affairs e bymaking useof the SWAp processes in substitution of other governmentmechanisms that if functional and effective would not requiredonors to intervene.

To what extent is it right for us to be interfering? The DG [directorgeneral] has made that clear. What [is the] extent [of donors].appropriate role in showing accountability and good perfor-mance? To what extent is the SWAP taking over from otherprocesses that ought to be happening within government? If the

DG hasn’t got the time or doesn’t feel able to tell the Commis-sioner Planning, get a decent budget framework paperproduced, then he probably won’t mind if we do that. But is thatright? (Donor representative)

Further, there was the issue of power. Donors argued thatproblems lay somewhere above those they were in contact with.For example, officials within the MoH may not have influence overcorruption among politicians, or over project funding negotiateddirectly with the President’s office as was the case of PEPFAR.

A final justification that donors seemed to have for not holdingthe government to account related to their hesitation or fear ofbreaking trust levels and exposing or challenging individuals withwhom they had built relationships. An advisor trusted withinformation was also trusted not to share such informationformally (donor representative). The loss of such trust could limitthe effectiveness of the donor representative across whole areasof work and ultimately his/her ability to continue to work incountry.

Discussion and conclusion

The cross-sectional nature of the study design allowed for an in-depth understanding of a range of dimensions that affected the aidcontract through the use of the case study approach. Howevera more longitudinal design or one seeking comparative data froma wider range of contexts would have enabled a better under-standing of the generalisability of the issues discussed. This wascounterbalanced to some extent by including a retrospectiveaccount (or ‘historical perspective’) of some events as reported byinterviewees and gathered through documentary analysis datingback to 2000. A more in-depth understanding of the aid contractand how the formal compensation system continued to operate inUganda following the end of this study was beyond our scope ofwork. Yet, a more general analysis of the Ugandan SWAp in recentyears has shown that it continued to deteriorate (Örtendahl, 2007).In other countries (e.g. Ghana, Mozambique, Zambia), there is alsoa perception that the “SWAp has lost momentum” (Walford, 2007).Further case studies in other contexts would be helpful to explorecommon and divergent patterns from those reported here.

Our results showed that the main mechanism of performanceassessment was the Joint Review Mission. This mechanism wasconsidered to lack objective criteria. The achievement of a satis-factory performance rating was associated with undertakings thatwere under-demanding, vaguely formulated and lacking quantita-tive benchmarks.

However, even when poor performance was readily observable(in spite of information asymmetries), penalties were not applied.While there were threats, for instance related to the Programme 9tracking study, these threats did not materialise. Sanctions for poorperformance are not credible if they do not materialise. In practice,penalties were applied only for military actions not sanctioned bythe international community and defence expenditure increases.

Strong incentives to continue to disburse aid seem to have beenbehind the motives for donors not applying sanctions or penalisingthe agent in Uganda. Although this was not acknowledged by anydonor representative, it is possible that the need to present‘success’ or a positive picture of performance is one factor moti-vating their behaviours and perhaps more so their superiors inheadquarters who represented another layer of the principale-agent relationship. This problem may have been compounded bythe increases in aid budgets, associated with incentives to disburse.Failure to disburse pledged funds can be politically embarrassingdomestically and internationally. Those pressures are likely to bepassed down the chain to donor government representatives.

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Others have also underlined the influence of political motives inaid (e.g. Alesina & Dollar, 2000; White, 1998). The introduction ofa contractual approach in a context driven by political interests andgovernance problems seems naïve. None of the conditions forsuccessful contracting appears to apply. Opportunistic behavioursand recipient sovereignty adds complexity to a potential ‘aidcontract’ (Murshed, 2009)e although this may not preclude donorsfrom contracting health providers (e.g. Non-Governmental Orga-nisations: NGOs) directly.

We have encountered instances in other settings at other timeswhere penalty mechanisms have been invoked as part of the healthIDA contract. A grant to Burma was terminated and grants toUganda suspended by the Global Fund (Bass, 2005); a tranche ofGBS funds was withheld by the EU (using its graduated system) toBenin (Adam, Chambas, Guillaumont, Jeanneney, & Gunning,2004); and a performance payment by the Multi-Donor BudgetSupport Programme to Ghana was also withheld (ODI, 2007).Nevertheless, these are slight events in the bigger picture of globalIDA and suggest that while the withholding of a tranche of aid mayoccasionally be a strategic political step on the part of bilateral ormultilateral agencies, this is not a mechanism that will be routinelyused effectively. Earlier, ‘aid conditionality’ experience met similarproblems (Killick, 1997).

Our results showed that what ‘contracts’ existed betweendonors and recipient governments were incomplete. Issues ofmeasurability, verifiability, lack of capacity (Adam & Gunning,2002; Martens et al., 2002) and multifactoral causality of healthsector outcomes beset the enforcement of penalties and rewards indevelopment aid for health. Thus a standard contracting approachseems not applicable to such a complex environment.

Might relational contracting be a better option for dealing withagency problems in this context? Trust and cooperation are argued(Allen, 2002; Palmer & Mills, 2003) to contribute towards effectiveperformance management (Williamson, 1985) by substituting fordetailed contract specification. It is also claimed that signalling ofcommitment to better performance by recipient countries (like thePRSP process) may be a solution to the agency problems discussed(Murshed, 2009). However, the findings in our study suggest thatwhile long-term relationships between individual donors andgovernment officials led to greater information on performance ofthe sector, any attempt to use this to manage performance effec-tively would have undermined the information flow. Tolerance ofpoor performance was explicitly linked by donor representatives tothe absence of governance options. The ‘Samaritan’s dilemma’ isanother reason for accepting poor quality effort by the agent whereunder the argument of altruism, donors claim that withholding aidwould harm the beneficiary population (Svensson, 1997). Hence,even relational contracting has proved flawed in an environmentwhich was characterised by numerous principaleagent relation-ships (including donors acting simultaneously as principals andagents); multiple and conflicting objective functions and difficultiesto understand and predict incentives.

The main policy implications of this research are that politicalskills are of greater importance than technical ones inmanaging aidand perhaps require more investment in relation to the preparationof agency representatives in recipient countries. There are genu-inely shared agendas among development partners (recipientgovernments, multilateral, bilateral agencies, NGOs and CSOs) onwhich political alliance can be built.

There are also conflicts with crooked officials and politicians andpolitical constituencies that seek to earmark state benefits for priv-ileged elites that such alliances, a technical analysis, a strategicwithholding of a tranche of aid, the use of local accountability(including the media and civil society organisations) or legal instru-ments can be used to suppress in some circumstances. However, the

use of any of these mechanisms should not be formulaic and shouldalways be informed by political judgement.

In conclusion, contractual incompleteness (resulting frominformation asymmetry and opportunistic behaviour) and the roleplayed by the dynamic responses of politics help to explain thecomplex nature of relationships in international developmentassistance for health. These politically infused responses transformthe intended policy goals of improved aid effectiveness into a dis-torted delivery approach to aid which focuses on the volume of aiddisbursed and the reported successes associated with it.

Acknowledgements

This study was partly funded by the DFID Knowledge Pro-gramme on Health Systems Development. We are very grateful toall those who participated in the study by contributing theirknowledge and time through interviews, access to meetings anddocuments. We thank the Institute of Public Health (MakereUniversity)in Uganda and its staff for institutional support. We arealso very grateful to the members of the advisory committee of thisstudy Anne Mills and Gill Walt. Many thanks to Natasha Palmer forreading and commenting on the manuscript and to Ayako Hondafor suggesting useful references. We are also indebted to NicolaLord and Ellen Shields for administrative support.

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