The Department for International Development: The multilateral aid

HC 660 Published on 11 February 2013

by authority of the House of Commons London: The Stationery Office Limited

House of Commons

Committee of Public Accounts

The Department for International Development: The multilateral aid review

Twenty-sixth Report of Session 2012–13

Report, together with formal minutes, oral and written evidence

Ordered by the House of Commons to be printed 23 January 2013

£11.00

Committee of Public Accounts The Committee of Public Accounts is appointed by the House of Commons to examine ‘‘the accounts showing the appropriation of the sums granted by Parliament to meet the public expenditure, and of such other accounts laid before Parliament as the committee may think fit’’ (Standing Order No 148). Current membership Rt Hon Margaret Hodge (Labour, Barking) (Chair) Mr Richard Bacon (Conservative, South Norfolk) Mr Stephen Barclay (Conservative, North East Cambridgeshire) Guto Bebb (Conservative, Aberconwy) Jackie Doyle-Price (Conservative, Thurrock) Chris Heaton-Harris (Conservative, Daventry) Meg Hillier (Labour, Hackney South and Shoreditch) Mr Stewart Jackson (Conservative, Peterborough) Fiona Mactaggart (Labour, Slough) Mr Austin Mitchell (Labour, Great Grimsby) Sajid Javid (Conservative, Bromsgrove) Nick Smith (Labour, Blaenau Gwent) Ian Swales (Liberal Democrats, Redcar) Mr Justin Tomlinson (Conservative, North Swindon) The following Members were also Members of the committee during the parliament: Dr Stella Creasy (Labour/Cooperative, Walthamstow) Justine Greening (Conservative, Putney) Joseph Johnson (Conservative, Orpington) Eric Joyce (Labour, Falkirk) Rt Hon Mrs Anne McGuire (Labour, Stirling) Matthew Hancock (Conservative, West Suffolk) James Wharton (Conservative, Stockton South) Powers The committee is one of the departmental select committees, the powers of which are set out in House of Commons Standing Orders, principally in SO No 152. These are available on the internet via www.parliament.uk. Publications The Reports and evidence of the Committee are published by The Stationery Office by Order of the House. All publications of the Committee (including press notices) are on the internet at www.parliament.uk/pac. A list of Reports of the Committee in the present Parliament is at the back of this volume. Additional written evidence may be published on the internet only. Committee staff The current staff of the Committee is Adrian Jenner (Clerk), Sonia Draper (Senior Committee Assistant), Ian Blair and James McQuade (Committee Assistants) and Alex Paterson (Media Officer). Contacts All correspondence should be addressed to the Clerk, Committee of Public Accounts, House of Commons, 7 Millbank, London SW1P 3JA. The telephone number for general enquiries is 020 7219 5708; the Committee’s email address is [email protected]

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Contents

Report Page

Summary 3

Conclusions and recommendations 5

1 The Department’s Multilateral Aid Review framework 7

2 Maximising the impact of the Review 10

3 Making the most cost-effective aid choices 13

Formal Minutes 16

Witnesses 17

List of printed written evidence 17

List of Reports from the Committee during the current Parliament 18

3

Summary

Multilateral organisations can play a very valuable role in development; they often work in politically sensitive areas, can offer economies of scale, broker international agreements and set international standards. The Department for International Development (the Department) funds a range of these organisations to deliver its objectives. It spends almost half of its total aid budget on core funding for multilateral organisations, amounting to £3.6 billion in 2011-12. The UK is normally only one of many members of multilateral organisations, each of which have their own governance arrangements, policies and priorities. This obviously constrains the Department’s influence on how the funding it gives is used

The Department is making good progress in assessing the effectiveness of multilateral organisations. The Department published a Multilateral Aid Review (the Review) in March 2011, which assessed the value for money of 43 multilateral organisations in achieving departmental objectives. We welcome this Review, which was more thorough and transparent than previous assessments.

Refinements to the Review process will allow the Department to build on its successes and improve the effectiveness of future Reviews. These include pressing multilateral organisations for better data on costs and results, better assessment of gaps and duplication in their activities, and strengthening the link between a multilateral organisation’s performance and the Department’s funding. Collaborating with other countries on reform programmes and sharing assessments will help the Department to maximise the impact of the Review process and minimise the administrative burdens on multilateral organisations.

The Department’s overall budget for international aid will increase by 27% in real terms between 2010-11 and 2014-15, reflecting the Government’s commitment to providing funding worth 0.7% of Gross National Income from 2013. Public confidence in the value of UK aid depends on the Department demonstrating that the funds are well spent. Better comparisons between the cost-effectiveness of bilateral aid and multilateral aid will allow the Department to determine which approach is best placed to deliver its outcomes.

On the basis of a report by the Comptroller and Auditor General1, we took evidence from the Department for International Development on its Review, how it is seeking to maximise the impact of the Review, and the cost-effectiveness of different types of aid.

1 C&AG’s Report, Department for International Development: The Multilateral Aid Review, Session 2012-13, HC594

5

Conclusions and recommendations

1. The Multilateral Aid Review was a significant step forward in assessing the performance of multilateral organisations. The Review provided a welcome focus on the costs and the results delivered, but it was limited by the availability of data from multilateral organisations. There have been limited financial or other incentives for multilateral organisations to routinely provide data on their costs and results. Without good quality information it is not possible to assess and demonstrate the value for money of UK aid. The Department should use its future funding as a lever to persuade organisations to improve their data on costs and results by making such data a requirement for increased funding.

2. The Department has an opportunity to develop further its understanding of the way multilateral organisations operate ahead of its next full Review in 2015. Some refinement in the framework to reflect differing types of multilateral organisation will support more meaningful comparisons between organisations. The Department took a pragmatic approach to reviewing each multilateral organisation separately, but has not yet set out whether there are gaps or overlaps between the organisations funded. Before its next full Review in 2015, the Department should refine its framework to better reflect all types of multilateral organisation and it should map the roles of multilateral organisations, highlighting gaps, overlaps and linkages, to enable informed decisions on who can best deliver the Department’s objectives.

3. The Department rated nine multilateral organisations as poor, but so far has only withdrawn funding worth £8 million from four organisations. Linking funding levels to performance provides a strong incentive for organisations to improve but so far changes to funding patterns have been limited. The Department should use its information on performance to determine future levels of funding, and where it provides a significant proportion of total funding, use this leverage to drive improved performance.

4. The Department’s Review has encouraged other donor countries, such as Australia and Denmark, to conduct similar assessments. The Department told us that it is in discussions with these countries about how to develop shared assessments to ensure they minimise burdens on multilateral organisations and maximise the incentives for organisations to reform. The Department should work with those open to collaboration to agree reform priorities for key multilateral organisations and alternative ways of delivering objectives if organisations do not improve, with a view to greater collaboration in its 2015 assessment.

5. The Department has so far made only limited assessments of the relative cost-effectiveness of multilateral and bilateral aid in achieving its objectives. The proportion of aid delivered to the 43 multilateral organisations subject to review increased from 41% in 2009-10 to 47% in 2011-12. But the Department only compared the value of its proposed funding increases in delivering its objectives with bilateral alternatives for four of these organisations. Comparisons are easier where data are more readily available, such as on education and health outputs. Robust data are more difficult to obtain for projects focused on governance or international

6

security. As better data becomes available the department should increase its use of comparisons of bilateral and multilateral aid.

6. The Department may not be maximising value for money in its contracts with those who deliver bilateral aid owing to a lack of competition. Some organisations working for the Department report substantial financial returns, which undermines public confidence that the Department is getting value for money from its aid budget. The Department has commissioned a review of its procurement process and is seeking to increase competition between suppliers. The Department must develop a more rigorous procurement strategy which enables it to secure better value through a better understanding of the provider market and increased competition.

7. Although the Department has in place policies and processes to detect fraud in the use of UK-sponsored multilateral and bilateral aid, the effectiveness of these processes has not been demonstrated to the Committee. The Department has not therefore assured us of the efficacy of these anti-fraud procedures. We urge the Department to provide the Committee with figures on detected fraud on a country-by-country basis.

7

1 The Department’s Multilateral Aid Review framework 1. The Department for International Development (the Department) spent £3.6 billion on funding the core activities of 43 multilateral organisations in 2011-12, some 47% of its total aid budget.2 Funding multilateral organisations can be an effective way to deliver UK aid objectives; these bodies work in politically sensitive areas, can offer economies of scale, broker international agreements and set international standards. Funding multilateral organisations may also allow the Department to provide assistance in countries where it does not have a bilateral programme, such as the Global Partnership for Education’s support for children in Francophone Africa.3 We were told that multilateral organisations tend to perform well on the Centre for Global Development’s Quality of Aid index on efficiency as they benefit from the scale of their operations and from specialisation.4

2. In March 2011 the Department published its Multilateral Aid Review which assessed the performance of 43 multilateral organisations against a standard set of effectiveness criteria.5 We welcome the Review as a step forward in trying to assess the value for money of the Department’s multilateral aid in achieving departmental objectives. Reviews of multilateral aid have been undertaken before but we were told that the most recent Review was more comprehensive and transparent than previous ones, systematically collecting evidence on a wider set of criteria and on a larger number of organisations.6 We were told that the method and public nature of the ratings have made multilateral organisations take note of the Review.7

3. The Review focused on cost control and financial management in a way that previous reviews had not done.8 Despite the good progress made, the Department’s analysis was limited by a lack of robust data on costs and results from multilateral organisations.9 The Department’s assessments also did not contain comprehensive information about the results achieved from its core funding.10 Multilateral organisations are not required to provide systematic evidence about their costs and results, which affects the ability of member states to make informed decisions about funding. And sources of information are not always consistent, making it difficult to assess and compare value for money. We were told that the Department recognised that it needs better information on delivery and

2 C&AG’s Report, para 4

3 Q53

4 Q7

5 Department for International Development, Multilateral Aid Review: Ensuring maximum value for money for UK aid through multilateral organisations, March 2011

6 Qq 23, 64; C&AG’s Report, para 2.3

7 Q6

8 Q6

9 Q53-54

10 Q98

8

administration costs of multilateral organisations and the results such funding achieved. It has led the way in campaigning for better information, but further progress is needed.11

4. We were reassured that the Department’s efforts to improve cost data so far have led to savings to the taxpayer. The Department reports that administration costs of multilateral organisations vary greatly between organisations, from less than 1% to nearly 20%. The Department told us it has started to develop a better database of the administration costs of each organisation, although there remain challenges of using consistent definitions.12 There are value for money savings to be made from improved understanding of the costs of multilateral organisations, particularly in reducing the cost of bureaucracy. For example, increased transparency over costs this year has allowed the Department to negotiate a 5% reduction in the administration budget for the United Nations Children’s Fund (UNICEF), the United Nations Development Programme (UNDP) and the United Nations Educational, Scientific and Cultural Organization (UNESCO). The Department also pointed to procurement savings on items such as vaccines and anti-malarial bed nets, as examples of where better data can lead to reduced costs.13

5. The Department’s framework provided a reasonable basis for assessing a diverse range of organisations.14 But some organisations found it easier to demonstrate good performance than others. Specialised single sector bodies tended to score better than some high profile but more complex organisations such as World Health Organization and the Food and Agriculture Organisation, both of which were rated adequate or poor.15 Single purpose funds with a narrow mandate such as the GAVI Alliance often have clear and measurable outputs.16 In comparison, agencies engaged in setting global standards often had difficulty in demonstrating clear results from such functions. For example, it is very difficult for the World Health Organization to quantify the benefits to individual countries from the advice it provides on drug protocols.17 The Department told us that it is reviewing its framework ahead of its next Review to consider how well it reflects standard setting agencies.18 The Department expects such organisations to develop their results frameworks before future Reviews to provide better evidence on their achievements.19

6. The Department can improve the rigour of its next review through a more explicit consideration of key issues for multilateral aid.20 The 2010-11 Review assessed each organisation individually rather than seeing them as a group of varied but linked organisations fulfilling complementary roles.21 This was a pragmatic approach to an ambitious review, but it did leave unanswered questions of coherence, gaps and overlaps in

11 Qq15-16, 101

12 Q66

13 Q66

14 C&AG’s Report, para 11

15 Q17

16 Qq 23, 103

17 Q99

18 Qq19, 104

19 Q99

20 C&AG’s report, para16

21 Q3

9

roles, and comparative strengths and weaknesses.22 For example, we heard that there are about 90 organisations which work in global health alone.23 Better mapping of the roles of multilateral organisations would enable the Department to assess how the organisations it funds help multilateral organisations to contribute to Departmental aims and objectives.

22 Q3

23 Q27

10

2 Maximising the impact of the Review 7. The UK is only one of a large number of members of many multilateral organisations meaning its influence over the allocation of funding and its ability to drive change can be limited.24 The Department has learnt lessons from previous attempts to assess the performance of multilateral organisations. One of the Review’s key strengths is the transparent nature of the ratings which provides a greater incentive for multilateral organisations to change.25 The Department told us it is committed to building on the Review, particularly through changing its funding patterns and promoting reforms within multilateral organisations. Both of these incentives will be stronger if the UK can work with others to achieve the same objectives.

8. The Department’s Review was a significant step forward from previous donor assessments, explicitly linking the results of the assessment to future funding decisions. The Review publicly rated nine organisations as offering ‘poor’ value for money.26 The Department has withdrawn its funding from four of these organisations27, and is unusual amongst donor countries in having done so.28 But the Department had only spent £8 million on these organisations in the previous year, 0.2% of its total multilateral funding.29 The Department’s current multilateral funding plans show that funding going to those rated ‘good’ or ‘very good’ will only rise by three percentage points, from 74% to 77%, between 2010-11 and 2014-15.30 We were concerned that the Department’s approach may still be too timid.31 Exiting significant sized poorly performing multilateral bodies would provide a strong incentive to other multilateral organisations to improve their performance, particularly if other countries followed suit. We would expect to be able to see more significant changes to funding patterns after the Department’s 2013 refresh of the Review. 32

9. The Department faces some restrictions in altering its funding profile. Its contribution to the European Commission’s main development activities, rated as adequate, comprises some 23% of the Department’s total multilateral budget in 2011-12.33 This mandatory payment is set by the UK’s Treaty obligations and reflects wider political interests. For some other organisations such as UNESCO, the Department has to pay a compulsory membership subscription or leave completely.34 In such cases, the Department’s funding

24 Q40

25 Q6

26 Q40; C&AG’s Report, paras 2.17 and 3.15

27 The four organisations are: The United Nations Human Settlements Programme (UNHABITAT); the United Nations International Strategy for Disaster Reduction (UNISDR); the International Labour Organization (ILO); and the United Nations Industrial Development Organization (UNIDO).

28 Q40

29 Qq 26, 58-60

30 C&AG’s Report, para 3.4

31 Q58

32 Q25-26

33 Qq67, 68; C&AG’s Report, Figure 12

34 Qq 56, 58

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decisions often reflect wider UK government objectives as well as aid objectives. For example, the UK places much value on membership of the Security Council and on its international presence, arising partly from its wide membership of United Nations organisations.35

10. The Department has continued to fund four organisations which performed poorly36 in the Review.37 In 2010-11 the Department spent £48 million on these four organisations, 1.4% of the Department’s multilateral aid budget.38 These organisations continue to offer some value to the Department.39 For example, the Food and Agriculture Organization led a campaign which successfully eradicated Rinderpest, an infectious viral cattle disease, and also runs a big famine early warning system for 27 countries in Africa.40 The Department is reluctant to leave organisations which do things such as global safety standards, which is important to both the UK and developing countries.41 Should these organisations not improve, the Department would, along with other countries, need to consider how else it could achieve the same development objectives.

11. The Department has used its information from its assessment of multilateral organisations to help determine funding levels. It provides lower funding levels to the UNESCO education programme, which it rates as ‘poor’, but has chosen to channel significant funding through UNICEF’s education programmes where it has greater confidence in the results delivered.42 Where the Department decides not to exit a poorly performing organisation it is important to focus instead on promoting value for money through helping the organisation to reform.

12. Ultimately the success of the Review depends on the Department’s ability to drive change in multilateral organisations as well as how it uses the Review to determine funding decisions.43 Following the Review the Department set out high level reform priorities, together with specific reform strategies for each of the agencies it reviewed.44 The Department told us that it is seeking to assist multilateral organisations on key priorities, using working groups and formal and informal arrangements to promote change in key areas. The Department told us that it has been successful in pushing the European Commission to cut its direct funding to 21 relatively better off countries previously receiving aid, thereby increasing the poverty focus of its overall spending.45 But although the Department provides a third of the Commonwealth Secretariat’s funding, the

35 Q99

36 The four organisations are the Food and Agriculture Organization (FAO); the International Organization for Migration (IOM); the Commonwealth Secretariat; and the United Nations Educational, Scientific and Cultural Organization (UNESCO).

37 Q58

38 Q59, Q19

39 Q58

40 Q61

41 Q61

42 Q56

43 Q38

44 Q40

45 Q68

12

organisation was still rated as poor.46 The Department told us that a set of reform proposals are underway.47 Where the Department provides a substantial proportion of funding, the Committee expects the Department to be able to exert significant influence in encouraging these organisations to reform.

13. The number of separate donor country assessments has been of concern to multilateral organisations. Shared assessments of multilateral aid could reduce the burdens placed on multilateral organisations of separate donor reviews and increase the impact of reform priorities.48 Aspects of the Department’s approach to its Review have already been emulated by other countries such as Australia and Denmark.49 The Department told us that it has also held senior level discussions with aid agencies in other traditional donor countries, including engaging with emerging donors such as India and China on reform priorities, and with Brazil and Mexico about the value offered by multilateral organisations.50 But there are risks in collaborating with too many donors, particularly slowing down progress and reducing the scope of reviews to the lowest common denominator.51 Previous attempts at joined-up assessments such as the MOPAN52 have hit problems of poor coverage, a lack of transparency and a lack of levers for change arising from the reviews.53 The Department told us that it views a joint approach with a few like-minded countries as desirable, but only if it can be confident that shared assessments will not lessen the quality and impact of the Review.54

46 Qq 61, 62

47 Q63

48 Q64

49 Q6

50 Q65

51 Q40

52 The Multilateral Organization Performance Assessment Network.

53 Qq 21, 40

54 Qq 44, 46

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3 Making the most cost-effective aid choices 14. The Department’s overall budget for international aid will increase by 27% in real terms between 2010-11 and 2014-15, reflecting the Government’s commitment to providing funding worth 0.7% of Gross National Income from 2013. The Review assessed individual multilateral organisations but did not assess the cost-effectiveness of the overall level of multilateral funding, or whether the Department’s development objectives were better met through bilateral organisations.55 Public confidence over the value of UK aid depends on the Department demonstrating that the funds are well spent.

15. During the 2010 Spending Review, the Department made some limited comparisons of the cost-effectiveness of bilateral and multilateral aid contributions to its key objectives.56 Where it considered it possible, it compared the proposed funding increase for multilateral organisations against bilateral alternatives in specific sectors. To date the Department has only compared four of the 43 multilateral organisations included in its Review to bilateral alternatives in this way, mainly covering vaccine procurement, bed net procurement and the provision of education services.57 Some comparisons are easier to make than others. Data is more readily available for programmes in education or health, rather than governance or security, where comparisons are limited by a lack of good indicators.58 We were told that it is easier to make comparisons between bilateral and multilateral aid organisations which operate in specific sectors rather than organisations such as the World Bank which operate in many sectors.59

16. The proportion of aid delivered through multilateral organisations increased from 41% in 2009-10 to 47% in 2010-11 and 2011-12.60 The Department told us that this was driven by allocating more money to effective multilateral organisations such as the GAVI Alliance and the Private Infrastructure Development Group, and an uneven distribution of funding to some large multilateral organisations such as the World Bank’s International Development Association..61 We were also told that increasing multilateral expenditure was a practical way of delivering the Department’s total aid expenditure during a time when it did not have enough frontline staff in place to manage country- level projects.62 The Department reported that over the last 18-24 months it has increased the number of frontline staff by 300 to improve its ability to deliver its bilateral programme.63 The Department plans to reduce the proportion of multilateral aid to 36% of its total aid budget by 2013-14 because it wants to significantly increase bilateral spending, although

55 Qq 4-5

56 Q49

57 Qq 53, 100

58 Q54

59 Q53

60 Q47

61 Ev 19

62 Q47

63 Q47

14

multilateral aid will continue to increase due to the Department’s overall budget increases.64

17. The Department’s increasing budget leads to greater public expectation to ensure that funds are well spent, and ensuring value for money from the Department’s bilateral aid is as important as from multilateral aid. Some of the Department’s contractors have reported substantial financial returns. Our attention has been drawn to Adam Smith International, which received £37 million from the Department in 2010-11. One of Adam Smith International’s Directors received remuneration of over £250,000 in 2011. A Director also received a dividend in 2010 of over a million pounds.65 Such excessive payments undermine public confidence that the Department’s aid money is being spent well. We were told that the Secretary of State has committed to holding discussions with those involved in delivering its international aid, including Adam Smith International, to emphasise the need to ensure value for money for the taxpayer.66

18. The Department explained that some high consultancy costs may reflect the risks associated with the work and lack of other bidders, where the choice can be to use the contractor on offer or not to proceed at all.67 Adam Smith International’s contracts include specialised projects in dangerous areas, such as a project to increase tax revenue in Afghanistan.68 The Department recognised that it needed to ensure more competition to drive down prices and noted that limited competition can be a problem in fragile environments.69 It also stated that it has, at times, suspended or redesigned projects because of a lack of competitive bids.70 The Department told us it is seeking to expand its supplier base and is putting in place framework contracts designed to bring in new entrants and it is putting strong monitoring arrangements in place to ensure that once a bid is approved, it is delivered successfully.71

19. The Department expects improvements to its approach to procurement and consultancy from its new business case model, which asks teams to consider different delivery mechanisms at the design stage of projects, and the costs associated with each.72 The Department is also looking at whether it has the right balance between using expertise within government departments.73 The Department has used contractors to deliver programmes when other government departments may have relevant expertise.74 The Department told us it has launched a new framework, the Investment Facility for Utilising UK Specialist Expertise (iFUSE), to strengthen links across the public sector and create capacity to deliver services where Government holds the relevant expertise. The

64 Q49

65 Qq 69, 78, Ev 20

66 Q72

67 Qq 73, 83, 94

68 Q71

69 Qq82-83

70 Q97

71 Qq82-4

72 Qq 85, 86

73 Q86

74 Qq 79, 80, 84

15

Department has worked with bodies such as the Serious Organised Crime Agency (SOCA) and the Metropolitan Police on anti-corruption through this framework.75

75 Qq 91, 92

16

Formal Minutes

Wednesday 23 January 2013

Members present:

Margaret Hodge, in the Chair

Stephen Barclay Jackie Doyle-Price Mr Stewart Jackson Fiona Mactaggart

Mr Austin MitchellNick Smith Ian Swales Justin Tomlinson

Draft Report (The Department for International Development: The multilateral aid review), proposed by the Chair, brought up and read.

Ordered, That the draft Report be read a second time, paragraph by paragraph.

Paragraphs 1 to19 read and agreed to.

Summary agreed to.

Resolved, That the Report be the Twenty-sixth Report of the Committee to the House.

Ordered, That the Chair make the Report to the House.

Ordered, That embargoed copies of the Report be made available, in accordance with the provisions of Standing Order No. 134.

Written evidence was ordered to be reported to the House for printing with the Report (in addition to that ordered to be reported for publishing on 14 January 2013).

[Adjourned till Monday 28 January at 3.00 pm

17

Witnesses

Wednesday 24 October 2012 Page

Owen Barder, Senior Fellow and Director for Europe, Center for Global Development, and Alison Evans, Director, Overseas Development Institute Ev 1

Mark Lowcock, Permanent Secretary, Anthony Smith, Director, International Relations Division, and Liz Ditchburn, Director, Value for Money, Department for International Development Ev 7

List of printed written evidence

1 Department for International Development Ev 19

2 Adam Smith International Ev 19

18

List of Reports from the Committee during the current Parliament

The reference number of the Government’s response to each Report is printed in brackets after the HC printing number.

Session 2012–13

First Report The Government Procurement Card HC 1915 Second Report Third Report Fourth Report Fifth Report Sixth Report Seventh Report Eighth Report Ninth Report Tenth Report Eleventh Report Twelfth Report Thirteenth Report Fourteenth Report Fifteenth Report Sixteenth Report Seventeenth Report Eighteenth Report Nineteenth Report Twentieth Report Twenty-first Report Twenty-Second Report

Mobile Technology in Policing Efficiency and reform in government corporate functions through shared service centres The completion and sale of High Speed 1 The Regional Growth Fund HM Revenue & Customs: Renewed Alcohol Strategy Immigration: The Points Based System – Student Routes Managing early departures in central government Preparations for the London 2012 Olympic and Paralympic Games Implementing the transparency agenda Improving the efficiency of central government office property Off-payroll arrangements in the public sector Financial viability of the social housing sector: introducing the Affordable Homes Programme Assurance for major projects Preventing fraud in contracted employment programmes Department of Health: Securing the future financial sustainability of the NHS Department of Health: The management of adult diabetes services in the NHS HM Treasury: The creation and sale of Northern Rock plc HM Revenue & Customs: Annual Report and Accounts 2011-12 Department for Energy and Climate Change: Offshore electricity transmission—a new model for infrastructure The Ministry of Justice’s language service contract British Broadcasting Corporation: Off-payroll contracting and severance package for the Director General

HC 1863 HC 463 HC 464 HC 104 HC 504 HC 101 HC 503 HC 526 HC 102 HC 288 HC 532 HC 388 HC 384 HC 103 HC 389 HC 289 HC 552 HC 716 HC 621 HC 620 HC 774

19

Twenty-Third Report Department for Work and Pensions: Contract management of medical services

HC 744

Twenty-Fourth Report Twenty-Fifth Report

Nuclear Decommissioning Authority: Managing risk at Sellafield Funding for local transport: an overview

HC 746 HC 747

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Committee of Public Accounts: Evidence Ev 1

Oral evidenceTaken before the Committee of Public Accounts

on Wednesday 24 October 2012

Members present:

Margaret Hodge (Chair)

Mr Richard BaconJackie Doyle-Price

________________

Amyas Morse, Comptroller and Auditor General, National Audit Office, Gabrielle Cohen, Assistant AuditorGeneral, NAO, Phil Gibby, Director, NAO, and Marius Gallaher, Alternate Treasury Officer of Accounts,were in attendance.

REPORT BY THE COMPTROLLER AND AUDITOR GENERAL

The multilateral aid review (HC 594)

Examination of Witnesses

Witnesses: Owen Barder, Senior Fellow and Director for Europe, Center for Global Development, and AlisonEvans, Director, Overseas Development Institute, gave evidence.

Q1 Chair: Welcome. Sorry we are running a bit late.We have a vote at 4pm, which will be a natural break.We are very grateful to you both for coming to giveevidence, particularly Alison, because I gather thatyou flew in from India last night or this morning.Alison Evans: Actually, it was over the weekend.

Q2 Chair: Over the weekend; so you have had a littletime to sort things.The purpose of this part of our evidence session is totalk to stakeholders and get their perspective on thework that the NAO has done, so that we can be rathermore intelligent in our questioning of officials whenwe come to it and bring in your experience of it all.Feel free to tell us anything—we are not trying tocatch anybody out—that you think we should considerin consideration of the Report. I preface this by sayingthat this is one of the most positive Reports thisCommittee has had in quite some time. It seems as ifDFID is moving in the right direction in how it hasdone your review. That is how we read it. I aminterested in your perspective on whether this reviewtakes us in the right direction and where you thinkthey should take it from here, or how you read it. Whowishes to start?Alison Evans: Thank you very much, and thanks forthe opportunity to speak to you. As you will hopefullyknow, I was an external peer reviewer of themultilateral aid review along with Professor LawrenceHaddad, the director of IDS, so I had the opportunityto see the multilateral aid review process really closeup in a number of respects.The first thing that I want to say is that many of theconclusions drawn out of the NAO Report chime verymuch with my understanding and experience of theMAR process; I felt I was reading something from thesame reality, and that was very reassuring. The NAOReport is very clear and concise, it gives credit whereit is due, and it points also to a number of—I won’tnecessarily call them weaknesses—outstanding issues

Austin MitchellNick Smith

that certainly could be dealt with in subsequentiterations of the MAR. I am happy to elaboratequickly, as I realise that we do not have a lot of time.

Q3 Chair: Please do.Alison Evans: The first point is that the MAR takesmultilateral organisations very much on their ownmerits, and each is taken as a distinct organisation,rather than perhaps seeing multilaterals as part of asystem. I think that, in many ways, that was the rightpragmatic decision to take in a review of this nature,but it does leave a question hanging on thecompetencies of the system as a whole and what we,particularly as an international developmentcommunity, are getting out from the multilateral aidsystem. I think that that question hung, like theelephant in the room, a little bit during the process,and the NAO Report rightly points to it as an issuethat perhaps needs some consideration in subsequentrounds. At least, it needs to be discarded positivelyas a question that should be asked—the question ofoverlapping, duplicating mandates of multilateralorganisations, for example; and the more fundamentalquestion of what kind of decision process the UKGovernment are taking about how to further theirdevelopment objectives thought the multilateral aidsystem, and how they look at that as a whole. Thoseare questions that, frankly, were not on the tableduring the review. I think they would have been hardto engage in alongside doing this very significantnumber of individual—

Q4 Chair: Could I just stop you, because I had nottwigged that. I accept that the review looked at theissue organisation by organisation and didn’t look atthe whole, but they surely looked at each organisationto see whether it was meeting DFID objectives?Alison Evans: Indeed; they looked at the relevancequestion, which loomed very large in the overallcriteria, but there was not a question of whether this

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Ev 2 Committee of Public Accounts: Evidence

24 October 2012 Centre for Global Development and Overseas Development Institute

particular development objective was better metmultilaterally or bilaterally, for example.Chair: Right, I get that.Alison Evans: Or whether meeting it through oneparticular organisation makes sense over anothermultilateral organisation; it was very much takingthings at face value. Now, as I say, those are verytough questions to ask because they involve a certainamount of counterfactual, but I still think it issomething that remains. The NAO Report hints atthat, and that is right.

Q5 Nick Smith: Has anyone else done that piece ofwork? It does sound very important.Alison Evans: We don’t actually have a piece of workthat involves the strong narrative around what wethink the multilateral aid system should deliver for usas a bilateral, and therefore how we use it to deliverthose objectives. I do not know of an agency that hasdone that piece. Obviously, we have metadata that askquestions about the overall system, including some ofthe work that the CGD has done through QuODA, butI do not know of an agency. Perhaps officials willknow differently, but I certainly have not seen sucha piece.

Q6 Chair: I might be interrupting you too much here,but my instinct—I am no great expert—is that,always, if you are trying to work through the plethoraof EU and UN-type agencies, you waste one heck ofa lot of a money on the way in bureaucracy, and lessgets to the front line.I see that you are surprised by that. Okay, we willcome back a bit because I am told that that is notright. But instinctively, with all the work that I havedone at the multinational organisation level, I knowthat money is difficult to follow because it alwaysseeps out into the system. I asked the question beforethe NAO of how much of this went on admin, andthey could not answer it.Alison Evans: But I actually think that the multilateralaid review gives a considerable amount of comfort, inthe sense that we are now closing down on the flowof funds. It is looking at cost control and financialmanagement in a way that, perhaps, agencies were notso focused on in the past. I think that DFID, in asense, was a trailblazer in actually coming to the pointwhere it asks those questions systematically of thesemultilateral organisations on a fairly level playingfield. There are reasons to believe that, at theperipheries of the system, that may be the case, but Iwould not accept your point as a fundamentalchallenge.Owen Barder: I think that DFID deserves a lot ofcredit for not only conducting this review, butpublishing the details of it in a way that has made therest of the international system sit up and take notice.We have now seen other countries respond to this. Ihave just flown in from Australia, where they haveconducted their own review, and we have seenreviews in the Netherlands and Sweden. They are allpursuing exactly the same idea, which is that weshould be much more systematic about looking atmultilaterals and deciding which are the mosteffective, and how we should channel it.

I think DFID has really changed the game—I can saythat because I was not involved with the multilateralaid review, so I am claiming no credit for it—and hasimproved the way we think about it. I also think weshould not start from the presumption that multilateralaid is less effective than bilateral aid—that is acommon presumption in a lot of capitals and amonga lot of parliamentarians. However, when you lookat value for money, there are theoretical reasons forthinking that multilaterals would be more effectiveand, in practice, such data as we have tend to supportthat idea. I can tell you a bit about that, but in theindex that the Center for Global Developmentproduces on the quality of aid, the multilateralagencies—

Q7 Mr Bacon: Sorry, can you repeat that? The indexthat the Center for Global Development produces—Owen Barder: We produce something called theQuality of Aid Index, which has four dimensions, oneof which is efficiency, which closely aligns to thevalue-for-money measure. The bilateral agencies welook at are all in the top half of the index, and thereare reasons for that. The multilaterals are less likelyto be captured by special interests. For example, theuntying of aid is much easier through the multilateralsystem.

Q8 Mr Bacon: When you say the top half of theindex, do you mean that they have a higher number,and that is bad?Owen Barder: No, that is good.

Q9 Mr Bacon: You said bilaterals. You meantmultilaterals.Owen Barder: I’m sorry, I mis-spoke. Themultilaterals are all in the top half of the index.

Q10 Chair: And the bilaterals aren’t.Owen Barder: And the bilaterals are not all in the tophalf, although DFID is extremely impressive in ourindex, as in all these kinds of index.

Q11 Chair: And why is that? What is theexplanation?Owen Barder: There is a bunch of reasons. One isthat there are returns to scale. One is that there arereturns to specialisation, and another is that you areless likely to have tied aid—a lot of bilateral donorsare forced to spend money inefficiently through theirown national companies, whereas through themultilateral system there is much less bias in thatdirection.Multilaterals can do things that bilaterals cannot. Theyare regarded as less politically sensitive thansovereign Governments getting involved. They areable to deal with global public goods in a way thatthe bilateral system often cannot. There are often bigspillover effects from having a lot of bilateralagencies. A lot of pollution—the multiplicity ofdifferent agencies—is greatly reduced by havingmoney go through the multilateral system. I think thatwe should not start from the popular assumption thatmultilateral agencies are less effective than bilateral

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agencies. We should start from the question of wherewe get the best value for money.What is interesting about the process that DFID hasfollowed this time, with the multilateral aid reviewand the bilateral aid review, is that really for the firsttime it has made that trade-off explicit. In the past,there was always a separate decision about how muchwe are going to spend bilaterally and how much weare going to spend multilaterally. This year, for thefirst time, it has taken those decisions together and putthe money wherever it thinks it is going to get the bestvalue for money. I think that that is something theCommittee should welcome.

Q12 Chair: Okay. Where do we go from here withthis review? Where would you go?Alison Evans: One of the issues raised by the NAOReport was about encouraging more joint assessmentsacross the bilateral community and, as is now takingplace in Australia, the Netherlands and elsewhere,using the DFID initiative to begin to encouragebilaterals to share this type of assessment, not only tocrowd in the positives of this kind of work, but alsoto put reasonable pressure and clarify the pressure thatbilaterals want to place on multilaterals for furtherreform. I don’t disagree with that, but I don’t thinkyou should underestimate just how hard it is either. Anumber of exercises have been tried in prior eras toencourage bilaterals to get together to come up withshared assessments of multilaterals which, in my view,have fallen short somewhat—MOPAN being aparticular example.

Q13 Nick Smith: Sorry, what is that?Alison Evans: The Multilateral OrganisationPerformance Assessment Network, which is 16bilaterals getting together to agree on a frameworkfor assessing multilaterals case by case. It is great inprinciple, but really has not delivered any kind ofchange that is meaningful. It opens up a way for aconversation, but it really has not motivated them.One of the missing pieces, quite frankly, is the link tofunding. What this review does, very clearly, is tobring together the arguments—

Q14 Mr Bacon: Sorry, you mean the lack of a linkto funding?Alison Evans: Yes, the lack of a link to funding inMOPAN. The MAR has clearly made that link.Although we know that that link cannot be treatedentirely mechanically, nevertheless it has provided avery strong incentive effect. So, in terms of where wego, there is a case for looking for opportunities to domore of these types of assessments in a jointframework with other bilaterals, but we shouldrecognise that there are going to be some sovereigndecisions about funding that, quite frankly, you wouldnot be able to share jointly across bilaterals.

Q15 Chair: So where do we go from here?Owen Barder: I agree with that, but I would add onething: all these exercises—the one that we did at theCenter for Global Development, the Multilateral AidReview and the ones in other countries—areessentially using proxies for value for money. We do

not have good enough data yet on how much differentkinds of activities cost when performed in differentorganisations. I am not saying that we should use thatinformation mechanically and algorithmically toallocate funding, but we should have it available tomake informed decisions.It is a shortcoming of the system that all of us whoare the shareholders in these organisations or memberstates have not pushed harder to have systematicevidence about outputs and outcomes publiclyavailable to enable us to do a proper value-for-moneyassessment. DFID has led the way in pushing for that,and I think that is very welcome. One thing that isstriking about these different reviews is that becausethey are all, in a sense, circumstantial evidence aboutvalue for money, they do not all line up with eachother. There are some common themes that emergefrom them, but the key piece of information that youwant—the unit cost of doing something through thisorganisation or that organisation—is not reallyavailable. One of the things that the NAO Reportpoints to is that we should push harder to getconsistent information available much moresystematically and openly across organisations so thatwe can make more informed decisions.

Q16 Chair: There is nothing to stop multilateralorganisations setting it and collecting it, is there? Youcan see that a small, on-the-ground deliveryorganisation might have some difficulties, and you cansee the difficulties over qualitative and quantitativedata and all that sort of stuff, but I don’t understandwhy it has been allowed to go on like this, without afirm database.Alison Evans: We all agree on that.Owen Barder: We agree there.

Q17 Austin Mitchell: Some of the worstorganisations—those rated just adequate or poor—arebig name organisations that are at the forefront ofmajor developments, such as the World HealthOrganisation, the Food and Agriculture Organisationand the International Labour Organisation, whereasthe ones at the top, which are efficient and so on andso forth, are ones I have never heard of. What doesthis mean: that the bigger an organisation is, the worseit is; or that the more dedicated it is to a specific andnarrow focus, the better it is? What does it mean?Alison Evans: I think that your hypothesis—that someof the organisations that came out towards the top ofthe scoring are more specialised and able to tell abetter story on delivering results—is a fair one. Thereare a number of organisations up there in the top bandthat absolutely fit with your hypothesis. GAVI, inparticular, has a very particular supply chain anddelivers a very particular product, and it can do so ina very targeted way. When you look at the criteriaunderpinning the multilateral aid review, those thingsare highly valued, and it is able to demonstrate that.In fact, that is borne out by broad experience—it isactually a highly effective organisation.Some of the organisations further down therankings—you mentioned the WHO, and the Foodand Agriculture Organisation—are definitely muchmore complex. They have multiple mandates, and in




the case of those two organisations, at least, they alsohave what is called a standard-setting or norm-settingfunction within the international system. For theWHO, that is in relation to certain protocols aroundthe health domain, and for the FAO it is aroundagricultural standards.I think it was well recognised during the multilateralaid review that some features of those particularorganisations—their norm-setting functions—werenot as valued in the criteria as the straight down theline efficiency and effectiveness criteria.

Q18 Austin Mitchell: Why is that?Alison Evans: It was just more difficult.

Q19 Austin Mitchell: It was the nature of the criteriaAlison Evans: Yes. The criteria did not capture themto the same degree. They are a bit less tangible and itis a bit harder to demonstrate clear results, and,actually, the institutions themselves find it moredifficult to tell a very clear results story. I think thatthat is a weakness on their part, I have to say, but itwas one that somehow got amplified during thereview. The team did try to take that into account.They made a number of adjustments to the scoresduring the moderation process. There are otherfeatures of those organisations that are a challenge—poor cost control, lack of clear strategies aroundimproving human resource management and soforth—but, nevertheless, the issue of the norm-settingagencies hung over the whole review, and I know thatit is now being treated very seriously for the nextstage, which is the update of the MAR for 2013.Owen Barder: I agree with all that. We should addthat, in terms of where most of the money goes—through the World Bank and the EuropeanCommunity—these are the high-performingmultilaterals. You have a long tail of much smallerorganisations with norm-setting functions, as Alisonsays. However, when thinking about value for moneyfor the British taxpayer, although they are performingan important role in the international system, they arenot soaking up a lot of our multilateral aid.

Q20 Austin Mitchell: For some organisations it ismore or less inevitable really. Do you think theDepartment has the right balance between fundingmultinational organisations and direct aid? To someextent, just chucking money at multinationalorganisations is a lazy person’s form of aid, and it iscertainly more difficult to justify when we facehostility in our constituencies. People like to seegratitude and a direct effect for Britain.Alison Evans: I have to say that I support Owen’sopening statement on this. I really think that startingfrom the standpoint that multilateral aid is somehowless effective than bilateral aid simply does not standup to scrutiny. I think that the multilateral aid reviewgoes a long way towards helping us to understand whythat is not the case. Surely the question for adevelopment Department such as DFID is: where canwe best place our money to achieve our overarchingnear-term and long-term objectives? I think the factthat the bilateral and multilateral aid reviews are beingbrought closer together is an important step forward.

Q21 Mr Bacon: I have one question about MOPAN.You said earlier that it was inadequate in some ways,most obviously because of the failure to link its resultswith funding, which is a fairly obvious flaw thatpresumably can be corrected quite easily. Were thereother flaws in the MOPAN methodology that made itan inadequate tool for measuring in itself, regardlessof the failure to link it with funding?Alison Evans: My own view is that it was over-complex and found it quite difficult to tell a reallystrong narrative about multilateral performance overtime. Another thing is that it was so detailed that itwould take a very long time to do the reviews, and itwouldn’t do another for a period of three to five years.There was not enough data to be able to build up astrong picture of change, and I do not think that itzeroed in sufficiently on dimensions of reform. Thereare a whole number of weaknesses but, in the end,such networks were established to be part of aconversation that we or bilaterals would have withmultilaterals to encourage them to perform better.Multilaterals more or less ignore it. They say, more orless, “Well, you can go ahead and do it, but we aren’tgoing to change our behaviour, because this reallydoesn’t fundamentally change the way you relate tous.”

Q22 Mr Bacon: You are saying that if you hold thepurse strings in front of them and then suddenly takethem away, that does change their behaviour?Alison Evans: I think it does change theconversation drastically.Mr Bacon: Surprise, surprise.Alison Evans: Undoubtedly. I personally do not thinkyou could retrofit MOPAN now, suddenly to be linkedto funding. I think that might be slightly dangerous.

Q23 Mr Bacon: No, no. But how near are we tohaving a more sensible methodology that is both, as itwere, in the same breath, less detailed—in the wayyou described it as being too detailed—and also richerso that it informs decisions more effectively?Alison Evans: I think the Australian iteration of theUK multilateral aid review was a very gooddevelopment. I think we have data now from theNetherlands process which has been going on for a bitlonger. Together they actually increasingly convergearound a methodology, which multilateralorganisations recognise themselves as important, butwhich provides a really quite strong link back intodecisions about funding. One of the challenges is notjust is the methodology there, but is the evidencethere? I think this is another flank on which morework needs to be done. Owen pointed to the absenceof clear cost data. That is right. But manyorganisations are still struggling to articulate theirimpact in a way that can be easily understood andcompared across the piece. There is a lot of work tobe done there. The multilateral aid review took intoaccount all kinds of different forms of evidence andwas very balanced in the way that it tried to deal withthem. It probably was a little bit too even-handed inplaces—willing to go with the benefit of the doubt.Over time I think it needs to be more demanding of




these organisations in terms of the quality of evidencethat they provide to support the review.

Q24 Nick Smith: I want to go back to figure 13 andthese organisations in red at the bottom of the page,which are seen as poor performers. Ms Evans, youtalked about the Department looking very seriously atcore funding for the organisations in the food chain. Iwant to tease out what you meant by “moreseriously”, and how we are going to hold our fundinggun to the head of these organisations and say,“Improve your act, or else.”Alison Evans: Sorry, but I did not get the first part ofyour question.Nick Smith: Given the poor performance of theseorganisations in red at the bottom, how will theDepartment put its funding gun at their head and say,“Improve your performance or else”? What is the bestway of really getting these organisations to pull uptheir socks?Alison Evans: I think it is probably not holding a gun,quite frankly. There are a number of ways of doingthis in my view. One is to gradually ratchet down anykind of core resources.

Q25 Chair: That is a gun.Alison Evans: You call it a gun. I think there is a wayof doing that whereby you don’t commit collateraldamage to organisations that are actually verydependent on external funding. That is something thatneeds to be done predictably and carefully over time.A number of these organisations are very dependenton their bilateral contributions.

Q26 Chair: What is frustrating—I agree a little bitwith what Nick said—is that you have done all thiswork. You have a massive review and you look at theimpact of the work, and £8 million has changed itsdirection. A lot of it is tied up in European or UNcommitments that we cannot get out of, so the Reporttells us. We have done this brilliant bit of work. TheAustralians are doing a brilliant bit of work. TheNetherlands has and it doesn’t change things.Alison Evans: We need to think what the relevanttime horizon is here. You cannot make decisions onan annual basis about where you put these resources.On a three or five-year basis, absolutely; it is overthat time frame that we should be looking for the realsubstantive changes in my view. So by 2013 weshould be beginning to see the wheat and chaff beingseparated more clearly. To take those decisions, basedon what is essentially a one-shop review at this point,and of a drastic nature, would be a little reckless.

Q27 Chair: Owen, do you agree?Owen Barder: I am a little more in favour ofmetaphorical guns perhaps than Alison. I used to goround saying that only one multilateral aid agency hadever closed—the Nordic Development Fund. Idiscovered today that that was resurrected at the lastminute just as it was about to close. We now haveabout 230 multilateral aid organisations, about 90 ofwhich work in global health. It seems to meimplausible that the system can work effectively if wedo not have some kind of exit process. As we

introduce new organisations and fund the mostsuccessful ones, we need some mechanism forshutting down ineffective organisations.I understand that that is difficult for the staff andorganisations concerned, and we have to make surethat we do not lose key functions that some of theseorganisations perform. It seems to me, however, thathaving a group of organisations—like DFID, likeSweden and like Australia—that are being moresystematic, thorough and transparent about assessingorganisations should lead us, in the end, to makingsome tougher choices. You sense in the MAR thatDFID really is signalling that that is what they intend.That has got a lot of organisations’ full attention, andrightly so.

Q28 Austin Mitchell: I am interested in internationalcomparisons. How does the proportion of aid that wegive to multilateral organisations compare with theproportion of aid given to them by big aid givers suchas Sweden? Are we more inclined to use multilateralorganisations, or less?Owen Barder: More.Alison Evans: I was going to say it is on the upperend.Owen Barder: Roughly speaking we are givingbetween 45% and 50% of our aid as core funding tomultilaterals. It is important to understand that of therest that counts as bilateral aid—around 55% of ouraid—at least half is also spent through multilateralorganisations but is earmarked by us for particularprojects, countries or purposes. So nearly 80%, orcertainly more than 75%, of our aid is actually spentthrough multilateral aid organisations.1

Q29 Mr Bacon: Is the decision about how that isspent made in-country? Once a particular countryknows what its budget is, does it then choose howto disburse that, in collaboration with fellow bilateraldonors and in negotiation with various multilateralagencies on the ground in-country, when you havedecided that that is your parcel for, say, Tanzania? Isthat how it works?Owen Barder: The core funding is provided tomultilateral agencies and then the process for thatorganisation decides how that money is going to bespent.

Q30 Mr Bacon: I am talking about the other half thatyou mentioned.Owen Barder: For the other half, that is decided byDFID staff and Ministers, working together to decidehow best to use the resources they have for thebilateral aid programme. They are making choicesabout whether to manage projects directly or whetherto contribute through the multilateral system in-country to contribute to shared goals there.

1 Note by witness: In 2010/11, bilateral aid delivered throughthe multilateral organisation was about £1.5 billion,approximately 35% of the bilateral aid programme.Approximately 63% of the total DFID programme isprovided through multilateral organisations, Source:Statistics on International Development 2011, Table 3.




Q31 Chair: Give us your view, given that we domore through multilateral organisations. Is that goodor bad?Owen Barder: I think that we should be spending lessthrough the multi-bi—this part that goes through thebilateral aid budget into the multilateral system—andwe should put more of that money into the corefunding of multilaterals.

Q32 Chair: Why?Owen Barder: Because multilaterals are, on thewhole, more effective than bilateral aid. We are in factmaking choices to use the multilateral system faute demieux, because there is not a political appetite here—

Q33 Mr Bacon: That was the purpose of myquestion. I was trying to understand whether thedecision to use a multilateral delivery mechanism ismade by the DFID people on the ground in-country,having taken the half that is bilateral and then taken achunk of that—you describe what is effectively 30%of the total, which means that 80% ends up beingspent that way—or is the decision taken before themoney leaves London?Owen Barder: No, it is taken based on what is themost effective use of that money. Each country officeis making proposals through the bilateral aid reviewabout how they can best use money in that country.

Q34 Mr Bacon: Yes, and it is not at all surprisingthat they might come to the conclusion that on such-and-such a programme it would be best if we co-operated with our partner bilateral donors and withsuch-and-such a multilateral agency to deliver it. Butyou are talking about taking that money away andgiving it direct to one of the multilaterals at source,so to speak. That is what you are saying—increase the45% to 50% that goes multilaterally upwards, abinitio.Owen Barder: No, I am saying that we should dothat if that is the most cost-effective choice, and mysubmission is that it very often will be. There are allkinds of political and institutional pressures to spendmore money through the bilateral aid programme thanthrough the multilateral programme, and that tends todepress the amount of money that goes through corefunding of multilaterals. It is quite understandablewhy that should be, but that is better value for money.Q35 Mr Bacon: You have already said it is more thanhalf. So of the half that gets spent bilaterally, you saidthat about half of that—it is more than half, actually—which takes it up to 80%, ends up being spentmultilaterally. Are you saying that that number isactually small and it should be still higher?Owen Barder: No, I am saying that, of the money thatwe spend multilaterally, my hypothesis is that more ofthat would be better spent through core funding ofmultilaterals than via the bilateral system. Of theamount that we spend multilaterally, it would be betterto spend that through the core budgets of multilaterals,rather than through multi-bi

Q36 Chair: Do you agree with that, Alison?Alison Evans: I agree with the importance ofemphasising the core budget, because that is the best

possible way of allowing multilateral organisations todo what they do best. The problem with spendingthrough the bilateral programmes is that everybilateral in a country is finding bits of multilateralprogrammes that they quite like adding funds to, and,even though it might be in pursuit of some sharedgoals, it actually leads to a potentially morefragmented use of funds. I would be inclined to saythat core is better than this multi-bi system ofcountries. However, unlike Owen, I am not entirelysure that I would be looking to increase the percentagegoing through core. DFID is probably quite exposed.It needs to demonstrate that it can tell a really goodvalue-for-money story in relation to that exposure tomultilaterals, and that it can continue to applyreasonable pressure, but, at this point, I would not belooking for any reduction.

Q37 Mr Bacon: You are looking for greaterexposure. Let us just be clear about the differencebetween you. You are looking for greater exposureand, to use Alison Evans’s phrase, you think that thatshould be upped further.Owen Barder: Where I think we agree is that oneof the—Mr Bacon: No, I am asking you where you disagree.I just want to be clear on where you disagree. To useAlison Evans’s words, you are looking for greaterexposure.Owen Barder: No, I am looking for the greatest valuefor money, and my hypothesis is that if we took a fairjudgment about where the highest value for moneyis, more aid than presently would flow through coremultilateral funding. I am not starting from a viewthat there is a correct target to reach. I am startingfrom the view that if we took a rigorous and impartialview of where we get the best value for money, Isuspect that we would end up putting more throughthe core multilateral projects than we currently are.

Q38 Chair: We have two minutes until we vote. Arethere things you think we should be focusing on inour next session?Owen Barder: One observation relevant to thisdiscussion is that Britain is in an unusual position ofhaving a single Department of state that is able tomake choices about both the bilateral and multilateralaid budgets. In most other countries, it would be forthe Treasury to decide what goes into the multilateralsystem. It is a huge strength of our system and onethat we should cherish that DFID is in a position tomake those trade-offs directly. For the first time now,they are doing that, and I think that is something thatwe should mark and note as being a real strength ofour system and one that other countries rightly envy.Chair: Alison?Alison Evans: I suppose that my last point wouldreally be about the reform agenda that flows out ofthe multilateral aid review, and focusing some of yourattention on how credible you as a Committee feelthat that reform agenda is and how well it is beingmonitored and followed up on. The point at which Icertainly dipped out of this multilateral aid review wasthe point when it was a very nice report with somereally good data and some good quality judgments.




Ultimately, however, its use value is in its ability toget change. A key area of focus for this Committee ishow credible you feel that the follow-up withmultilateral organisations is going to be.

Q39 Mr Bacon: Yes. Do you think it is possible thatit might be more credible with a few extra DFIDpeople on the ground keeping an eye out and sniffingthe air and seeing what is going on? Having spent aweek in Sierra Leone earlier this year and having metsome incredibly impressive DFID people, that wouldbe my sense. I fear, however, that Mr Barder’s routewould mean fewer people on the ground. It plainlyhas a cost, but it means less checking of what is goingon, does it not?Owen Barder: If I may say so, I would like to seemore DFID staff working on improving the quality ofmultilateral aid. In order to release staff to do that,

Examination of Witnesses

Witnesses: Mark Lowcock, Permanent Secretary, Department for International Development, Anthony Smith,Director, International Relations Division, DFID, and Liz Ditchburn, Director, Value for Money, DFID, gaveevidence.

Q40 Chair: Welcome. It is the first time, I think, thatwe have seen Anthony Smith. As you heard me say,this is a very complimentary Report and we are verypleased that progress has been made. We are alwaystold that we do not say it often enough, so I am sayingit loud and clear: congratulations, because you aredoing some very good work here. I hope that thecontent of our questions can be seen in that context.I feel that it is a good review. You have heard someof the drawbacks and we will come to them. Itappears, looking at it, that little has changed so far.You have stopped funding four organisations, whichis worth about £8 million, but little else has changedfrom this Report. Can you talk us through how youintend to take forward and make real some of thefindings that you uncovered?Mark Lowcock: Thank you. I think that that is thekey question. We have taken a little step forward, butthere is a big journey ahead and that is what we arefocused on. There are four or five things that we aredoing. First, with each agency that we reviewed, weset out a reform strategy. We said that we would assessnext year how they are doing on their reform strategy,and have a dialogue with them, and we will do anotherwhole big exercise in 2015.Secondly, as you heard, one problem is that most ofthese organisations have perhaps 150 members andone member on their own has limited influence. Wehave been trying to ally better with others to drivereform collectively. You heard about what is calledthe MOPAN, and one problem with it was that it wasnot linked to money for the agencies, but there wereother problems, too. It was very selective. It wassecretive and the results were not transparent. It wasreduced to lowest common denominator, so the realissues were not exposed. With the multilateral aidreview and the way others are taking it up, we have amuch better dynamic of change.

we would need to be managing a smaller bilateral aidprogramme. One of the advantages of shifting thebalance towards the core funding of multilateralswould be that we could strengthen what I think is anextremely important role that DFID plays in theinternational system, which is really working withmultilaterals to improve their effectiveness not just forthe aid that they spend on our behalf, but also the aidthey spend on everyone else’s behalf. You areabsolutely right. Having people working as part of thesystem to improve its effectiveness is crucial. Wecould do more of that, were we to provide more ofour aid multilaterally.Chair: Thank you. That was really helpful, clear,and informative.Sitting suspended for a Division in the House.On resuming—

Thirdly, we need to get people to have a muchstronger focus on the costs of doing things, so that wecan make direct comparisons. You raised the issue ofadministration costs and I can talk to you a bit moreon the progress we have made on that if you wouldlike me to, but there is also the cost of deliveringspecific outputs.Fourthly and absolutely crucially, we have to link themoney to the progress. Leaving organisations sends abig signal. Of course, the UK is unusual in leavingfour of them. I asked my colleagues who else had everleft an organisation and the only example that wecould find off the top of our heads was that theCanadians left the United Nations IndustrialDevelopment Organisation, and the US for a periodleft UNESCO.

Q41 Mr Bacon: We also left UNESCO for a period.Mark Lowcock: Yes, and then we rejoined, as didthe Americans.

Q42 Mr Bacon: That was when it was spending 80%of its budgets in Paris.Mark Lowcock: Indeed.

Q43 Mr Bacon: And it is still down at the bottom inthe red list.Mark Lowcock: Indeed. The choice that we are leftwith, since the only thing we do with them essentiallyis pay our membership fee, is whether we would beready to leave again. The Chair alluded to the fact thatyou have to build a broad alliance, because our leversas the UK are not as strong as we would like them tobe. Building that alliance is crucial. It is not just abouthow you penalise them; it is also about how youincentivise them, because we have also given moreresources to organisations that we were confidentwould deliver a lot of value. That positive incentive—



24 October 2012 Department for International Development

I don’t know what a reverse shotgun is—has thepotential to be quite powerful.

Q44 Chair: On the issue of your being one of 150partners funding a particular organisation—this couldhave been a question I asked the previous witnesses—clearly the Australians are going off and doing theirown. Although they may be building on yourexperience, they are doing their own, as are theNetherlands, etc., but that is not partnership. Theintent is there, but how are you going to achieve itand what are you going to do if you do not achieve it?Mark Lowcock: You are absolutely right, and ofcourse one thing that the agencies say is that if all 150members did their own thing, that creates chaos. Wehave taken a number of initiatives to join these thingsup. We invited all the major financiers to London fora meeting in February this year, to try and force thisjoining-up a bit further forward, and the GermanGovernment are hosting another meeting of that sortnext month, so we are trying to gather a biggercollective alliance, but I want to repeat that we are notwilling to do that at the risk of being reduced to theproblem that the MOPAN system had. It is only worthjoining up if you retain the bite.

Q45 Mr Bacon: Is not therefore the best way to doit to say to the Australians and the Dutch, “We’redelighted that you have picked up the work that wehave been doing. Why don’t we take forward the nextstage with you, together? So instead of doing a single,further full review in 2015, you, we and the Dutch—all speak English—do it together”?Mark Lowcock: That is exactly the discussion that Iam having with my Australian counterpart, and thediscussion we have also had with the Dutch, theSwedes and the Danes.

Q46 Mr Bacon: That creates its own momentum,doesn’t it?Mark Lowcock: Indeed. If we can do that whileretaining the bite, we will. Why I keep repeating thisis because actually some of the others ended up withrather higher scores than we did for some of theseagencies, and we think that the rigour of the systemis an important component. So I would like to doexactly what you said, but only if we can sustain asystem that we are really confident will driveimprovement.

Q47 Chair: The interesting thing in a graph—whichis not in the Report, sorry, but I hear the figures arefamiliar to you—is the proportion of aid going tomultilateral organisations over time. I took it back tothe previous Government, just out of interest, and in2008–09 it was just over 44%, in ’09–10 it droppedto 40.8%—so it dropped 1.5%—and then in 2010–11it went up to 47.4% and in ’11–12 to 47.3%. So therewas a jump, and I want to talk about the jump firstand the future next. Why the jump? My suspiciousmind suggests that it is because you did not have thestaff in-house and this was an easy way of getting themoney out of the door. Was that the case? Why thejump between ’09–10 and ’10–11, because there is a7% jump in the proportion of aid? At the same time,

aid was going up, so that is quite a hefty jump in themoney going to them. Why?Mark Lowcock: I need to check exactly whathappened. There are a couple of things that will havehappened. First, there is a cycle of replenishment forthese institutions, and you get some variability as aresult of that. Secondly, it may well have been thecase, as is well known to the Committee, that at thetime we thought that we were really struggling to haveenough staff in the Department, especially on the frontline, to deliver the bilateral programme, so of courseone of things that we have now put in place is a biggrowth in our front line—Mr Bacon said that he hadmet some of the new colleagues in Sierra Leoneearlier in the year—and we have spent the past 18months to two years adding something like 300 peopleinto our front line to manage a growth in our abilityto deliver a bilateral programme, which is in fact whatthese figures in front of you show will happen as ashare into the future. I am not sure if you are comingon to it—

Q48 Chair: I am, but in essence I hear that—it is anhonest reply—but it was not a good reason for thegrowth in 2010–11 except to get the money out ofthe door.Mark Lowcock: Essentially, I am agreeing with you,Chair. I would like to double check how far the reasonwas the first answer that I gave you, which was thereplenishment cycle, because that might have been asignificant factor.

Q49 Chair: Okay. Write to us on that. Looking at theplans, it is going down—you are at 47.3% for2011–12, but planned for this year it goes down to37.8%. That is deliberate, is it? Then it goes down to36% the following year—the plan.Mark Lowcock: Yes. We had a process, as you know,in 2010. I think it is written up in the Report thatMr Morse has just published on managing budgetingacross Government. What we did in spending review’10 was look at the set of results—children in school,people with access to water and sanitation, and all theother results Ministers wanted us to deliver—and takethat as a starting point and then ask ourselves, “Okay,what does that mean in terms of the relative use ofmultilateral institutions, NGOs and the bilateralprogramme?” We did not have a target for fundingthrough different institutions; we had a set of goalsfor the outcomes we were trying to achieve. The resultof that competition across institutions for resources todeliver results is this trend—

Q50 Chair: So do you get them to bid? You wouldsay, “We want to do something around women’seducation in—wherever”?Mark Lowcock: Yes.

Q51 Chair: So that is your bilateral delivered by amultilateral organisation, whereas I read this as beingthe core funding.Mark Lowcock: Yes, it is. This is the core funding.

Q52 Chair: But that does not go on bids, does it?




Mark Lowcock: What we had was a process—Lizcould speak more about it, perhaps, as the Value forMoney Director who led the process—which startedwith the results and recognised that if you want to bein some of these organisations you have to pay themembership fee but then you have some choice. Forexample, a big, big result that we wanted to deliverwas immunising 50 million children. One of thecheapest ways of doing that is to use the GlobalAlliance for Vaccines and Immunisation, because itbuys the vaccines very cheaply.

Q53 Chair: But that is not core?Mark Lowcock: That is core, and that is why ourmoney to them has increased through this period,while it has fallen to some others. Maybe Liz couldspeak more about it.Liz Ditchburn: I will describe how we put thosethings together, and where we were able to make thosechoices and where we were not. We looked at all theinformation that was coming out of the bilateral aidreview, the multilateral aid review and some otherprocesses that we were running together. We put allthat on the table and divided it up into the pillars—the themes—against which we were trying to achieveresults: wealth creation, governance and security,accelerated progress towards the MDGs, climatechange, but we also had a pillar that was aroundglobal partnerships. Some of the large multilateralorganisations were actually very much part of theglobal partnerships. We are trying to achieve a wholerange of outcomes through a single organisation, andit is not possible, currently, to make these very directcomparisons between the way the World Bankdelivers something and the way a DFID programmecould.Where we could, we put all the multilateral offers intothe same pillar with the bilateral offers. For example,on education, we looked at what we could deliverthrough multilateral routes on education alongsidewhat we could deliver through bilateral routes. Wetook value-for-money decisions where we had theevidence to support that. For example, the GlobalPartnership for Education is a much more cost-effective way of reaching out-of-school children inFrancophone West Africa than if we were to createnew bilateral programmes in those areas. We lookedat GFATM—the Global Fund to Fight AIDS,Tuberculosis and Malaria—and again at whether, toreach the countries where there is a real malariaburden but where we do not have bilateralprogrammes, it would be better and more cost-effective to use the multilateral route or to use abilateral route. Where we could make thosecomparisons, we did.The Report that the NAO is doing is saying,“Actually, we would like you to try to find even moreplaces where you can make those comparisons”, andthat, indeed, is our aspiration. As we build strongerdata, as others said earlier, we would like to be ableto do that. Where we can compare like for like, andsay, “This is what we are trying to achieve. Let’s lookat a range of delivery routes”, then that is what we do.We did that where we could in the last spending

round. We would hope that in the next one we wouldbe able to do more of that.

Q54 Chair: Would it be unfair to ask you crudely,given the paucity of data, in what proportion of theexpenditure you were able to make that comparison?Liz Ditchburn: It is very difficult currently to put anumber on it. There are some sectors where it is mucheasier to make those comparisons—for example, ineducation. Perhaps we can talk a bit more about theeducation data that we are now developing. Ineducation, there is a level of international evidenceand international data that we can use; in health, thesame. In some of the areas, such as governance andsecurity, we have very much less data, currently,although we are working hard with others to improvethat. In some of the big spending areas, particularlysome of the health and education areas, you canactually make those kinds of comparisons; in some ofthe smaller spending areas, it is very difficult—it isharder. I do not know, Mark, whether you wouldhazard a figure.Mark Lowcock: That is a fair summary. In the socialsectors, you can generate a lot more data than formore qualitative things, such as governance andsecurity.

Q55 Mr Bacon: Assassinations avoided is quite adifficult one to measure.Mark Lowcock: We’d love to have a data source forthat.

Q56 Nick Smith: I was interested in Alison Evans’spoint about the overlapping mandates of multilateralinstitutions, and whether DFID will address that inthe future.Mark Lowcock: We think it would be a good idea ifmore of these organisations were sunsetted. That iswhat happens in an environment where there is realcompetition for resources because people are buyinga service. But, as I said earlier, that works only if lotsof the members are willing to leave, so we are a bitconstrained in how far we can get that psychologyinto things. To give an example, in the educationsector one reason why we do not invest a lot throughUNESCO, which is the UN’s education organisationamong other things, is that we do not have a highdegree of confidence in the value that it would deliverin putting more children through school, whereas wehave more confidence in UNICEF and the GlobalPartnership for Education. We are trying through ourresourcing decisions to rationalise the system in theabsence of an ability to persuade the other 150members to leave this organisation and invest morethrough that one.

Q57 Mr Bacon: You say, “in the absence of anability to persuade” the other organisations, and youhave alluded to the fact that you will try with theAustralians, the Danes, the Dutch, and whoever. I canimagine that with 150 members, some countries willbe more sympathetic and some will be lesssympathetic. You have crudely identified some of thenorthern European countries as being likely to bemore sympathetic, but how much progress are you




likely to make on that with the more sympatheticcountries in a reasonable time frame, and what is thetime frame?Intuitively, there doesn’t seem to be an obvious reasonwhy you would not make more rapid progress. Iunderstand why, however sensible it is, Irish Aidmight decide that for a variety of historical reasons itdoes not want to collaborate with DFID and that itwould rather keep its own independent identity, andso on and so forth. There are obviously reasons whythat might be the case, but how far do you think youwill get with this, and how soon?Mark Lowcock: I think we will make more progressin changing the balance of funding throughorganisations, so we will get more money, and havedone, into the Global Alliance on Vaccines andImmunisation, which is effective. We will do betteron changing resource flows than on membership rates.There is a limit to how far we should keep bangingour head against that wall, because every country willmake its own sovereign decision. Ultimately, theresource flow matters a lot more than whethersomeone happens to be a member or not, so I think wecan make more progress on what is more important.

Q58 Nick Smith: I like the point about resourceflows. It is fantastic that the Department is getting allthis money. It’s brilliant, but I come from aconstituency where everyone says that the languageof politics is the language of priorities. I look at thatfigure 13 and I am just not convinced that yourapproach is not just a tad timid. I want you to be moremuscular and to get better value in the round. I willpress you again. What are you really going to do toget these institutions in the red zone to improve theiract so that you can spend the money that has beenwasted there in places where it really makes adifference? I must press you on this.Mark Lowcock: We have left about half theorganisations in the red zone, so we have stoppedwasting that money because we don’t belong anymore. On the others, particularly the Food andAgriculture Organisation, which costs us between £10million and £15 million a year to be a member, theWorld Health Organisation likewise, and UNESCOlikewise, we will face a choice about whether to stayin or not. They do some things that are of value to us.

Q59 Chair: How much do you spend on the others,out of interest—the red bunch? You have taken £8million out, so how much is left?Mark Lowcock: I think the figures are in figure 12, ifI have understood it correctly. It is about 1.4%, sosomething like £40 million in total.

Q60 Chair: That’s after the £8 million has gone?Phil Gibby: To clarify, it is £8 million with the £40million we are leaving, which is £48 million.

Q61 Chair: So it is £40 million now.Mark Lowcock: The Food and AgricultureOrganisation does some things that we think havebeen good. It led a campaign to eradicate a disease incattle called rinderpest, which cut a swathe throughcattle in Africa for a long time. It is only the second

disease, apart from smallpox, that has ever beeneradicated, so it is not as though they do not doanything useful. They also run a big famine earlywarning system for 27 countries in Africa, but ourpoint is that it might not be the best thing to leave anorganisation like that that also does global things suchas food safety standards, which we have an interest inas a country, as well as what they do in thedeveloping world.The issue is: can we get them to improve, under anew director general who was elected last year, witha reformed mandate, and provide an incentive forthem to do things better, so that they can competeand win—because they offer better value for money—additional resources? I think that that will be the mostproductive way of looking at that for the remainder ofthose organisations. To give another example, there isthe Commonwealth Secretariat.

Q62 Jackie Doyle-Price: You give a third of theirbudget.Mark Lowcock: We give a third of their budget. Thereason is that historically, for many decades, the richermembers of the Commonwealth have always agreedto fund what is quite a small programme of technicalcollaboration for the poorer members of theCommonwealth. We think that the Commonwealth isincredibly important, but we would just like them tobe better at spending money. Until they are, we do notwant to give them too much more.

Q63 Jackie Doyle-Price: We think it’s important,and we are providing a big chunk of its budget, soreally we should be playing a bigger leadership rolein making it better. What is being done about that?Mark Lowcock: May I ask Anthony to speak to thereform programme of the Commonwealth Secretariat?Anthony Smith: We do play a leadership role on it.Clearly, the headquarters are here. We have veryintensive dialogue with the CommonwealthSecretariat, but they are an organisation that has 54members. Each member has a vote on the board ofgovernors. We have to persuade the Secretary-Generalto take bold reform initiatives that will really makea difference. He has put forward some good reformproposals that went through the Heads of Governmentmeeting in Australia last year. We have worked veryclosely with Australia, Canada and New Zealand onthe funding arrangements and the reform proposals,but we also need to bring the rest of the organisationalong with us. We are trying hard and we hope thatnext month there will be progress on it. The Secretary-General will hold a meeting of all the Commonwealthto look at the reform proposals he has made.They do some great things, such as very goodelectoral observation work and a lot of work on anti-corruption in Africa. There are a lot of associations.The local government association and the network inthe Commonwealth provide a lot of peer-to-peersupport, but they also spread themselves much toothinly in their development programme, so they reallyneed to focus on what will make a difference.

Q64 Austin Mitchell: The praise in the Report isreally for the assessment rather than for the




organisations that are being assessed. Paragraph 4.9indicates that those assessments are becoming a bit ofa nuisance for the assessed bodies: “The number ofseparate donor assessments has been of concern tomultilateral organisations. Seventeen organisationshad commented to us on the increased burden ofengaging with donor assessments.” That suggests thatyou need to be getting together more with othercountries to do the assessments, as Richard said in hisfirst question. What have you done to ensure that thathappens? I see, in paragraph 4.7, that you had aconference attended by 18 other donor countries inFebruary this year. They all presumably said, “Goodon yer, Poms. Well done.”, but what have you donebeyond that?Mark Lowcock: Basically, there is the process I wastalking a bit to Mr Bacon about. Most people whocame in February were from the traditional donorcountries, so, the OECD countries. We have done acouple of other things. We have been doing outreachto the kind of emerging powers, if you like. I havediscussions with the Government of India and theGovernment of China, and various of the growing—people pay more of the bill from the middle east. Weare trying to broaden the constituency for reform. Thefollow-up meeting to the one we had will be inGermany next month. What we would like to do isput in place and support a shared, continuous,repeated agenda of reform. But for the reasons youwere teasing out of Owen and Alison earlier, we thinkwe have to do that in a way that sustains the edge. Ifthis starts to lose teeth it will stop being useful. So atthe margin we will move forward, even if it is with asmaller group of countries—

Q65 Austin Mitchell: That’s the big donors.Mark Lowcock: Not necessarily. I had a reallyinteresting discussion with the people from Brazil andMexico who are responsible for their countries’contributions to the UN, which are growing. They saidthat in Brasilia and Mexico City there are much morehard-edged conversations between the FinanceMinistry and the Foreign Ministry about what they getfrom the money they put into these organisations. SoI think there are new voices we can join up with whichwill be a good thing and which we will try to do.

Q66 Austin Mitchell: With that co-operation do youthink you will be able to get the costs of theorganisations down? It is important that the money isnot spent on junketing but goes directly into thepurposes of aid. Will that be the result of internationalco-operation.Chair: Could you pick up on the admin costs pointas well?Mark Lowcock: Indeed. At the moment the range ofadmin costs across organisations varies from a bit lessthan 1% to nearly 20%. We have started to get a betterdatabase now of the admin costs in each organisation,bearing in mind there are definitional issues. You havealways got that challenge. One of the things the MARdid was establish that one of the criteria ought to bethe cost-effectiveness of financial management.Through that we have got into a better dialogue ongetting everyone to be transparent about their admin

costs. That led us, when the budgets for UNICEF andthe UN Development Programme and UNESCO wereset for this year, to be able to negotiate a 5% reductionin the admin budget by working with others andhaving more transparency about what the real costswere.We have similar initiatives in other organisations.There is a shared services programme that a numberof the organisations are working on. There is a hiringfreeze in the African Development Bank and a salaryfreeze. There is a change in the class of travel debategoing on in some. So the secret to this is improvingthe quality of data and using the data to drive reformand building alliances. I would say the admin costsand procurement of vaccines, bed nets, food and soon are the big areas we can point to where, throughthe MAR, we have provided real, substantiveimprovements in value for money through the process.In some ways, it may be the biggest prizes will beon those things as opposed to who is a member ofwhat organisation.

Q67 Austin Mitchell: That is what we want to hear.The Prime Minister is worried about the costs ofEurope. So am I. I resent paying anything, frankly. Isee from your schedule of efficient organisations thatsome of the European organisations were moreefficient than I thought they were. The Departmentcontributes some £1.4 billion to the European Unionfor aid budgets. Your Minister recently claimed thathe was powerless over how the European Unionspends your money. Given that aid has to go throughthe European Union, which I resent considerably,because it would be better to go direct from us with apicture of me in The Daily Telegraph handing out themoney, what are the prospects of reducing that andgetting more efficient spending? The image is one ofendless junketing.Mark Lowcock: It does sometimes feel like we arepowerless. One thing the report does well isdistinguish between those programmes of theEuropean Union that are good and effective like thehumanitarian response. If there is a hurricane orearthquake, it is more efficient for the ECHumanitarian Office to respond on the behalf of theEU than for the 27 member countries to do it, andthey do a good job on that. Again, the Europeandevelopment fund, which is largely about aid toCommonwealth countries, is basically quite well run.

Q68 Austin Mitchell: The European CommunityHumanitarian Office and the European developmentfund are rated as very efficient.Mark Lowcock: Yes. Those are quite good. The bigproblem is where, unfortunately, the largest share ofthe money goes, which is in the EuropeanCommission-managed budgetised programmes. Now,there are three big blocks to that really. The first is theprogrammes in Asia and Latin America, where wehave been successful in driving the prioritisation intothe poorer countries. I think 12 or 20 richer countryprogrammes are being cut?Anthony Smith: Twenty-one.




Mark Lowcock: Twenty-one richer countries in thoseparts of the world will no longer have aid from theEU, which is something that we pushed for.The two other areas that absorb substantial resourcesare ones where the major challenge remains. The firstis the so-called pre-accession aid. Countries such asthose in eastern Europe got it before they joined theEU. It is aid to get ready. Governments in this countryhave always had the view that the more countries wehave in the single market, the better. However, thatpre-accession thing is expensive.The second area is the neighbour programmes,especially for the middle east and north Africa. JustineGreening was in Luxembourg last week trying to buildan alliance of other Ministers in member states andto work with the Commission to try to improve theefficiency and effectiveness of those sorts ofprogrammes. The budget is set in the EuropeanCouncil at head-of-Government level, so the issue forme, Anthony and Liz—given what has already beendetermined by the time that it gets to our desk—is towork out how we can work with others to drive betterreform. That is what we are working on. There havebeen some improvements. The OECD did a reportsaying that it has got a bit faster than it used to be,but there are many problems and it is a source offrustration.

Q69 Chair: I want to bring you back to admin costs,because I am pleased that you are putting pressure onthe multilateral organisations, but it would be a goodidea if DFID acted on its use of consultants in a waythat did not appear to be wasting our money. Therehave been stories in the press and I have picked outone, which I am sure you know well. The Adam SmithInternational received £37 million from DFID lastyear. William Morrison, the managing director, gavehimself a pay increase when everyone else’s is frozenand now earns over a quarter of a million. He alsopaid himself a dividend of over £1 million, which Iassume comes from public money. That feels like anabsolutely outrageous and appalling waste of this veryprecious money that you have secured to invest indeveloping countries and it is really depressing toread about.Austin Mitchell: And it is exactly the opposite ofwhat they want. Promoting the free market in the thirdworld is the exact opposite, I would have thought, ofwhat the third world needs.Chair: That is an aside.Mark Lowcock: As you know, Justine Greeningcommissioned a review on this as soon as she arrived.

Q70 Chair: So are you cutting this organisation out?Mark Lowcock: She made an announcementyesterday, following the review that Liz and her teamdid, which Liz can perhaps speak to in more detail,about some new steps that we are taking to control—

Q71 Chair: Are you cutting them out? I think it isoutrageous. I cannot believe that you cannot findpeople—looking at the people who gave evidence tous—who cannot do the same work with better valuefor money for the taxpayer.

Mark Lowcock: We want to drive the best value. Interms of the example that you gave, Adam SmithInternational, some of the things that they have donehave won prizes. For 10 years, they have beenbuilding the tax system in Afghanistan—

Q72 Chair: I understand that they are the ones thathave gone into Afghanistan. It is just that we see thistime and time again. This is not an ideological thing,but if the private sector is going to get involved indelivering public sector services, wherever they are,then I hate to see what appears to be the taxpayerbeing ripped off. It appears to be an instance of aprivate company coming in, having seen your budgetsgrowing and that there is lots of money around, andripping off you, us, me, all of us.Mark Lowcock: The Secretary of State is having themand all the other suppliers in. She has made it clearthat we are not willing to work with people if they areonly in it for the money.

Q73 Chair: Why did you work with them? This didnot need a change of Secretary of State. I am delightedthat Justine Greening is doing the job—I have a lot oftime for her—but it is a shock that this happened.Mark Lowcock: We need a competitive process sothat we can get the best value and the cheapest cost.From my perspective it is a healthy thing, not leastbecause, as Owen was saying, we are a lot moretransparent than we used to be.

Q74 Nick Smith: Are you saying that theorganisation that promotes free markets has amonopoly position?Mark Lowcock: Actually, one of the things that wehave been successful at is growing a supplier base.My Australian counterpart basically has only fourmain suppliers. We have 20, so we can drive morecompetition, but there absolutely is a conversation tobe had with Adam Smith. We have some other thingsto do, coming out of the consultants review, as well.

Q75 Chair: Are you cutting them out?Mark Lowcock: We are not going to debar peopleunless they do things that are really egregious, suchas getting involved in corruption.

Q76 Chair: So have all their contracts come to anend? How many contracts have these guys got withyou?Mark Lowcock: I do not know the number offhand.Liz Ditchburn: I do not know the number of livecontracts.

Q77 Mr Bacon: Define “egregious”. How bad doesit have to be before it is really bad? How deep doestheir snout have to go into this enormous trough? Howmany millions do they have to take out before yousay, “That’s a bit too bad; we’re going to act”?Mark Lowcock: By “egregious”, what I meant wasthat we debar people who are involved in fraud andcorruption.Mr Bacon: Well, that is reassuring, although it is notalways the case, of course. In fact, in the Department




for Work and Pensions they sometimes invite peopleback to bid for more.

Q78 Chair: Mr Lowcock, I know a lot of people whowork in the aid world, and one of the aspects ofworking in the aid world is that you do it for verylittle money. On the whole, people get paid very little;they do it for all sorts of very good, value-basedreasons. That makes it doubly horrible to seesomebody—I do not know this guy from Adam—come along and think that they can take a cool£250,000 a year out of it, plus a dividend of over£1 million.Mr Bacon: It is absolutely extraordinary. It is no moreextraordinary than the CDC chief executive payinghimself £970,000 a year, I grant you that, but this sortof thing surely should not be going on.Mark Lowcock: The issue for us is how we makesure we can provide a quality of service or resourceto developing countries that want to grow their taxsystem at the best cost. We need to attract the rightlevel of expertise in.

Q79 Mr Bacon: We have one of the world’s leadingtax administrations, or at least that is what HMRCoften tells us.Mark Lowcock: And one of the things we are doingwith them, which has not been possible in the past, isworking together to see whether we can use themmore to deliver these services.

Q80 Mr Bacon: Why hasn’t that been possible inthe past?Mark Lowcock: I think HMRC have felt that they hadquite a lot of other things on their agenda.

Q81 Mr Bacon: Or it might have been that othercountries, looking at the mess HMRC had made ofour system, did not want them making a mess of theirsas well.Mark Lowcock: I would like us to do more of that,and we are in discussion with Lin Homer and hercolleagues about it. My main point is that the morecompetition we have, the better we will do atimproving value and driving down price. That is thething.

Q82 Mr Bacon: Are you sure that you will not justend up inviting in people who are good at bidding?This is a fundamental and long-lasting concern ofmine. I was in Sierra Leone working for VSO; I didnot get paid anything, but I thought it was still aninteresting thing to do. I was slightly vexed that all mycolleagues who were with me, including three otherparliamentarians who were with an Oxfam trip,immediately got on a bus and went zooming aroundthe country to look at things while I was stuck behinda laptop in Dar es Salaam for 10 days. “This isdevelopment,” I thought.Anyway, I remember a conversation between thedirector of the body that I was working with, whichwas a very small, embryonic body that was squatting,if I can use that word, with a much larger, wellestablished Irish NGO that let them have some officespace for free. The director of the organisation I was

working with said, “I have been offered €200,000 andI cannot use it.” He realised he had capacity problems,because the organisation was very nascent andembryonic, so he had the honesty to say to this otherchap, “I can’t use it.” The money was obviouslyfloating around, however, and they wanted to give itto somebody. The ears, eyes and eyebrows of the otherdirector pricked up considerably, and he said, “I thinkI’ll have a bit of that.” That is how it works. There ismoney floating around out there, and the people whoare good at bidding for that money get it. A separatequestion remains on whether the money is well spenton the ground afterwards. We have seen many timeshere with PFI and lots of other things that bidding formoney and persuading someone you are capable ofdoing something is very different from doing it.Mark Lowcock: I completely agree with all that. Whatwe need is more competition to drive down prices,and then hard, tough monitoring to ensure the deliverygets done.

Q83 Chair: Liz, do you want to add anything tothis conversation?Liz Ditchburn: The first thing to say is that althoughAdam Smith etc. hit the headlines, amongst all of oursuppliers there is a huge diversity of firms andorganisations involved. We have not-for-profits and arange of academic institutions doing work for us;there is a whole range. There is an issue, but I wantat least to put on the table that there is great diversity.As Mark says, we want to increase that diversity andsupply base even more. There are particular markets,particularly in some of the most fragile environments,where we are struggling to get enough competitionand enough people bidding. We have been doing a lotof work over the past year to look at all therequirements that we think we will have this year andnext year, to take stock of those requirements inaggregate, and to think about how we can approachthe market more intelligently for those requirementsin aggregate. As a result, we are putting in placeframework contracts, the express purpose of which isto bring new entrants into the market and bring greaterdiversity into the supply base.

Q84 Mr Bacon: It is perfectly obvious, frankly, thatyou are not going to get a huge number of takers ifyou say to the market, “How about you bid for thechance to go and set up a tax system in Afghanistan?”.You could say, in terms of classical economics, thatthe price will therefore be very high, but there isanother response to a lack of suppliers—you have saidyou are doing this in relation to HMRC, but the pointis general. There are lots of things that you wantsupplied for which there are not mature, welldeveloped suppliers who can do it efficiently,effectively and economically. You could insource—doit yourselves—because you have huge numbers ofskills across government. Are you looking at that?Liz Ditchburn: Yes, we are.

Q85 Mr Bacon: Systematically, across the piece?Liz Ditchburn: There are two things. First, we arelooking at ensuring at the design stage that we thinkthrough those aspects in advance. The new business




case process, which people have been going throughfor the past couple of years, requires people to do acommercial case. That gets them to consider how theyare designing it and what impact that will have ontheir approach to the market, so that they do notdesign out what the best routes might be. Forcingpeople to ask that question at the beginning is onething that we are doing.

Q86 Mr Bacon: You are forcing people to ask howGovernment Departments or agencies couldcollaborate with providers?Liz Ditchburn: Absolutely. Rather than assuming thatthe correct delivery option is going to be to contractsomeone commercially to do it, people have to thinkabout what other delivery options they have. That isone thing at the design stage. We know that if you getthe design stage wrong, you are stuffed. You have toget some of that stuff right at the beginning.Secondly, as a result of the review that the Secretaryof State has asked for, we are also looking again atsome of the business model questions about in-house/outsourcing and whether we have that boundary right.We are also actively developing the supply market inparticular areas. Where we find an over-concentrationand, therefore, insufficient competition, we areactively working to ask how we can bring others intothat market and how we can actively invest in marketdevelopment. That, again, is the kind of response thata mature procurement system ought to be looking at.We are doing a range of things.

Q87 Mr Bacon: It is not necessarily the case that youneed more suppliers. When I turned on my radio, Ihappened to catch Margaret on “File on 4” last night.I listened to the whole programme, which talked abouta variety of things, including insourcing. It gave theexample of a hospital that had been purchasing fromSerco a range of services, including all the laundry.Serco subcontracted that work to Sunlight, and thehospital eventually said, “Why don’t we just contractdirectly with Sunlight?”. They now have fewersuppliers, not more, but that saved the hospital 8% to10% on its laundry bill.Liz Ditchburn: DFID has always run its contractsthrough full competition via the European directivesprocess, but we know that running the process doesnot guarantee value, and that you have to run theprocess with intelligence and professional skill. Oneof the things we have been doing over the past two tothree years is really putting in place a professionallyskilled team—they are now all qualified and are a mixof people from a range of backgrounds, public andprivate—to up the standards of the centralprocurement function and to put more people withprocurement profession and skill on the front line. Youcan run the process, but you cannot guarantee value.It is about running those processes intelligently andasking exactly the same kinds of questions that youare suggesting.

Q88 Mr Bacon: Once you have set up the frameworkcontract, which I understand to be a way of avoidinggoing back, and back again, through the Europeangeneral process, can public sector bidders become part

of that framework alongside others, so that they cango off and do the work directly?Liz Ditchburn: They would have to go into theframework at the beginning.

Q89 Mr Bacon: That is what I mean: do they? Arethey invited and encouraged to? You say that you aretalking to HMRC; great, but what if it says, “We canhelp you”? Will somebody turn around and say,“Actually, you have not been through the frameworkprocess; you are not eligible”?Mark Lowcock: No. We have another vehicle foradding the public sector capacity, if you like, becausenot every public sector body wants to go through thecompetitive process. We have another vehicle, whichis essentially a framework that we have been buildingup to strengthen links across the public sector, so thatwe can help them to create capacity to supply servicesthat we can pay for.

Q90 Mr Bacon: Are you finessing the boundarybetween—what is that body called?Mark Lowcock: It is a thing called iFUSE, whichwe—

Q91 Mr Bacon: iFUSE?Mark Lowcock: Yes. It is not a great name. I wouldnot defend the name, but it is basically a network anda platform, and HMRC are one of the bodies in it. Wedo a lot of this already, on anti-corruption, forexample, with the Met police, the City of Londonpolice, SOCA and so on, quite successfully.

Q92 Mr Bacon: But as well as the boundariesbetween bilateral and multilateral, are you finessingthe boundaries of what goes through that route, asopposed to what goes through the private sectorbidded-for framework route?Liz Ditchburn: That is one of the choices that weneed to get on the table as a set of options at thedesign stage, so that rather than getting as far assaying, “Oh, now we’re using the framework. Ohdear, they’re not on it”, we are saying, “No, wind rightback. Actually, we have an option here which isdelivered through iFUSE, leveraging in public sectorexperience, or an option to deliver through acommercial contract. What are the pros and cons ofthose two options?”.

Q93 Mr Bacon: Do you think it might be moresuccessful if it had a name that people couldremember and be proud to work for?Mark Lowcock: I am happy to take advice on thename, but yes.

Q94 Nick Smith: I am not persuaded by MrLowcock’s earlier answer about the Department’sresponse to this business with Mr William Morrison,who is pocketing oodles of Government cash and isalmost filling his boots. Is the Department going to bechecking his company’s bills rigorously over the nextfew weeks, to check for overpayments and ensure thatwe are not being ripped off? What is going on?Mark Lowcock: We do that all the way through theprocess. Liz may correct me if I am wrong, but I do




not think that we think there is a major problem onthe invoicing rate. I think the problem is that when westarted some of those programmes, there were limitednumbers of bidders and we had a choice—we aretrying to avoid being in this position in future—ofwhether to take that contractor who could supply adifficult service in a highly dangerous environment ornot to proceed at all. As I said, Justine Greening isinviting the major suppliers, including Adam Smith,in for a conversation, and is making the point to themthat we are not interested in working with people whoare only in it for the money. It is the value and valuefor money that is important.

Q95 Nick Smith: Listen, we get your points about amature procurement system, and all that seemsfantastic in principle, but this company is making 10%profit on the work it is doing, which is a very goodreturn on investment. This bloke is giving himselfover £1 million-worth of dividends as a bonus. Thatis just wrong; it is greedy. You really have to climbover this company and make sure you get a goodreturn for the taxpayer. You are just not persuadingme that you are doing that.Mark Lowcock: Well, they have won the contractsthrough a process. We are going to have a further setof conversations with them. The best place for us tobe in is to find, when we have future work tocommission, that there are so many other bids arecoming in and so much competition that we are fallingover people who can do it for a cheap rate.

Q96 Chair: Mr Lowcock, last week we had a hearingwith DECC, which was anxious to establish acompetitive field and a whole load of bidders in anobscure bit of the energy market. The way they did itwas to put such a fantastic deal on the table thatanybody would be a nutty not to invest in it. So thereare ways of establishing your market. I think this guyclearly came in too high and should not have beengiven the contract in the first place. You can get over-sophisticated in this. We are not very good atcreating markets.Mark Lowcock: I am certainly happy to talk to theDECC people about what we can learn from them—and across Government.Mr Bacon: I don’t think you will learn anythingfrom that.Mark Lowcock: Well, anyone else who can helpwith this.

Q97 Jackie Doyle-Price: What you have said aboutthe lack of competition and few suppliers is telling.Having run a bidding process, having not beensatisfied by the number of suppliers that cameforward, and having had questions about some of theprices that they came forward with, have yoususpended any of the processes at all during this time?Mark Lowcock: Yes. It does not happen a lot of thetime. I cannot think of examples, but there arecertainly cases where we have got part of the waythrough the process and just concluded, “We’re notgoing to come to a good answer here. We need toredesign the project maybe, or find some othersolution.” It is a trade-off, because in places like

Afghanistan or some of the other highly insecurecountries, it is a good goal to help them to increasetheir tax tally. We are sometimes in that position, andwe then have to manage the trade-off.

Q98 Jackie Doyle-Price: Where we need to get towhen we look at the value for money of these thingsis, “Are we delivering the outcomes that we’re tryingto get?” It is a judgment call, isn’t it, about howimportant those outcomes are?I was very encouraged by what you said at thebeginning, Liz, about how you are looking at theoutcomes that you want to deliver, and then lookingat where you can deliver those outcomes throughmultilateral organisations. I would say generally thatthe DFID programme is very outcomes-focused.However, once you have actually decided where youwill put the money, and have awarded it to a particularorganisation, how do you ensure that those outcomesare delivered? I ask that because in paragraph 2.14 ofthe report, we are told that “The Department’sassessments didn’t include comprehensiveinformation of the development results they haveachieved.” It rings an alarm bell in my mind that youare looking at the best fit to spend the money, butthen not necessarily following through on whether themoney has really delivered what you want.Liz Ditchburn: Anthony might want to say moreabout how we follow up and monitor performance anddelivery of results by the multilateral organisations,because it is slightly different if you are giving corefinance; obviously, you are only financing a part oftheir results, and it is the overall that you areinterested in. Perhaps I could talk a bit about how wedo that in the rest of our programmes, where we havea very clear amount of money to deliver a particularset of results.The expected results are laid out very clearly in thebusiness case, and on that basis the funding is agreed.There is then an annual review process, whereby theteams will look at the evidence of what has beenachieved and score that against the expected results.We introduced a new scoring system a year or so ago,which kind of ties that more tightly. The teams haveto compare—“Year 1, we expected this much; howmuch did we actually get?”, “Year 2, we expected thismuch; how much did we actually get?”—so that wehave a clear milestone for each year. Then the projectis scored against whether it achieved that milestone ornot—whether it overachieved or underachieved.There are two things. At the level of the programme,the annual review, obviously, if there are problemsand there is underperformance, that should lead toactions, a questioning of whether the programmeremains value for money and should continue or stop,and whether there are actions that can be taken to getit back on track so that it does achieve. For eachprogramme, we have that annual review.We also then pull all those annual review scorestogether into an overall portfolio quality index, whichthe management board monitors very closely, so thatthey can check the overall quality and performance ofDFID’s portfolio. Maybe I could pass to Anthony totalk more about the multilateral side.




Anthony Smith: What we got through the multilateralaid review was better comparative information thanwe ever had before about the way that all the differentorganisations that we provide significant funding todeal with results, and each individual assessment tellsyou something about what we thought about the waythat they did it.Several organisations, like UNICEF, have fantasticstories to tell about the individual results that theyachieve in different situations and countries, and ondifferent issues, but in the organisation itself, they arevery bad at saying what results they had planned toachieve, and what the overall impact is that they getwith their money; their results management, if youlike, is not good.Through the MAR, we are able to ally with otherpeople on the boards of those organisations, to try toget improvements in those results frameworks. Wehave found that through the MAR, through publishingall this information and starting a dialogue with othercountries and donors, we are getting the organisationsand the other donors that are working on this comingto us and saying, “Okay, how can we improve ourwork on results?”Some of the most interesting areas have been aroundthe standard-setting organisations to which Mark andothers referred earlier. I disagree with what Alisonsaid about us not valuing as much the work that theydo through the framework, but we found that thoseorganisations never paid very much attention tolinking the work that they did at headquarters onstandards with outcomes on the ground in poorcountries. Therefore there was no evidence about theway that the work that they do, which is clearly veryvaluable in many cases, had an impact on povertyreduction. Now we have quite a good dialogue withthem about developing systems to draw a line betweenthat headquarters work and what is happening on theground. In every different institution, we have a set ofreform priorities, many of which are around resultsand results frameworks. Some organisations are verygood. The World Bank is quite good at saying, “Thisis what we plan to achieve over the next four years”,but others are not.

Q99 Jackie Doyle-Price: I know that we keep goingback to figure 13 and pointing out theseunderperformers, but in looking at these relationships,there is a dimension to them that goes beyonddelivering aid programmes. Obviously, the diplomaticrelationships that emanate from those organisationsalso help deliver the wider objectives. Is thereanything you can say that helps us put a value on thatto address the points that are made in the NAO Reportabout why we have suspended relationships with onlyfour of the nine underperforming organisations?Mark Lowcock: You are right. The UK is a memberof the Security Council of the UN. We have alwaysattached value to the fact that we have a biginternational presence and diplomatic clout, and thatarises partly from the fact that we have a universalmembership of lots of things. That is a factor that wediscussed with the Foreign Office before agreeing thatwe would leave four organisations. The trick is toquantify the value to us of being a member of a

standard-setting organisation. The World HealthOrganisation provides the world advice to countrieson drug protocols and treatment systems, and that is aglobal public good. It is really difficult to quantify abenefit to a particular country for that. Somehow weneed to do what Anthony said and work out how wellthey perform that function and how well they supportdeveloping countries doing it, and then reach abalanced judgment, but it is not something that can bereduced to a mechanistic formula or a single number.We just have to recognise that.

Q100 Austin Mitchell: Why didn’t you test theeffectiveness of the multilateral organisations asagainst other alternative mechanisms of deliveringaid? I see that paragraph 15 says that only fourorganisations in total were tested against alternativeoptions for delivering the same objectives. Why didyou not administer that test more frequently,especially to the European organisations?Mark Lowcock: The European organisations are a bitdifficult because we have treaty obligations. What wehave tried to do is apply that test to the organisationswhere we can take meaningful decisions as a result ofthe outcome of the test. Part 3 of the Report givessome examples of the places where we did that. It ison things such as vaccine procurement, bed netprocurement, and the provision of education servicesand water and sanitation supplies and systems. Fororganisations that have a specialist role in thosethings, we were able to do more comparative workthan we could on some of the others.

Q101 Austin Mitchell: That proved to be moreeffective?Mark Lowcock: Yes, and it did lead to effectivejudgments. What we would like to see is largernumbers of these organisations with much betterresults data. If they all said, “We maintained xthousand kilometres of road and it cost us y pounds”,or “We financed the training of x thousand agriculturalextension workers and it cost us z pounds” it wouldgive everybody, not just us, a better database on whichto take funding decisions.

Q102 Mr Bacon: Why don’t they?Mark Lowcock: Because they did not have a strongenough incentive until the likes of us came along andsaid, “Unless you do that, our funding is not going tobe what you would like it to be.”

Q103 Chair: Obviously, there are some areas whereit is easy to do that: children attending school,injections given and so on. I am talking to the VSOabout women’s empowerment; I don’t know how thehell we measure that. There is danger in yourmethodology that you will crowd out qualitativemeasures, which are equally important in buildingcapacity. In an odd way, they are probably moreimportant, in that they build the country’s capacity,rather than simply adding in aid.Mark Lowcock: I agree completely. There are someorganisations that play a globally important role thatmay not be able to generate good metrics, but towhich we are nevertheless excessively generous




contributors. UN Women is one of them, for exactlythe reason you mention. If more countries did a betterjob of empowering women and gave betteropportunities to girls, it would transform all sorts ofthings. Although UN Women is a young organisationwith some management challenges, we have beengenerous in our funding.

Q104 Chair: So in your framework of assessment,are you having regard to that, or will you in future?Mark Lowcock: Yes.

Q105 Chair: I do not think this one did it brilliantly,but I accept that you have to move on.Mark Lowcock: Yes, you are right about that. On page19, the framework is set out. In item 2, “attention tocross-cutting issues including gender” is the box inwhich we have that. It may be that in future, we needto give more weight to that box in the overallassessment, at least for some agencies. That would bea way of addressing exactly the point that you made.

Q106 Chair: The other similar point is thatperformance measures will differ from context tocontext, won’t they? I do not know how you can dealwith that if you are trying to do a comparative bitof work.Liz Ditchburn: Aren’t there two aspects to this? Astrong and effective organisation is one that measures,monitors and manages the things it cares about. It hasto set what it cares about, and then it has to put inplace appropriate measures. For example, if a body isfocused on women’s empowerment, if it is a strongand effective body, we should expect it to try veryhard to think about how it measures, monitors andmanages that. There is something about organisationaleffectiveness: how do you judge an organisation? Thatdepends on the organisation itself and what it is tryingto achieve. But if we want to reach the sort of dataavailability that Owen and Alison talked about earlier,we also need to work very hard on comparability tomake sure that we have comparable measures acrossthe whole international system. Otherwise, neither wenor developing countries’ Governments, nor otherswho put in resource, will be able to make thosecomparisons.That is where we are investing, for example, in theeducation work that we are looking forward toreporting to you in a couple of months’ time. We arenot only managing and looking at the set of coremetrics that we have already talked to you about; theDepartment is currently working on a new metricaround cost to read. How much does it cost to get achild to a stage where they can read? Can we start tobuild that so we are actually looking at the cost ofdelivering a learning outcome, rather than just at thecost of input or some of the outputs. We have gotthose data in five countries now, and we have beenworking to take that forward.

Q107 Mr Bacon: When you say “rather than the costof the input”, do you mean that you are not going tobe measuring the input?Liz Ditchburn: For example, the kinds of metric thatwe are already looking at are cost of supporting a

child per year in a school; teacher salaries, which isobviously an input cost; completion, which—Mr Bacon: My question was about—Mark Lowcock: We’re not going to stop measuringthose things.Liz Ditchburn: No, we are going to measure all thosethings too.Mr Bacon: Good, because my question was about—Liz Ditchburn: No, absolutely—

Q108 Mr Bacon: If I can just finish my question,then you may answer it. My question was about youruse of the words “rather than”. That made it soundlike you were going to do one rather than the other.Liz Ditchburn: Sorry, I should have said “rather thanjust”. The key thing is that to get that effectivedatabase, we need a suite of metrics that operate at allthese different levels. There is no single metrics “persector” that is going to work, so we need the inputand output measures, and we also need to startbuilding some of those metrics, which often do notexist currently, around what it costs to deliver a unitof learning outcome.

Q109 Mr Bacon: We need that here.Liz Ditchburn: That is where the excitinginternational work is. If we can work with partners tostart to get those kinds of metrics in place, we will bein a position to judge not just whether an organisationdoes this well, but whether we have data across thepiece to make those kinds of judgment.

Q110 Austin Mitchell: I can see that contributing tothese multilateral organisations earns us internationalBrownie points, kudos and things like that—“Britishchaps are always sound and always deliver.” Thesituation now is that I am finding aid increasinglydifficult to justify when I go around Nunsthorpe. Folkread stuff in the Daily Mail—they do not read TheDaily Telegraph, so they will not have seen the stuffabout this bloke Adam Smith, whoever he might be,whom the Chair has mentioned—and ask why weshould give aid to India when it is firing rockets intothe air or to the moon or wherever, and why we shouldgive aid to Africa when they only go out and kill eachother with machine guns. What I am saying is that aidto multilaterals is difficult to justify electorally, to thepeople, because there is nothing to show for it. If youcan show water brought on tap, kids educated,Ugandans taught to cook fish and chips or some otherdirect results, it puts the case for aid far better.Chair: To help the Grimsby economy.Mr Bacon: To help the Grimsby economy—Grimsbyfish, no doubt.Austin Mitchell: To cook fish and chips in Uganda—a delegation went out from the Grimsby Institute.Chair: That was a wider question, so a brief answer,and then I want to bring in Richard.Austin Mitchell: Is it not more useful to give directanswers—and more convincing to the people?Mark Lowcock: I completely agree with that. Thebiggest thing that we need to do is explain the valuethat we get from the investments we make. If I maygive one example, by investing with others throughthe Global Alliance on Vaccines and Immunisation,




we have driven down the costs of vaccines. There isa vaccine against pneumococcus that stops childrengetting respiratory infections; we have been able toreduce the cost by 90% compared with what it is inan OECD country by working with the market and thesuppliers collectively, so that we can afford toinoculate 10 times as many children and babies in thepoorest countries, to stop them getting this killerdisease. Those are the stories that we need to tell.Likewise, if a woman and child sleep under a bednet, they do not get malaria. By having a multilateralapproach, which we supported, we have driven theprice of a bed net down from £3 or £2 over the pastfew years. Those are the value-for-money stories thatI think everyone understands, and that is the focus.Chair: We have a final value-for-money question.

Q111 Mr Bacon: I want to ask you about the recentpress reports on budget support for Rwanda, whichyou will be familiar with. It was reported in the pressthat just before the reshuffle, the then InternationalDevelopment Secretary authorised the reinstatementof budget support, which I think had been put into thedeep freeze or had been suspended. First of all, is itcorrect that it had been suspended?Mark Lowcock: What happened was that we were duein July to make a decision on the budget supportrelease, and Andrew Mitchell delayed that decisionuntil August. In July, having consulted acrossGovernment—this was not a decision just made inDFID; it was a shared decision—he told the Rwandanauthorities a bunch of things that he wanted to happenbefore he made the release in August. Augustarrived—he was still in post—and he consulted hiscolleagues again, and he decided that he would releasehalf the money and use half of it in another way. Hesaid to the Rwandan authorities, “There is a bunch ofother things that we think you need to do to normalisethis situation.” Justine Greening is having a series offurther conversations, because we have got anotherdecision due in December.

Q112 Mr Bacon: The things that he had said hewanted to see happen before he released the money—did they happen before half the money was released?Mark Lowcock: The reason why he did not release allthe money is that not everything happened, but therewas progress on a number of things. I have not got allthe detail in front of me, but Ministers have madeministerial statements on this subject, and the storyhas been put into the public domain, so I would behappy—

Q113 Mr Bacon: Is it correct that the decision toreinstate half the money was taken just hours beforethe reshuffle?Mark Lowcock: There was a process that ran forseveral days at the back end of August, whichinvolved cross-Government discussion. I cannotremember exactly, Mr Bacon, but it was a few daysbefore the reshuffle; that is my recollection.

Q114 Mr Bacon: Did you ask for a letter of directionin this case?Mark Lowcock: No, there was no—

Q115 Mr Bacon: You were not concerned that thereinstatement of budget support might be irregular orimproper?Mark Lowcock: I was not concerned about that. Ifollowed carefully the policy-making process. I wassatisfied that officials provided balanced, honest,objective advice, that there was cross-Governmentdiscussion, and that Ministers reached a decision andcommunicated the decision. I had no regularity orpropriety concerns.

Q116 Mr Bacon: I have concerns about—I am surethe Chair will have other questions—budget support.We have looked at this twice; it was going up andnow it is going down. What proportion of the total aidto Rwanda goes on budget support?Mark Lowcock: I do not have the figure in front ofme, so I will write to you if what I am about to say iswrong, but I think in general it is something like 40%in the current year, but I may be wrong on the figure.

Q117 Mr Bacon: That is pretty high. The generalthrust of the Department has been to shift away frombudget support on the basis that it is not a particularlyeffective way of doing it.Mark Lowcock: You are right that overall across theDepartment the share of budget support is falling, butit is being sustained in those countries where thereis a good track record of using the budget to deliverimportant development outcomes. Rwanda has one ofthe world’s best records over the last decade inreducing the proportion of people in extreme poverty,getting their girls into school and keeping them there,building a social safety net system, and reducinginfant mortality. They do that through the way theyuse their public sector delivery system, so ourconcerns were not mostly on the use of publicexpenditure side. They were to do with some of theother partnership principles that we have with Rwandaon the way they fulfil their wider internationalobligations and that kind of thing.

Q118 Mr Bacon: Not fomenting war with theirneighbours, basically. Nodding does not feature in therecord, so—Mark Lowcock: We do not think that anybody shouldfoment wars with their neighbours in the absence of aUN Security Council resolution, or that kind of thing,where the world decides that that is what we shoulddo.

Q119 Chair: Just for completeness on this—I amsorry to jump in on this one, but obviously it iscurrent—you said that there were consultations acrossGovernment. Were there consultations with the otherdonor countries?Mark Lowcock: Yes. I had a number of discussions.Not every donor country reached the same view, butthere were certainly lots of discussions about thetopic.

Q120 Chair: And was the President rung personallyto be informed about the decision?Mark Lowcock: I cannot remember the series ofconversations between us and the Rwandese. I am




sure that we can tell you the factual answer to that.President Kagame was in London in July, and he hadconversations with a number of members of ourGovernment at that time.

Q121 Chair: So he might have been personallyinformed of the decision at that time.

Written evidence from the Department for International Development

At the PAC hearing on Wednesday 24 October on the Multilateral Aid Review, Mark Lowcock said that wewould write to the Committee on the three issues detailed below.

Firstly, the Committee asked why there was a 7% jump in the proportion of aid going to multilateralorganisations as a share of the total between 2009–10 and 2010–11. This increase in spending throughorganisations reviewed by the Multilateral Aid Review from 2009–10 to 2010–11 was driven by two mainfactors.

1. Planned increases to effective organisations. This included:

— Increasing funding to highly performing multilateral organisations such as the Global Alliance forVaccines and Immunisation (GAVI Alliance) and Private Infrastructure Development Group (PIDG).

— Increasing funding through financial intermediary funds managed by the World Bank such theClimate Investment Fund (CIF) and the Global Environmental Facility (GEF) and an acceleration ofplanned funding to the Global Fund to fight AIDS, TB and Malaria (GFATM).

2. Some lumpiness in disbursement profiles which collectively led to an increase in overall spend from2009–10 to 2010–11. This included:

— Disbursements to IDA in 2009–10 were disproportionately low because it was the period at the endof the IDA 15 replenishment period.The larger payment in 2010–11 was the first in the IDA 16replenishment period.

— Disbursements to the Global Partnership for Education in 2009–10 were delayed due toimplementation delays.

— Spend through the EU through both the European Development Fund and EC Budget attributionincreased from 2009–10 to 2010–11. The increase in EC Budget attribution resulted from both aplanned increase over the five year budget period and some uneven disbursement profiling.

— The commitment to the International Finance Facility for Immunisation (IFFIm) increased by £190million from 2009–10 to 2010–11 (which represents UK share of the market bonds issued).Inaddition the UK’s share of the Advance Market Commitments (AMC) of £73 million wasaccounted for.

Secondly, the Committee asked about the proportion of total aid that goes on budget support in Rwanda.General budget support was 44.4% of DFID’s actual spend in 2011–12 in Rwanda. In 2012–13, 49.3% of totalspend is planned to be delivered as general budget support and 14% as service delivery grants to a range ofsectors including education, health and agriculture.

Thirdly, the Committee asked whether the previous Secretary of State had personally informed PresidentKagame of his decision partially to restore budget support. I can confirm that Andrew Mitchell did callPresident Kagame on 1 September.

1 November 2012

Written evidence submitted by Adam Smith International

On Wednesday 24 October 2012 my company and I were subjected to a series of inaccurate and misleadingattacks by some members of the PAC, including yourself. These seem to have been based on factually incorrectand extremely partial articles in newspapers which are evidently running a campaign against development aid.

The thrust of remarks made by yourself and some other members of the Committee (Nick Smith MP andRichard Bacon MP) was that the payments made to our company by DFID were somehow illegitimate. Inreality we have been awarded our work for the UK Government through a strictly competitive process designedto identify the provider offering the best value for money. Competition is fierce and firms from all around theworld bid for DFID contracts and some of DFID’s top suppliers are from countries such as Australia andthe USA.

The results ASI has delivered in our programmes have proved excellent value for money, as the attachedsubmission to the Select Committee on International Development clearly demonstrates. It gives examples of

Mark Lowcock: I am sorry, Chair, I would need tocheck the facts. I do not want to mislead you onsomething that I have not prepared for. If I may, I willwrite to you on that.Chair: Okay. Thanks very much indeed.Congratulations. We look forward to further progressin our future sessions.



seven ASI projects that together cost £98 million but have yielded benefits of £3.6 billion to date and willyield at least £12 billion after a further five years.

The paragraphs below address the misrepresentations and inaccuracies contained in the transcript and therecord of the proceedings.

Salary. My basic salary is £144,000 not £250,000 and has been held at that level for several years. It isentirely false to say that I “gave myself a pay increase when everyone else’s is frozen.” While of course asalary of £144,000 is a lot compared to the average wage, it is not a high level of remuneration for a managingdirector of a £60 million+ turnover company operating in multiple markets throughout the world.

Many clients. It is incorrect to say that any money we pay comes ultimately from the UK public purse.Although DFID is a major client, we work for a very wide range of clients including the Governments of theUnited Arab Emirates, Oman, South Africa, Norway, Germany, Holland, Botswana, Trinidad, Libya, theDominican Republic, India, Bulgaria, Rwanda, Uganda, Sierra Leone, Papua New Guinea, as well as the WorldBank, the Asian Development Bank, AUSAID, USAID, EBRD, KFW, the Swedish International DevelopmentAgency, the Canadian International Development Agency, the European Commission, the Danish DevelopmentAgency, the Temporary Financing Mechanism for the TNC (Libya), inter alia.

Monopoly position: in relation to Q74 ASI does not enjoy any form of monopoly in the market to provideservices to the Department for International Development. We compete for all DFID contracts through an open,transparent and highly competitive tender process. We win projects when we put together the mosteconomically advantageous tender.

We are in the top three to four suppliers to DFID and in 2010–11 we secured approximately 8% of DFIDtechnical assistance contracts by value. As Mark Lowcock noted there is significantly higher competition forDFID contracts than there is for other well respected bi-lateral donors such as the Swedes and the Australians.AUSAID’s rapidly growing budget for Technical Assistance (TA) is dominated by four firms each enjoyingmore than a 20% share of the TA budget. All four firms have turnover more than £100 million a year fromAUSAID contracts and all four dwarf ASI. Two of these Australian firms are in the top five or six DFIDsuppliers. DFID’s top ten suppliers also include American and French owned companies.

Dividends. Over the seven years since 2006 we have paid £11.5 million in UK corporation tax—considerablymore than some very large multinational companies. The bulk of our profits through this period have beenreinvested in the business allowing us to recruit many more staff, expand our operations and invest indeveloping new skills and innovative approaches to meeting development challenges.

Our profits—at around 10%—are much lower than the majority of established professional servicescompanies and enable us to run our operations and maintain adequate working capital to service our projects.

Over the seven year period since 2006 ASI’s parent company has paid £5.8 million in dividends to itsshareholders, (all of whom have invested significant sums in the company). This is 2% of revenues over thatperiod and not a high amount compared to that paid by other companies. It is perfectly proper for privatecompanies to pay dividends to their shareholders, including companies that serve international public sectormarkets such as our own.

Visibility of results. Unlike many DFID suppliers we are head quartered and tax domiciled in the UK. Itseems clear that the main reason we were singled out by the press is because of the accessibility of our financialrecords and the wholly transparent filing of our financial statements and tax affairs. Another reason perhaps isthe high visibility and notable impact of our work for HMG and other agencies. For example:

— Libya: ASI financed by Gulf States was responsible for the management and oversight of flowsof $1.6 billion in international funding to the Libyan rebels at the height of the fighting.

— Iraq: ASI took the lead role in the establishment from scratch of the central governmentinstitutions in Iraq with DFID and later Swedish SIDA funding.

— Nigeria: ASI is contracted to DFID and has supported a huge improvement in the Nigerianpower industry which has saved consumers over $l billion, as recently highlighted by MarkLowcock;

— Afghanistan: ASI is contracted by DFID and has for eight years advised on the establishmentof a tax base and its very significant expansion to $2 billion.

We enjoy taking on challenging work in challenging conditions and we are very proud of our reputation fordelivering significant results such as the projects listed above. More information is contained in the attachedsubmission.

Working in post-conflict countries. We note the concern of PAC members that we seem to enjoy a strongposition in countries such as Afghanistan because many other people are not prepared to work there. We thinkthat is rather unfair that this should be held against us. Our successes are no accident but the result of ASI’ssignificant investment in high calibre staff and systems that allow us to operate successfully in suchenvironments. ASI’s Directors and Shareholders do not simply dispatch people into the field, we go with them.Do we move fast to set up such systems and deploy good people? Yes we do and we are proud of this ability.



It is through firms such as ASI that DFID is able to work in places that HMG civilians cannot be deployed.Our teams today in South Afghanistan, in Somalia and in North West Pakistan are testament to this fact.

This work is not without risks. I have been shot at in helicopters and cars, mortared on open ground, and Ihave worked from buildings struck repeatedly by rockets. We, and other contractors, have lost people toinsurgent attacks. It is perhaps worthy to consider these points when comparing our rates and remuneration tothose of public sector consultancies active in the UK who charge very considerably higher rates, enjoy muchhigher salaries and maintain much higher profit margins than ASI. Moreover, the work we and other firms dotakes place in environments characterised by corruption, lack of capacity and dysfunctionality and where it ismuch more challenging to achieve results than in developed countries.

HMG Officials: Committee members asked several times why HMG officials -from HMRC for example -arenot doing the work of our team of ASI tax advisers in countries such as Afghanistan. There are currently twomain reasons for this that are relevant to PAC members’ questions—ie Q69 and Q71 on admin costs and valuefor money: first HMRC is not set up to deploy their officials to Kabul and the provinces of Afghanistan andsecond it is very significantly more expensive to deploy and support HMG officials in Afghanistan than todeploy consultants. In fact the ASI tax team in Kabul does include former officials from HRMC and taxadministrations of other Commonwealth countries.

Committed to development: It was suggested in Q78 that we are just in it for the money and not for value-based reasons. This is untrue.

Even the most cursory review of ASI’s professional and highly motivated staff would demonstrate theircommitment to their work and to delivering results for development clients such as DFID and the world’spoorest people. Many have taken very significant pay cuts to join ASI and enter the development world aftercareers in top law firms, the city and private sector consulting. Many of our staff have worked for NGOs forlong periods. But successful development work does require professional skills, systems and approaches. Thereis space in the development world for a wide range of actors but much of the advisory work we do requiresspecialist skills and experience.

Focus of work: Austin Mitchell MP seemed to be under the impression that we have been paid by DFID “topromote the free market in the third world.” This is completely untrue. For DFID we undertake a range ofprogrammes, most in the area of governance and some in the area of private sector development that havebeen designed by them and reflect the policy position of the Department. A good number of the programmesthat we are currently delivering, including several of which we are most proud, were initiated under the lastLabour Government and praised by Labour Ministers at the time.

Conclusion: We would be grateful if you would correct the public record by removing the inaccurate andmisleading remarks from it. We hope that you agree that the remarks made were not fair. We would be delightedto have a private meeting with you and any other interested members of the committee to explain and discussany of the above points in more detail.

November 2012

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House of Commons

Committee of Public Accounts

The Department for International Development: The multilateral aid review

Twenty-sixth Report of Session 2012–13

Documents

The Department for International Development: The multilateral aid