Aid untying
Background
- Aid tying is the practice of insisting that aid funds are used to purchase goods and services from suppliers based in the donor country or a limited group of countries (most often the donor and recipient).
- From 1 April 2001, the UK agreed that all its development assistance would be fully untied. However, there are questions on how well this has been implemented in the fields of technical cooperation (TC) and financial aid contracts let by DFID, programme countries or agents acting on our behalf, e.g. Crown Agents.
- Contracts Branch (CB) is thinking about developing clearer guidance on how to apply untying in the area of TC and financial aid contracts.
Why is it important?
- The World Bank estimates that tying aid reduces its effective value by as much as 25%.
- Untying TC and financial aid contracts provides a much wider selection field with an improved range of skills. It also gives the option for greater involvement of local country-based companies, which is an important part of capacity building.
Facts and figures
- Ensuring the full untying of contracts would impact on a large proportion of DFID spend. Last year CB reported that they let 770 UK contracts totalling £225m, while DFID country offices let 2,200 local contracts totalling £15m.
DFID's position
- All contracts for services over £100,000 must follow contract processes set out in public procurement regulations, including advertising through the Official Journal of the European Union (OJEU).
- CB aims to improve the quality of local tendering and widen the pool of local expertise. Bidding documents emphasise the need for, and encourage the involvement of, local consultants in large contracts.
- DFID publishes information about pre-qualified companies for contracts on its external website, to encourage smaller companies to contact them about possible participation.
Criticisms
- Tendering in the international market is a very time consuming process and can delay programme start up.
- Engagement of local companies may be difficult if we cannot undertake company registration or financial checks.
- DFID needs to improve access to tender documents, which are usually only in English.
Last updated: 6 February 2006
