[This on-line version does not contain any figures, charts, graphs, or tables. To receive a published copy of this report, contact DISC, 1611 North Kent Street, Suite 200, Arlington, VA 22209-2111. Phone 703-351-4006; fax 703-351-4039; internet docorder@disc.mhs.compuserve.com] USAID Program and Operations Assessment Report No. 13 Strengthening the Public-Private Partnership: An Assessment of USAID's Management of PVO and NGO Activities By Patricia L. Jordan, CDIE April 1996 (PN-ABS-548) PREFACE In September 1993, the U.S. Agency for International Development's Center for Development Information and Evaluation (CDIE) initiated an assessment of the Agency's management of its relationship with U.S. private voluntary organizations (PVOs) and indigenous nongovernmental organizations (NGOs). During the subsequent eight months, CDIE teams interviewed staff of PVOs, NGOs, USAID, and other donor organizations in eight countries and the United States. The study benefited greatly from the expertise and goodwill of people and organizations too numerous to thank individually--in particular, the many PVO, NGO, and USAID staff who generously arranged or participated in interviews and provided suggestions and insights to enrich the study. The efforts of four people--Carl E. Wisler, Ronald D. Levin, Janice K. Stallard, and Jonathan M. Conly--were invaluable to this assessment. Mr. Wisler of Development Alternatives, Inc. (DAI), the study methodologist, was instrumental in the design of the assessment and development of data collection and analysis procedures. He also assisted with data collection, including participating on the Bangladesh field team. Mr. Levin of DAI served on the study's core assessment team from its inception through completion of data collection. He was team leader for the Mali and Senegal visits, team member for the Bangladesh field visit, and a participant in U.S. interviews. Ms. Stallard, of the Academy for Educational Development, was a member of the core assessment team. In addition to preparing draft report materials, she conducted fieldwork in Bangladesh, Swaziland, and South Africa. Mr. Conly, formerly chief of CDIE's Program and Operations Assessment (POA) division, was team leader for the Bangladesh and Poland visits and provided useful guidance and insights throughout the development of the assessment. The contributions of Leslie Fox of DAI also are greatly appreciated. In addition to preparing draft report materials, Mr. Fox was a member of the Mali and Senegal field teams. John R. Eriksson, former CDIE director, and Michael M. Calavan, CDIE/POA division chief, were especially helpful in their review of drafts of the report. The field team members' time, effort, and suggestions to improve the quality of the study also are greatly appreciated. In addition to those mentioned above, team members included Edward Glaeser (Bangladesh, Mexico, and Guatemala); Christina Schoux (South Africa and Swaziland); Stark Biddle (Poland and South Africa); Rachel Patterson (Mali, Senegal, and the United States); Ken Koehn (Mali and Senegal); Joseph Lombardo (Mexico and the United States); Mari Clark and Carol Finnegan (Poland); Scott Smith, Rachel Peterson, and Cathryn Thorup (Guatemala); and Mary Pat Selvaggio (South Africa). The study also benefited from the services of several research assistants, notably Sara Hurwitch, Dawn Emling, and John McDermott. The efforts of Cheryl Gwynn and Rachel Peterson in analyzing interview responses were particularly appreciated. Excellent background literature reviews were prepared by Virginia Lambert, Tami Fries, Cheryl Gwynn, and Margo Kelly. Finally, the assistance of Laurie Denton, Ross Bankson, Chuck Wilkinson, and Pamela McDade Frankel in preparing this report for publication is greatly appreciated. The author retains full responsibility for any errors in this report and hopes any such errors will not detract from the valuable contributions of the people mentioned here. SUMMARY USAID and its predecessors have worked for almost 5 decades with U.S. private voluntary organizations (PVOs) in providing humanitarian and development assistance. The Agency first turned to PVOs to handle short-term disaster relief and food distribution. Over the past 2 decades, USAID has worked with nongovernmental organizations (NGOs) indigenous to the countries where the Agency operates. Gradually, the scope of PVO and NGO work has broadened to programs aimed at the root causes of poverty and vulnerability to disasters. In recent years, donors, academics, development professionals, and members of Congress have recommended that PVOs and NGOs play a larger role in development and advocacy efforts. They reason that use of grass-roots citizens' groups is the best approach to accomplishing many development objectives. In most countries with USAID Missions, PVOs and NGOs are hard at work delivering disaster relief, handling food distribution, or implementing development activities. This assessment examines the working relationship between USAID and the PVO/NGO communities and suggests ways to improve that relationship. The study looks at how USAID does business--that is, the processes--as opposed to examining the development impact of USAID-funded PVO and NGO activities. U.S.- and field-based interviews, research, analysis, and report preparation took place over a 1-year period, from September 1993 to September 1994. Structured interviews were conducted with 259 PVO, NGO, and USAID staff in eight countries and the United States. Topics covered included registration, negotiation, funding instruments, general implementation, financial management concerns, and location of the USAID manager. The study also gathered information on several other facets of the USAID PVO/NGO relationship: sustainability; other donors' work with NGOs; use of financial intermediaries, or "umbrellas"; and PVO/NGO collaboration in establishing USAID development strategies. Information on these topics was collected through literature review as well as additional field interviews. Principal Findings Although PVO, NGO, and USAID respondents were able to accurately describe the differences between the Agency's funding instruments (grants, contracts, and cooperative agreements), a lack of consistency pervades USAID's use of each instrument. There seem to be few practical differences in the management of grants and cooperative agreements, as many USAID project officers impose onerous control measures for each instrument. In fact, some officers state they manage all activities the same way, regardless of the funding instrument. In addition, a contradiction is perceived between the presumed "hands off" management of grants and the Agency's accountability requirements. USAID project officers' management style and relationship with the implementer are seen as more important to project success than officers' location. However, the respective roles of USAID/Washington and Mission staff in the management of USAID/W funded activities are not clear. Many interviewees do not understand the purposes of USAID registration or at what point organizations must register. NGOs appear to have a more difficult time than PVOs with registering, particularly in meeting accounting and financial management requirements. Despite the difficulties, however, becoming registered seldom is a major stumbling block to obtaining Agency funding, since funds are available for nonregistered organizations. Negotiation is not seen as an especially difficult process. Most implementers say that time spent up front in proposal preparation and project design facilitates smooth, timely negotiations. Moreover, negotiations go more smoothly when the Agency uses a team approach or when implementers have a single USAID contact person, as opposed to separate negotiation sessions with several USAID staff. According to interviewees, key factors in implementation success are well-developed activity designs, work plans and budgets, and collaborative, competent USAID and implementer staff. Implementers say they would prefer dealing with just one USAID contact person during project implementation, preferably the project officer. Agency regulations are seen as too complex for small organizations to understand. Moreover, many NGOs receive little or no administrative orientation before or during project implementation. The USAID "system" for implementation approvals is not clear to implementers; it appears to depend on the preferences of individual USAID project officers. USAID reporting requirements and time spent on them also are seen as excessive. (The Agency recently made changes in key implementation approvals and reporting requirements for grants and cooperative agreements. They should ease the administrative burden.) It was not a specific interview topic, but many PVOs and NGOs said they would like USAID to stress the importance of--and provide funding for--regular project evaluations. Many PVOs and NGOs said the Agency's financial reporting requirements are excessive and time consuming; at the same time, however, many NGOs report their financial management systems have improved as a result of meeting Agency requirements. In addition, NGOs generally see audits as a positive management tool. Owing to recent USAID changes, NGOs that receive less than $100,000 a year per agreement in direct USAID funding (up to a total of $250,000 a year) no longer are required to follow OMB Circular A-133 audit requirements. Neither PVOs nor NGOs are consulted extensively in the development of USAID's global and country strategies, and both would like more opportunities for dialog with the Agency during strategy development. (Recently, though, the Agency's climate for strategic collaboration with PVOs and NGOs has improved dramatically.) Cost sharing involves dividing project expenses between USAID and the implementing PVO or NGO. PVOs and NGOs strongly support the concept of cost sharing, but would like more flexibility in its application. In July 1994 the Agency eliminated the 25 percent cost-sharing requirement for registered PVOs. Instead it encouraged the "largest reasonable and possible financial participation" of recipients. PVOs and NGOs raised concerns about sustainability in project design, including having USAID assess community demand for an activity's benefits and the capabilities of the proposed implementer. In addition, they see beneficiary participation in project design and implementation as an important ingredient of success. Umbrella activities involve a USAID award to a lead organization, which then makes subgrants to a number of PVOs and NGOs. Capacity building of subgrantees is an increasingly important part of umbrella activities. NGO subgrantees benefit from the opportunities for networking and institutional strengthening (with assistance from the lead organization). USAID staff say some management savings are realized with umbrella activities, because only one grant is managed, not several. With the notable exception of the Canadian International Development Agency, donors generally don't emphasize donor-NGO partnerships or NGO capacity building. Many donors provide indirect funding to indigenous NGOs through a donor country NGO and have cost-sharing requirements. Another funding method, the "consortium" approach of some donors, is a useful method for multiple donor funding of indigenous NGOs. Compared with other donors, USAID's strengths are its in-country presence and its ability to directly fund indigenous NGO activities. Management Recommendations Three sets of management recommendations flow from the evaluation. One regards USAID's inconsistent management of grants and cooperative agreements. The second relates to policy changes. The third involves other areas in which USAID staff can take immediate management actions. This last group is by far the largest, as the study found that most of the needed changes do not require revisions to the Agency's policies and procedures. Inconsistent Management Over several months of interviews, it became clear that a pervasive problem affects USAID's management of PVO/NGO activities. It is the inconsistency of USAID staff's management of grants and cooperative agreements. Staff appear knowledgeable about technical differences between funding instruments, but in practice these differences often are ignored. Preferences of individual officers, rather than requirements of specific funding instruments, seem to determine how activities are managed. Overall, the Agency needs to provide clearer guidance on the use of each funding instrument and necessary controls associated with each--for example, in cooperative agreements, drawing the line between substantive programmatic involvement and administrative micromanagement. Several specific ways suggest themselves for developing USAID staff capacity to manage PVO and NGO activities more consistently and equitably: 1. Reinforce collaborative management. The Agency's senior managers should make dedicated efforts to communicate to staff the importance of collaborating with USAID's development partners. 2. Structure an incentive system. As part of USAID's reengineering efforts, senior managers should develop an incentive system that recognizes and rewards hands-on, results-oriented project officers for excellence in working in partnership with PVOs and NGOs. 3. Provide additional training. Additional training of USAID staff, particularly project officers, is needed to ensure reasonable consistency worldwide in applying USAID regulations and procedures to the various funding instruments. 4. Certify project officers. Agency managers should consider developing a certification program for project officers to ensure that project staff have the knowledge and skills needed for managing PVO/NGO activities. Recommended Policy Changes Senior managers should review current policy regarding indigenous NGOs in these areas: 1. Simplify NGO registration. Current legislation requires USAID to register indigenous NGOs that meet the criteria for classification as PVOs. Given the Agency's emphasis on increased direct funding of NGO activities, current registration requirements for NGOs should be reviewed and simplified. USAID also should consider the feasibility of direct Mission registration of NGOs. 2. Clarify requirements of the Office of Management and Budget (OMB) for NGOs. As a matter of policy, the Agency has determined that OMB circulars pertaining to the management of grants and cooperative agreements apply to NGOs as well as PVOs. Keeping in mind the importance of sound management principles, and recognizing the need for NGO institutional strengthening, the Agency should review the current OMB requirements to determine which ones are essential for application to indigenous NGOs. It should release NGOs from inappropriate or unproductive management requirements. 3. Consider using more donor consortia. To provide more funding options for indigenous NGOs and to streamline their reporting requirements, USAID should investigate the possibility of joining or establishing country-level donor consortia to provide joint funding for indigenous NGO activities. Immediate Management Actions In addition to addressing the problem of USAID officers' inconsistency in PVO/NGO grant management, many changes can be made by USAID staff to improve management of PVO/NGO activities. These suggestions can be carried out without revising existing Agency policy or procedures. 1. Senior manager actions. Senior managers--at field Missions or in USAID/Washington--can help strengthen USAID's partnership with the PVO and NGO communities in several ways. Among them: -- Systematically tap PVO and NGO expertise through regular consultation in the development of USAID's global and country development strategies -- When capacity building is identified as an objective, consider providing longer term funding -- Establish a single point of contact. Senior managers should encourage a team approach within the Mission for project design, negotiation, and implementation. To improve communication, senior managers can establish one point of contact for the PVO or NGO. Preferably that contact person is the project officer 2. Project officer actions. Project officers can take immediate steps to improve the management of PVO/NGO activities: -- Encourage the development of PVO/NGO networks to help strengthen indigenous NGOs -- Use more support grants to fund organizations' broad portfolios of activities -- Strengthen NGO financial management skills by using pre-award reviews and small initial awards for new or inexperienced NGOs -- Better educate PVOs and NGOs about USAID's minimum accountability requirements and the differences in funding instruments -- Strengthen PVOs and NGOs by including capacity building activities as program outcomes or intermediate results -- Regularly include funds for evaluation in activity budgets GLOSSARY CDIE Center for Development Information and Evaluation (USAID) NGO Nongovernmental organization OMB Office of Management and Budget POA Program and Operations Assessment division PVO Private voluntary organization USAID/W USAID Washington 1. SEEKING A LARGER ROLE FOR PVOS AND NGOS USAID has worked for many years with U.S. private voluntary organizations in providing humanitarian and development assistance. The Agency first turned to PVOs to handle short-term disaster relief and food distribution. Gradually, the scope of PVOs' work was broadened to programs aimed at addressing the root causes of poverty and vulnerability to disasters. More recently, PVOs also have directed their attention to developing the management and technical capabilities of their indigenous partners. USAID has developed umbrella activities to allow the transfer of funds and technical assistance through PVOs to indigenous nongovernmental organizations. In most countries with USAID Missions, PVOs and NGOs are at work delivering disaster relief, handling food distribution, or implementing development activities. This assessment examines the working relationship between USAID and the PVO/NGO communities and suggests ways for USAID policymakers and project managers to improve that relationship. Thus, the study looks at how USAID does business--that is, the processes--as opposed to looking at the development impact of USAID-funded PVO and NGO activities. Information on USAID management of PVO/NGO activities was collected through structured interviews with 259 PVO, NGO, and USAID staff in eight countries and the United States. Interview topics included location of the USAID project officer (whether in USAID/W or a field Mission), choice of funding instrument, USAID requirements for PVO registration, negotiation of grants and cooperative agreements, general implementation concerns, approvals and reporting requirements, and financial management. Interview information was sorted by topic with the help of a computer and then analyzed to determine key themes or trends. Interview results are summarized in chapters 2 and 3. The study also gathered information on several other concerns related to the USAID-PVO/NGO relationship. Among them: sustainability, strategic collaboration, other donors' work with NGOs, and use of financial intermediaries (umbrellas). Information on these topics was collected through literature review and additional field interviews. These topics are summarized in chapter 4, with fuller discussions found in appendix D. Appendices A and B contain information on the USAID PVO/NGO policy framework and a summary of recent and proposed Agency reforms, respectively. Appendix C discusses the study methodology, and appendix E presents the perceptions of USAID senior managers on related study topics. Background In recent years, a number of donors, academics, development professionals, and members of Congress have recommended that PVOs and NGOs play a larger role in development efforts and in advocacy roles. They reason that use of grass-roots citizens' groups is the best approach to accomplishing many development objectives. The dynamics of the USAID-PVO partnership are influenced by changing world conditions and revised development strategies. The ascendance of democracy, the shift toward market-based economies, the new centrality of environmental concerns, and political shifts in Europe and the former Soviet Union have altered the context in which USAID and PVOs function. Groups such as the Advisory Committee on Voluntary Foreign Aid and the USAID-PVO Task Force have suggested significant changes in the nature of the aid partnership with the PVO and NGO communities. As of October 1, 1994, there were 419 U.S. PVOs registered with USAID, not all of which were receiving U.S. Government support. During fiscal year 1993, the government provided more than $1.6 billion in grants, contracts, government-owned excess property, ocean freight subsidies, and P.L. 480-donated food in support of PVO-administered programs. More than 400 NGOs also are registered with USAID. In fiscal year 1993 they and other NGOs received more than $200 million in U.S. Government support from bilateral funds. Critical Management Issues Until the mid-1980s, the professional literature on PVO management generally concentrated on the internal management of PVOs--fund raising, strategic planning, and the like--rather than on the mechanics of managing field-based PVO activities. Change came in the late 1980s as development professionals and scholars began exploring the link between good PVO management and sustainable development. However, a literature review conducted for this assessment found little material specifically representing the USAID manager's view or dealing with management issues concerning PVO or NGO implementation of USAID-funded activities. Three recent reports document difficulties in the USAID-PVO/NGO relationship. They include the report of a joint USAID-PVO task force, a survey conducted for a USAID-funded regional environmental project, and a General Accounting Office report on USAID's management of grants and cooperative agreements. The issues discussed below in large measure also reflect concerns expressed during this assessment. The USAID-PVO task force (USAID and the Private Voluntary Community 1993) met in August and September 1993 and issued its final report in December 1993. The task force comprised six working groups that dealt with three sets of related issues: 1) program focus, balance, and direction; 2) administrative systems and procedures; and 3) innovative funding mechanisms. Among the task force's observations are several closely related to the scope of this assessment: -- USAID should capitalize on the growing role, importance, and ability of NGOs -- Institutional capacity building for PVOs and NGOs is an essential component of a results-oriented development strategy -- USAID's current registration, procurement, grant negotiation, and oversight system impedes the USAID-PVO partnership and reduces the effectiveness of USAID resources and PVO performance A December 1993 report (MSI 1993) on a survey of Central American environmental PVOs and NGOs contained several recommendations on matters of policy, communications, administrative issues, and financial management. It found that USAID should -- Adopt more flexible administrative procedures for working with NGOs -- Promote more collaboration among NGOs -- Take greater advantage of local knowledge and expertise when designing new USAID activities -- Strive for improved coordination within USAID A 1993 study (GAO 1993) by the General Accounting Office investigated USAID's policies and procedures for administering grants and cooperative agreements with PVOs, educational institutions, and other not-for-profit organizations. It noted that -- USAID did not ensure that all grantees were qualified, inasmuch as contracts officers did not routinely document their determinations that prospective recipients had adequate financial and management capabilities -- USAID had limited ability to monitor grant recipients, because project officers often did not use measurable benchmarks and target dates -- USAID often was not able to make needed field trips for monitoring, owing to budgetary or time constraints, yet Washington-based project officers rarely delegated monitoring responsibilities to field Missions. Definitions of 'PVO' and 'NGO' According to a 1988 cable, to be recognized as a private voluntary organization, an organization must meet the six conditions listed below. They relate to the organization's privateness and voluntary nature. NGO is a broader category than PVO. The NGO category includes PVOs, but also other organizations such as educational or research institutions and profit-making firms. An NGO that is not a PVO remains eligible for assistance without registration, but it cannot take part in activities reserved by policy or law for registered PVOs. These include USAID's payment for ocean freight shipping, procuring goods or services from federal agencies, participating as cooperating sponsors under section 202(A) of PL 480, or participating in the PVO matching grant, child survival, and Mission PVO programs. However, for ease of reference, "PVO" is used in this assessment to mean a U.S.-based not-for-profit organization engaged in overseas development work, and "NGO" is defined as an indigenous not-for-profit organization. Use of the terms "PVO" and "NGO" in this study does not imply presence or absence of USAID registration as a private voluntary organization. 2. PREAWARD CONSIDERATIONS This chapter and the next examine several facets of USAID's management relationship with PVOs and NGOs. Discussion and recommendations are based on 259 interviews with USAID staff and representatives of PVOs and NGOs in developing countries and the United States. Interviews concentrated on management areas in which significant simplification and streamlining might be possible. The remainder of this chapter explores five elements of the USAID management equation that must be dealt with before USAID actually awards funds to a PVO or NGO. They are 1) choice of funding instrument, 2) location of the USAID manager, 3) USAID's registration requirements, 4) preaward reviews, and 5) negotiation of the funding agreement. Funding Instruments Choice of Instrument Differences between the three funding instruments and their uses can be characterized as follows.1 Contracts represent the normal legal relationship for USAID's acquisition of goods or services. A contract is a legally binding agreement under which an organization agrees to provide USAID with specified goods or services required for USAID programs in return for payment. With a contract, USAID has greater rights to remedies for breach of contract than are appropriate under a grant or cooperative agreement. Grants and cooperative agreements, by contrast, are assistance instruments under which USAID's principal purpose is to support or stimulate the recipient's own program or project (consistent with objectives of the Foreign Assistance Act). Both grants and cooperative agreements are conditional gifts to an individual or an organization, such as a PVO. Under a grant, the grantee has considerable freedom to pursue its own stated program, without substantial involvement by USAID during the performance of the activity. The Agency expects the grantee to make its best efforts in achieving the purpose of the grant. Unlike a grant, a cooperative agreement entails a significant degree of direct participation by USAID in performance of the recipient's program. USAID has several types of agreements2 that can be used to fund activities of registered PVOs or other organizations, such as NGOs. Two forms of "specific support grant"--matching grants and operational program grants (both of which also may be awarded as cooperative agreements)--are reserved for registered PVOs. Two other agreements--"other" specific support grants and cooperative agreements--can be used to fund activities of other not-for-profit organizations, such as NGOs. Since interviewees generally had limited experience working with contracts, comments in this section pertain to perceived differences between grants and cooperative agreements. Overall, respondents gave appropriate, accurate descriptions of each funding instrument. However, PVOs and NGOs report they do not understand how USAID determines which funding instrument to use, since there is a lack of consistency throughout the Agency. Some NGOs remarked that choice of instrument seems to depend on the personal preference of the USAID contracts officer. USAID staff gave a variety of reasons for choosing one instrument over another: level of trust and respect for the recipient PVO/NGO, capabilities of the PVO/NGO recipient, nature of the activity, convenience (for example, to avoid the procurement requirements of contracts), preferences of the recipient (for example, some will accept only grants), and a Mission habit of using one instrument over another. Overall, most respondents believe that implementation success, regardless of the funding instrument, depends primarily on the capabilities of the implementer. Some USAID staff add other factors related to effectiveness: level of trust between the Agency and the PVO/NGO, management style of the project officer, and the Agency's level of involvement in the activity. In fact, many USAID staff argue that the more control they have over a project, the greater the likelihood of success. Some project officers also claim that regardless of the type of funding agreement, they manage all their activities the same way. For practical purposes, they see no differences between instruments. There were some reports of innovative uses of funding instruments to develop the capacities of organizations new to working with USAID. For example, some respondents report that the Agency has awarded small contracts to PVOs/NGOs for development of USAID-approved financial management systems, particularly in cases where the organization fails to meet preaward standards. Contracts Contracts are not often used with PVOs and NGOs. When they are used, they often are small purchase orders for specific products. PVOs say that contracts are the hardest funding mechanism to work with, because of the technical nature of the agreement and the relative inflexibility of a contract to meet changes in the scope or implementation of an activity. But many USAID project officers say they prefer contracts, because they provide the highest level of control over deliverables, reporting, and accounting. Grants Appropriately, all respondents see grants as the most flexible funding instrument. They observe that USAID has minimal management and oversight requirements under grants, compared with the other funding instruments. However, PVOs and NGOs note that the Agency too often is overly involved in the implementation of grant activities and in budget management after a grant is awarded. Most USAID staff interviewed note that grants offer less control than cooperative agreements and contracts regarding program issues, management, and finances. As a result, they say, grants are more difficult to monitor. They see a contradiction between the hands-off management of grants and the Agency's program and financial accountability requirements. Staff also believe that in auditing grant activities, the office of the USAID Inspector General needs to better understand that grants, by their nature, allow PVOs to receive and spend funds with considerable discretion. However, an Inspector General representative says that since the advent of the Recipient-Contracted Audit Program, his office performs few financial audits of PVO/NGO activities. Instead, the Inspector General relies on audits conducted by private accounting firms. According to the representative, the Inspector General does not expect USAID project officers to be financial managers; rather, they should be concerned with the overall accountability of the funding recipient. In that regard, he thinks USAID should make wider use of preaward reviews. They are, he believes, one of the most effective management tools available to the Agency. Cooperative Agreements USAID staff believe cooperative agreements are useful for building partnerships between the Agency and implementers, and for longer term development activities. Some PVOs, however, question this view. They claim that with cooperative agreements, USAID attempts to control and intrude on organizations and activities, indicating a lack of trust toward the implementer. PVOs also note that the negotiation of cooperative agreements is time consuming. The Agency, they say, tries to insert micromanagement aspects into the agreement, while PVOs try to negotiate out these same elements. One NGO respondent provided an example of USAID's inconsistency in managing its funding agreements. This NGO had two concurrent Mission-funded cooperative agreements, both in the same program area. According to the NGO, the major difference in the agreements was the difference in personality of the two USAID project officers. With one agreement, the project officer was cooperative and supportive, and the NGO felt as if it were carrying out its own program with the Agency's help. With the other agreement, because of micromanagement by the project officer, the NGO felt distrusted, as if it were not implementing its own program. Some USAID staff believe cooperative agreements should be used with more experienced organizations. Others contradict this, saying the agreements' primary use is to allow the Agency to recognize and correct implementer weaknesses. These views skirt the central issue, though: the use of cooperative agreements should depend on USAID's desired level of programmatic--not administrative--involvement. Other mechanisms, such as preaward reviews or the use of graduated (initially small) awards, should be used when there are concerns about administrative capabilities of the recipient. Location of the USAID Manager Overall, respondents agree that substantial differences exist between USAID/W and Mission management of PVO/NGO activities.3 But some interviewees--PVOs, NGOs, and USAID staff--say the location of the USAID project officer is not a major factor in successful implementation of PVO/NGO activities. They feel the personality or management style of the USAID project officer and the relationship between the project officer and implementer are more important to implementation success than the project officer's location. PVO and NGO comments regarding location of USAID management fall into two camps. A larger group wants a high level of USAID involvement in its projects (a hands-on approach), whereas a smaller group wants more autonomy and minimal USAID involvement (hands off). Respondents associated Mission-funded projects with the more hands-on approach and identified USAID/W-managed activities with the hands-off approach. PVO, NGO, and USAID respondents all pointed to confusion regarding the respective roles of USAID/W and Mission staff in managing USAID/W-funded activities. Many PVOs are not clear about the division of responsibility between Missions and USAID/W when both are involved in program management. Also, Missions often appear not to be knowledgeable about USAID/W-funded activities being implemented in their countries. Some Mission staff argue that managing projects from USAID/W when a field Mission is present is inefficient and creates unnecessary difficulties and duplication during grant approval and project monitoring. PVOs agree there is time-consuming duplication in communications, clearances, and approvals when both USAID/W and Missions have roles in a USAID/W project. In some instances, required periodic reports travel from the PVO field adviser to the PVO's U.S. headquarters to a USAID/W officer and then back to the Mission project officer who monitors the activity in-country. Clearances for some USAID/W-funded activities also are considered a painful process, as they travel the same convoluted route as reports. USAID/W Management U.S.-based PVO staff tend to favor USAID/W-funded activities, owing to their own U.S. location, which makes it easier for them to deal with USAID/W than with overseas Missions. These PVOs see USAID/W-managed activities as more efficient, since they can receive funding for activities in more than one country, thus reducing or eliminating the need to obtain funding from individual Missions. Most PVO staff who favor USAID/W-funded activities also stress the benefits of hands-off management by USAID/W. These PVOs say that USAID/W provides clear instructions for implementation as well as advice on, for example, the use of matching funds to simplify procurement. Mission Management Compared with USAID/W-funded activities, respondents agree that Mission-funded activities offer more direct interaction between implementers and USAID on project management issues--a more intense, individualized approach. PVO field staff say that substantive input and timely communications increase with Mission-funded activities. The full-time presence of Mission staff appears to make networking and coordination easier. Many PVO, NGO, and USAID respondents see the field location of the USAID project officer as important to project success, because the officer is more likely to know local NGOs and their capabilities. As one NGO staff member put it, "The closer to the action it is, the more effective USAID management is." Some PVO staff members say, however, that implementation changes are difficult to make at the Mission level. Reasons given are largely personnel related. Among them: frequent changes in U.S. direct-hire project officers, working with USAID personal services contractors or foreign service nationals who lack authority or experience, and Mission use of regional contracts officers or legal advisers who are physically distant and overworked. Registration Since 1988, annual appropriations legislation has required USAID to register all U.S. and foreign PVOs that will receive direct funding from a Development Assistance account. However, registration is not a requirement for organizations not defined as PVOs,4 those receiving contracts or subgrants, or those receiving funding for disaster assistance activities. Registration serves three purposes: 1) it identifies PVOs (U.S. or indigenous) that engage in or intend to engage in voluntary foreign aid operations, 2) it determines whether PVOs meet certain general operating guidelines and accountability standards, and 3) it certifies eligibility of PVOs to apply for USAID funding (USAID n.d.). Registration Requirements To become a registered PVO, an organization must meet eight conditions proving the entity's status and demonstrating its financial integrity. The eight registration conditions for U.S. PVOs are shown in the box below. Requirements for organizations in developing countries are essentially the same but may be modified slightly to reflect local laws and customs. Many USAID staff, PVOs, and in particular, NGOs say they do not understand the rationale for and process of registration. Registration is not seen as a major stumbling block to obtaining funds, though, since only a portion of USAID funding is reserved for registered PVOs. The most frequent registration problem is meeting accounting and financial management requirements. For that reason, many interviewees say that registration is significantly more difficult for NGOs. Still, many NGOs say they recognize the appropriateness of USAID requirements that they meet strict financial and legal requirements to receive funding. Some NGOs say their organizations are better managed as a result of changes implemented while preparing for USAID registration. Do registration requirements favor "mature" organizations? Many PVO and USAID staff think so. They suggest that USAID tailor registration requirements to allow smaller, less experienced NGOs to participate more easily. In fact, in January 1995, USAID's Office of Private and Voluntary Cooperation revised the PVO registration process, reducing the number of required documents from 18 to 6. The Agency has other alternatives, as well, such as use of subgrants (which are not restricted to registered PVOs) for encouraging participation of smaller, less experienced NGOs. The Registration Process Registration requirements are essentially the same for U.S. PVOs and indigenous NGOs, but the process for becoming registered differs. The Office of Private and Voluntary Cooperation directly registers all U.S. PVOs: required documentation is submitted directly to that office, which reviews the materials and, if acceptable, issues a certificate. Indigenous NGOs submit required documentation to the local USAID Mission, which may provisionally register them. Once an NGO receives provisional registration, it is eligible to receive USAID funding reserved for registered PVOs. The Mission prepares a report detailing how the NGO met USAID registration requirements, including any special circumstances due to country-specific cultural or legal practices. The Mission then forwards this report to the Office of Private and Voluntary Cooperation. After review and approval of the Mission registration report, the office issues a permanent registration certificate to the NGO. Most PVOs consider registration fairly easy, presumably because they generally are well established and have sound accounting and management systems in place. For many NGOs, though, registration is slow, complex, and costly, and they frequently become overwhelmed by the requirements. Mission staff, too, find the registration process difficult. Many say they take it upon themselves to see NGOs through the process. One Mission, for example, appointed a USAID officer specifically to oversee the registration process. The officer set up, in effect, a one-stop operation for NGOs. Preaward Reviews In addition to PVO registration requirements, USAID must carry out preaward reviews to ensure that recipients have technical and financial management capabilities to prudently manage USAID funded activities. Although preaward reviews were not an explicit interview topic, several interviewees made spontaneous comments on it. The basic requirements are outlined here to present a fuller picture of USAID's preaward activities and to complement the discussion on registration. Before receiving a grant or cooperative agreement, a potential recipient must convince USAID that it has, or has the ability to obtain, the overall management competence to plan and carry out the proposed program. More specifically, the USAID contracts officer must determine whether the recipient is able to meet the Agency's accounting and reporting standards.5 This determination can be through a formal or informal survey, depending on the circumstances. For example, organizations that never have received USAID funding, or that have not had U.S. government funds for the past five years, usually are required to have a formal preaward review. Some USAID respondents indicate they regularly follow the Agency's preaward survey requirements, particularly when awards are being made to nonregistered NGOs. However, the study did not attempt to assess the extent to which USAID staff follow prescribed procedures. Consistent use of preaward reviews, when applicable, would help USAID determine the management capabilities of potential funding recipients and could lessen the Agency's need for extensive implementation reviews and approvals. The Negotiation Process The great majority of respondents do not find the award negotiation process difficult. In fact, many respondents say that if negotiation is handled well, it can positively affect project success. The theme of "early collaboration" between USAID and PVOs/NGOs was heard frequently throughout the interviews. Implementers say that time spent in proposal development and project design, especially in close collaboration with USAID, makes subsequent negotiation easier. Many PVOs and NGOs note there is no consistent structure for the negotiation process; negotiation arrangements vary by Mission and by project. In some cases, only project officers are involved in negotiations. In others, both a project officer and a contracts officer negotiate with the PVO or NGO, often meeting with them separately (the so-called serial approach to negotiation). At other times, several USAID staff members (project officer, contracts officer, and controller) are involved in negotiations, often meeting as a team with the PVO or NGO. All respondents agree that when negotiations are well coordinated--especially when USAID uses a team approach--the negotiation process works well. Many field-based PVOs and NGOs--particularly NGOs--find it helpful to have a single contact person in the Mission to coordinate the negotiation process. When there is no single contact person, PVOs and NGOs have more complaints about the negotiation process. For example, one PVO reported it underwent serial negotiations with three different USAID staff members. By the time the process was completed, the scope of the proposed activity had changed so dramatically that the PVO chose to withdraw from the project. Most respondents report that USAID project officers carry the burden for negotiations and for ensuring coordination among Agency staff. PVOs and NGOs frequently commented on the importance of the personality and knowledge of USAID staff for successful negotiations. They noted that when the USAID project officer plays a strong role, negotiations go more smoothly. Conversely, some PVOs and NGOs say that when negotiations are not coordinated within the Agency, too much power ends up in the hands of the contracts officer, who frequently does not clearly understand the proposed program. Some PVOs report that yearly incremental funding obligations for grants, which require agreement amendments, greatly increase their administrative workloads. To justify receiving the planned incremental funding, PVOs say they often have to submit and negotiate yearly miniproposals (presumably referring to annual work plans), and they suggest that USAID consider ways to streamline the incremental obligation process. However, USAID's Procurement Policy office points out there are no formal U.S. Government or USAID requirements tying work plan approvals to incremental funding obligations; it suggests the USAID contracts officer's preparation of an incremental funding amendment for a grant should be a routine matter. USAID staff made several suggestions to streamline the negotiation process. In particular they emphasized the importance of preaward reviews. They suggested providing small amounts of funds to potential implementers, as needed, to help them upgrade their financial systems before awarding a larger agreement. USAID staff also recommended developing a simplified set of requirements for smaller grants (for example, up to $250,000) and streamlining required documentation for obtaining grants. In fact, the Procurement Policy office says that many of these documents are required annually, not on a per grant basis. It adds that the Agency is exploring establishment of a central repository for this information. Conclusions Major problems in funding instruments spring from USAID's inconsistency in choice of instrument and inappropriate (and inconsistent) use of associated monitoring and reporting mechanisms. As a result, successful implementation appears to depend more on the personality or management style of the USAID project officer than on USAID policies and procedures. The Agency can take a number of steps to deal with these problems. It can, for example, provide clearer guidance on use of each funding instrument and the necessary controls associated with each. For cooperative agreements, for example, the Agency should draw a clear line between substantive programmatic involvement and administrative micromanagement. Another possible step is to consider establishing a certification program for project officers in management of grants and cooperative agreements. Regarding the location of USAID project officers, the major concern of respondents is that in the management of USAID/W activities, the respective roles of USAID/W and Mission staff are not clearly distinguished. To remedy this, the roles of all parties need to be defined at the start of the activity. The Agency also should consider establishing guidelines for Mission monitoring of USAID/W-funded activities. Registration is a legal requirement for U.S. and indigenous organizations that meet the criteria for classification as PVOs. The key issue here is that NGOs have a difficult time meeting registration requirements, particularly those for accounting and financial management. Although the Agency revised registration requirements for U.S. PVOs in January 1995, these should be reviewed to determine if they can be further simplified to encourage and ease NGO registration--for example, by using preaward surveys to fulfill all or some of the registration requirements. USAID also should consider direct Mission registration of NGOs as a way to further streamline the process. Finally, the Agency should continue to use other funding sources, such as subgrants, to channel USAID funds to NGOs that do not meet registration requirements. Because this assessment did not examine preaward reviews, the extent to which they are used throughout the Agency cannot be determined. But interviewees who spontaneously discussed this topic indicate preaward reviews are a valuable tool in assessing organizations' capability to manage USAID funds. Agencywide use of preaward surveys could lessen the need for many administrative implementation approvals. Negotiation of funding agreements is not seen as an especially difficult process. Negotiation seems to work best, though, when the Agency adopts a team approach or when one staff member is designated as the contact person. 3. IMPLEMENTATION CONCERNS The preceding chapter examined management issues before funding is awarded; this chapter looks at project implementation. General implementation concerns include factors in implementation success, management principles, USAID staff roles, time management, USAID regulations, and procurement issues. Subsequent sections deal with implementation approvals, reporting requirements, financial management, and auditing. General Implementation Concerns Implementation Success PVOs, NGOs, and USAID staff consistently say implementation success requires careful development of activity design, work plan, and budget before the award of project funding. Many NGOs also believe that monitoring inputs and outputs and assessing project results can positively affect implementation. Many respondents suggest paying more attention to project development, to avoid implementation problems. In that way, benchmarks and reporting requirements (for example) are clearly laid out before the funding agreement is signed. NGOs, in particular, say they would like USAID to help them develop and monitor project benchmarks. Almost all respondents feel strongly that project success is due in large part to collaborative and competent project staff--on the part of both the implementer and USAID--rather than the use of any particular implementation system or mechanism. Many PVOs and NGOs add that having a USAID project officer in-country aids implementation. Some PVOs and NGOs cite the positive effect of regular project implementation meetings. PVOs and NGOs also advocate Mission-sponsored coordinating or networking meetings for donors and implementers working in the same sector. Many PVOs and NGOs contend the overall quality of implementation would improve if USAID would allow them to more freely direct and manage their own activities. Respondents frequently used words like "respect," "autonomy," and "trust" to reflect this view. But USAID project officers believe that strict Agency accountability requirements often preclude more autonomy for implementers. Management Principles According to USAID guidance for grants and cooperative agreements, there are three aspects of prudent management of grants and cooperative agreements: 1) self-restraint in imposition of program controls, 2) prudent financial management of public funds, and 3) minimal requirements for approvals, reports, and restrictions.6 Self-restraint in imposition of program controls means that if a great deal of operational control is required, USAID should use a contract instead of a grant or cooperative agreement. Limiting requirements means that USAID officers should avoid imposing requirements for program approvals, reports, or restrictions that go beyond applicable circulars of the Office of Management and Budget (OMB) or the needs of prudent fiscal management. Prudent financial management involves a number of principles related to stewardship of public funds. To exercise prudent management, USAID officers should provide adequate information on the Agency's assistance procedures to prospective recipients and ensure that prospective recipients have technical, managerial, and fiscal competence. Agency officers should make sure all understandings between the recipient and USAID are put in writing. USAID also should: 1) review at least an annual substantive report on the recipient's operations and management; 2) ensure adequate financial controls, such as recordkeeping, financial reporting, audits, limitations on expenditures, and provisions for return of funds; 3) ensure evaluation of program effectiveness; and 4) have provisions for termination of the award. These principles are consistent with OMB Circular A-110, which outlines requirements for management of grants and cooperative agreements. The same provisions also are incorporated into USAID's mandatory and optional standard provisions, which form part of each grant or cooperative agreement. USAID Staff Roles Oversight of a grant or cooperative agreement is shared between the project officer and the contracts officer.7 Although each has distinct responsibilities, close cooperation is essential. The contracts officer is responsible for three areas: 1) interpreting provisions of the agreement, 2) resolving questions in connection with agreement financing (such as final determination of overhead rates), and 3) receiving and analyzing financial and audit reports. USAID custom is for recipients to communicate directly with the contracts officer on these issues. The project officer is responsible for working with the recipient on all program or technical matters related to the agreement. This includes making site visits, administratively approving vouchers, maintaining routine liaison with the recipient, ensuring that the recipient submits required reports, and referring the recipient's questions on interpretation of the agreement to the contracts officer. But many PVOs and NGOs say the system is seldom this clear-cut. Most find they continually have to deal with a number of different USAID staff members (project officer, contracts officer, controller) on various project issues, and they find this confusing. They would prefer to have one contact person, preferably the project officer. Although this runs counter to the Agency's customary practice, a one-stop system for recipients would work if USAID staff are clear regarding their respective roles. Some interview respondents find that USAID staff are overwhelmed by the Agency's internal systems and requirements. This is seen as a disincentive for staff involvement in certain activities, particularly in making site visits. Some USAID staff (and a surprising number of PVOs and NGOs) say USAID staff manage too many projects to be effective with any single one. When forced to choose among possible monitoring activities, the USAID system generally forces staff to concentrate on meeting a project's accountability requirements. Although all categories of USAID staff--U.S. direct hires, personal services contractors, and foreign service nationals--were interviewed, the extent to which this concern applies to all staff is not clear. In general, PVOs and NGOs hold that USAID staff tell them what to do, rather than engaging in a dialogue to help them learn how to do something. This observation was countered, though, by some NGO staff, who report that USAID staff have been helpful in implementation of their projects. Many PVOs and NGOs note that during the course of an activity, they deal with a series of USAID project officers because of staff turnover. This adversely affects project implementation. For one thing, each new project officer must get up to speed on the project; for another, each new officer brings a unique management style to the activity. The role of foreign service national staff, who ostensibly could provide needed continuity, was not explicitly addressed by interviewees. Time Management Almost every respondent reports some time-management problems. PVOs, NGOs, and USAID staff all say too much time is spent on financial management, reports, procurement, and project design/proposal preparation. For PVOs procurement issues are the principal source of excessive implementation time; NGOs report that financial management is the most time consuming. USAID staff say that meeting internal USAID reporting requirements is their biggest time-management concern. An overwhelming number of respondents--from USAID as well as PVOs and NGOs--say they spend insufficient time monitoring outputs and assessing impact. Almost all USAID staff say they would rather spend time assessing a project's results, but they don't find the time. Respondents generally agree that USAID should be more involved in the programmatic substance of project activities, rather than in administrative micromanagement. USAID Regulations In general, USAID staff and PVOs say USAID regulations are too complex for most small organizations to understand and follow. Some PVOs report that regulations on compensation, in particular, create difficulties in hiring and keeping competent, educated local employees. In addition, some NGOs report that USAID staff spend little or no time explaining how the USAID system works. However, in general, NGOs believe that meeting USAID's administrative and accountability requirements leads to institutional strengthening. Many NGOs say they are given little or no orientation to USAID regulations before the start of the activity and that they are unprepared for the challenge of meeting USAID's administrative requirements. Many USAID staff and PVOs support this assertion. They say that, in general, NGOs are technically capable but lack experience dealing with USAID management requirements. Moreover, some respondents complain that the Agency's administrative and regulatory materials are available only in English, making the problem worse. Procurement Issues Most comments on procurement matters were anecdotal accounts involving vehicles, computers, and other equipment that is expensive and cannot be serviced in-country. Other comments concerned USAID regulations themselves, particularly the Buy American requirement. Most implementers say it is extremely costly and time consuming, even though they understand why it exists. Most respondents, including USAID staff, believe the level of competition required for small procurements is not efficient, since too much time is spent monitoring small sums of money. Some implementers are unhappy about costs and delays caused by bidding procedures they are forced to follow for minor items. Respondents note that obtaining exemptions for relatively small procurements sometimes requires more justification than for larger ones. To avoid procurement problems, some PVOs purchase goods and services with non-USAID (or cost-sharing) portions of their funding. In January 1994, the Agency established a procurement-reform task force. One task force initiative is streamlining USAID's procurement procedures. The task force conducted a vendor town meeting in March 1994 to gather information from contractors, PVOs, and others on procurement problems. Several reforms have been carried out recently; they are discussed in the following section. Approvals and Reports Approvals Although many PVOs and NGOs say they are concerned about the need to obtain USAID approvals more than once for the same implementation actions, most agree that the Agency's approval system is workable, once they know the system. However, "knowing the system" may be an elusive goal for most implementers. The majority of PVOs say criteria for required approvals are never defined, and there is great variability from activity to activity in the types of required approvals and their timing. Many PVOs and NGOs believe their relationship with the USAID project officer, or the project officer's management style, is the greatest determinant of the level of implementation approvals: the better the relationship, the more flexible the project officer and the fewer the number of required approvals. Many PVOs complain that obtaining implementation approvals is time consuming, cumbersome, and leads to unnecessary project delays. They note they often must obtain follow-up approvals for actions approved during negotiations. Among items frequently requiring such double approval are procurements, personnel compensation, selection of trainees, overall project work plans, and plans for specific project activities. Difficulty in obtaining approvals arises, for example, when Mission approval is required for individual subgrants made by a PVO acting as an umbrella grantee. According to the Procurement Policy office, however, USAID approval of individual subgrants is not required under OMB Circular A-110, so long as the description and budget for the grant or cooperative agreement include provisions for subgrants. USAID staff and implementers expressed confusion as to whether and when advance approval is required for international travel--even though the requirement for advance travel approval was simplified in 1992 and reiterated to USAID staff in 1994. According to the revised policy, recipients must notify the USAID project officer in advance of international travel plans, but they need not obtain formal approval before beginning travel. For USAID/W-funded activities, the project officer is responsible for checking with the Mission(s) and notifying the implementer if travel is not approved. Disapproval is expected to occur only on an exceptional basis for example, for security reasons. Some PVOs suggest that USAID provide clarification on which approvals are mandatory (either required by law or part of USAID regulations) and which are subject to flexibility on the part of the project or contracts officer. These PVOs also say clarification is needed on which USAID officer is authorized to issue approvals. In addition, several USAID staff members suggest the Agency review and, if appropriate, approve the implementer's overall system (for example, the procurement or travel or personnel system) rather than requiring approvals for individual actions under the system. In August 1994 USAID announced several reforms in administering grants and cooperative agreements (see box, next page). They deal primarily with approval and reporting requirements. One change is new procedures for approving recipients' financial systems and procurement, personnel, and travel policies so that additional approvals during implementation will no longer be required. Reports Requirements for progress reports are specified in OMB Circular A-110 and form part of USAID Handbook 13, chapter 1. Recipients are required to submit a progress report for each grant or cooperative agreement. The report presents a brief comparison of actual accomplishments with the goals for the period, reasons why goals were not met, and other pertinent information. According to the circular, progress reports are to be submitted for the same period and with the same frequency as required financial reports. Generally, this means that progress reports are required on a frequent basis. However, the revised OMB Circular A-110 eliminates the requirement for submitting these reports on the same schedule. That makes it possible for grantees to submit reports at more appropriate intervals, perhaps annually. The Agency incorporated the circular into its own directives in February 1995. Several PVOs say they would like less confusing, more consistent reporting formats and reporting systems that are compatible with those required for other purposes, such as for the host government. Some PVOs and NGOs suggest that USAID develop consistent reporting formats for each type of report. Overall, USAID staff say they find required progress reports useful. Among other things, they help staff monitor activity progress more easily and economically than through site visits. Many PVO and NGO respondents also find the reports useful for internal project management. Although most Agency project officers dispute this, a large majority of PVOs and NGOs report they receive little or no feedback from USAID on their reports, especially in regard to implementation concerns. Project officers who don't provide feedback say it is because they lack time to read the reports. This was verified by one PVO staff member, who spotted a pile of obviously unread reports from his organization stacked in a corner of his USAID counterpart's office. (But one USAID officer noted that no feedback was provided because "the reports are so good.") Some NGOs state that particular USAID Missions have streamlined reporting requirements. One NGO notes it can submit one five-page report covering all its USAID-funded activities. This has simplified the reporting process and made it more useful while allowing NGO staff to concentrate more on program activities. Another NGO is allowed to use its own reporting system rather than a format specified by the Agency. Still another submits the same progress and financial reports to USAID that it submits to its board of directors. Project Evaluations Although not an interview topic, many interviewees volunteered opinions about project evaluations. PVOs and NGOs generally seem to like having an evaluation requirement as part of their grant or cooperative agreement. NGOs, in particular, say that without USAID's help, they do not always have the resources to conduct evaluations, but that evaluation findings help them document project achievements and can assist with fund-raising. PVOs agree that they learn a great deal from evaluations, and they apply this learning to their organizations and to subsequent projects. Some PVOs suggest that midterm evaluations be undertaken for more activities. They see this as useful for modifying or correcting the course of the activity. In addition, some PVOs suggest conducting more end-of-project impact evaluations to establish a track record of PVO accomplishments and improve the design of future activities. Financial Management Financing Arrangements USAID uses several financing schemes, depending on the financial management capability of the recipient.8 The most restrictive and least convenient schemes are reserved for those that do not meet USAID's financial management standards. The methods of financing PVO and NGO activities, in order of preference, are letters of credit, advance by U.S. Treasury check, and reimbursement by Treasury check.9 Letters of credit can be used only by U.S. organizations that meet a number of requirements, including total yearly USAID advances of at least $50,000 and a continuing relationship with USAID for at least one year. U.S. PVOs that do not meet the requirements for letters of credit, as well as NGOs, are considered for the "periodic advance" payment scheme. Recipients must meet the financial management requirements outlined in Handbook 13, chapter 1, and eligible recipients are required to submit requests for advances at least monthly. NGOs and PVOs that do not meet the requirements for either a letter of credit or periodic advances must follow cost reimbursement procedures. Financial Reports Each payment method has its own financial reporting requirements. For letters of credit, two quarterly financial reports are required, the Financial Status Report (SF-269) and the Federal Cash Transactions Report (SF-272). U.S. recipients of periodic advances must submit the same two quarterly financial reports. However, non-U.S. recipients of advances instead are required to submit the Public Voucher for Purchases and Services Other than Personal (SF-1034 and SF-1034A) on a quarterly basis. In addition, the voucher must be accompanied by a Federal Cash Advance Status Report (format provided in the Standard Provisions). Under the cost reimbursement scheme, U.S. recipients are required to submit the Request for Advance or Reimbursement (SF-270) on a monthly basis. Indigenous NGOs are required to submit a voucher (SF-1034 and SF-1034A) on a monthly or a quarterly basis. About a third of PVO and NGO respondents say that monthly financial reports are required for their activities. They criticize this as inconvenient and inefficient. From the other side, Mission controllers in two countries argue that monthly financial reports are useful for keeping track of project activities. They say monthly reports usually are required when the implementer lacks strong financial management skills. Not surprisingly, most PVOs and NGOs say USAID's financial reporting requirements are excessive. In addition, many NGOs argue that reporting requirements are disproportionate to the level of funding and the nature of project tasks, since small grants have the same financial reporting requirements as large ones. Numerous respondents suggest streamlining financial reporting requirements or developing different financial accountability requirements for small grants. Financial Management Respondents generally agree that too much time is spent on financial management concerns. Most PVOs say they are not particularly impressed with the benefits of USAID financial management, primarily because they already have well-established financial systems. However, most USAID officers and many NGOs say that strong financial management is needed for most NGOs, particularly smaller, less experienced organizations. Most USAID staff feel USAID's attention to financial management has led to increased NGO accountability and to the overall institutional development of NGOs. Some NGOs say they have put together solid, effective financial systems to meet USAID's requirements. These systems, they believe, will serve them well in the future. There were numerous suggestions for improving financial management requirements. Contracts officers recommend establishing a central repository of financial management resources (like a library), so that NGOs don't have to reinvent the wheel every time they apply for USAID funds. They suggest that NGOs use these resources as their own preaward tool. Audits USAID's audit requirements are contained in OMB Circular A-133. It establishes uniform standards for single or organizationwide audits (as opposed to audits on a grant-by-grant basis). It also requires organizational audits for all U.S. and non-U.S. recipients of grants or cooperative agreements that receive $25,000 or more annually in federal funds. The same requirement applies to subrecipients. PVO and USAID staff had mostly negative comments about audits, but most NGO comments about audits were positive. Respondents generally find the quality of audits satisfactory, however, and many implementers say that audits help improve their financial management and strengthen their organization's internal controls. In many cases, project officers do not know the results of audits. They are notified by the controller's office only if problems are found. USAID staff who read audit reports say audits help their management of PVO/NGO activities. They note that audits provide legitimacy, help the organization develop its institutional capabilities, and help the project officer determine what needs to be done, since problems are identified and recommendations can be made and implemented immediately. The major complaint of interviewees is the expense of conducting audits for organizations that receive small amounts of funding. Several respondents provided examples of audits costing as much as or more than the grant itself. Owing to concerns about audit costs for small awards, USAID in May 1994 relaxed its requirements for A-133 audits of non-U.S. NGOs. As a result, NGOs that receive direct USAID awards now must comply with A-133 audit requirements only if they receive $100,000 or more in USAID funds under one agreement annually (or more than an annual total of $250,000). The threshold for U.S. PVOs and for NGO subgrantees remains at $25,000; however, according to the Procurement Policy office, the subgrant audit provision may be changed soon. Conclusions Interviewees identify several factors that appear to be related to implementation success: well-developed activity designs, work plans and budgets, and collaborative, competent USAID and implementer staff. USAID and PVO/NGO professionals would do well to keep these factors in mind as they develop new activities. More specifically, PVOs and NGOs are concerned about the number of USAID staff they must regularly deal with. They would prefer to have one contact person, preferably the project officer. USAID Missions should investigate the possibility of establishing a one-stop shop for each activity. For this to succeed, however, roles of Mission staff must be clearly defined. Implementers also are concerned that USAID regulations are too complex for small organizations to digest quickly. In addition, many NGOs say they receive little or no administrative orientation from the Agency before the start of their activity. USAID's procurement reform task force is working on reforming many of the Agency's procurement requirements. In the meantime, regular orientations by USAID staff would help organizations new to USAID better understand and respond to the administrative requirements of their agreements. Many implementers say they do not understand USAID's approvals "system." For example, it's unclear which approvals are mandatory and who can grant approvals. Implementers argue that too much seems to depend on project officers' personal preferences. USAID reporting requirements and the time spent on them also are seen as excessive. In this regard, the Agency recently made several changes in key implementation approvals and reporting requirements. That should eliminate the need for too many repetitive implementation approvals. Another way to simplify PVO/NGO reporting requirements is for USAID to develop standard reporting formats for each report type. This would eliminate agreement-specific requirements and allow implementers to complete the same report for all USAID-funded activities. Many PVOs and NGOs volunteered comments about the importance of project evaluations. They believe USAID should provide more funding for midterm and end-of-project evaluations as an integral part of grants and cooperative agreements. That would provide a basis for making midproject corrections, measuring project results, and providing guidance for future programs. Project officers should include sufficient funds for project evaluation in activity budgets and make sure resultant evaluation reports are widely disseminated in the PVO/NGO community, the donor community, and within USAID (as by providing CDIE copies of evaluations that can be made available electronically). Although many PVOs and NGOs say USAID's financial reporting requirements are excessive and time consuming, these comments presumably come from the one third of respondents who say their organizations are required to submit monthly financial reports. (Monthly reports are a requirement of the "reimbursement" method of financing, which is reserved for implementers that do not meet financial management criteria for obtaining fund advances.) Frequent reports of financial management problems indicate USAID staff should work more intensively with PVOs and NGOs to improve their financial management skills--for example, by providing small awards for development of acceptable financial management systems or by offering periodic training sessions. NGOs generally see audits as a positive management tool, even though implementers in general complain about the frequency and expense of audits, especially for small awards. However, USAID recently has relaxed its audit requirements for NGOs receiving direct USAID funding. 4. OTHER CONCERNS This chapter examines several additional facets of the USAID-PVO/NGO relationship: sustainability; other donors' work with NGOs; use of financial intermediaries, or "umbrellas"; and PVO/NGO collaboration in establishing USAID development strategies. Information on these topics was collected through literature review as well as additional field interviews. Strategic Collaboration The August 1993 USAID-PVO task force (USAID and the Private Voluntary Community 1993) discussed how to improve the strategic collaboration process--in particular, how PVOs and NGOs can play stronger roles in shaping and defining the Agency's development priorities. One recommendation was that USAID develop and issue a framework for strategic dialogue among PVOs, NGOs, and USAID, including principles for a formal consultative process. In November 1993 Administrator J. Brian Atwood outlined the Agency's new principles on participatory development (Atwood 1993). Among the principles is practicing a "respectful partnership" with indigenous and U.S. organizations in defining USAID's global objectives and country strategies. During data collection for the study, interviewers gauged the quality of the partnership by asking PVOs, NGOs, and USAID staff about the extent of PVO and NGO involvement in the formation of the Agency's development strategies in the U.S. and developing countries. Evaluators also asked about the organizations' satisfaction with the current level of input. Conducted from December 1993 through May 1994, interviews came shortly after the participatory development principles were issued. Overall, it is apparent that USAID still tends to form its development strategies without extensive consultation with PVOs or NGOs. But there were numerous observations that the climate for strategic collaboration has changed dramatically in recent months. A much more positive dialogue between USAID and PVOs/NGOs has developed. USAID senior managers who were interviewed support these observations. In general, senior managers feel that PVOs have had a reasonable level of influence in the formation of USAID's strategic plans, although probably not so much as the PVOs would have liked. NGOs, by contrast, have had far less influence. A majority of the senior managers feel the Agency needs to increase its efforts in this area. Although a formal consultative process has not been widely adopted throughout the Agency, there were promising examples of Missions holding formal meetings with PVO and NGO counterparts to obtain input on country strategies. In addition, many PVOs and NGOs feel they have an informal influence on country development strategies through contacts with Mission staff. Many USAID staff cited specific instances in which PVOs or NGOs provided them with significant information and guidance that resulted in changes or improvements to Mission development strategies. Many interviewees note that when positive, collaborative dialogue occurs, it is due to the initiative of USAID staff. They note too that a wide range of consultation practices exists, depending on the preferences of the USAID project officer. Overall, most PVOs and NGOs say they would welcome USAID efforts to initiate more dialogues with PVO and NGO counterparts while developing country strategies. PVOs About two thirds of the PVOs interviewed say they have some degree of input in the formation of USAID's development strategies, either in the United States or in a developing country. Barely half, however, say their input level is satisfactory. Many PVOs praised the efforts of InterAction and the Advisory Committee on Voluntary Foreign Aid to represent them in the USAID-PVO dialogue. In general, PVOs are more concerned about increasing strategic collaboration than NGOs are. About two thirds of USAID staff say PVOs have some input in USAID strategy development. USAID staff are a little more likely than PVOs to say the level of PVO involvement is satisfactory. However, some USAID staff feel PVOs already have too much influence on USAID policy formulation, especially given new policy guidance that encourages direct work with NGOs. These staff believe PVOs tend to promote their own agendas. NGOs There is some discrepancy between perceptions of NGOs and USAID on NGO input into USAID's country development strategies. While more than half of the NGOs interviewed say they have no input into USAID's country development strategies, about the same proportion of USAID staff say that NGOs do have some influence. In any case, neither NGOs nor USAID are satisfied with NGOs' current level of consultation; more than half of NGOs and USAID staff say the level of input from NGOs is not satisfactory. In general, NGOs don't believe USAID appreciates what they can bring to a strategy dialogue. USAID staff dispute that assertion, saying they appreciate and willingly consider the views of smaller, specialized NGOs that know their country settings well. Several NGOs note that their own communities should be better organized; they would have a greater chance of making a difference if they could present themselves as a united front. Several NGOs and PVOs suggest that USAID serve as a host or mentor for country networks of PVOs and NGOs. Sustainability When designing this assessment, USAID staff gave special attention to the issue of sustainability. This section summarizes findings from interviews with NGO, PVO, and USAID staff; a field survey of more than 20 completed projects; and an extensive literature review. Topics covered here are cost sharing, project design considerations, and implementation concerns, including project management and the role of monitoring and evaluation. Appendix D1 contains a fuller discussion of these issues. In field interviews, PVOs and NGOs distinguished three types of sustainability: benefit, organizational, and financial.10 Defining "sustainability" as the continuation of benefits is the most comprehensive view; it also is the definition most often used by PVO and NGO respondents and is considered the most prevalent in USAID programs. However, both PVO and USAID staff recognize that achieving benefit sustainability takes a great deal of time, effort, and resources. Many PVOs and NGOs say that achieving benefit sustainability takes from 10 to 20 years. PVOs and NGOs argue that the USAID programming cycle runs counter to this need, since project funding averages around three to five years. Cost Sharing The cost-sharing concept calls for PVOs and NGOs to make financial or in-kind contributions to the overall costs of a project. For some time, USAID's Handbook 3 has included a 25 percent cost-sharing requirement for awards to U.S. and indigenous organizations registered as PVOs. PVO, NGO, and USAID interviewees overwhelmingly agree that USAID should require cost-sharing for PVO/NGO activities. Respondents who favor cost-sharing in general, however, oppose it under certain circumstances, such as unique or difficult country settings or for young or small organizations. In general, respondents believe USAID should have flexible cost-sharing guidelines. Some suggested that the Agency review its cost-sharing requirements on a case-by-case basis. Interviewees recommend that cost-sharing requirements be established at the Mission level, with enough flexibility to take into account a PVO's or NGO's capacity and the activity's goals and objectives. In some cases, USAID may want to provide full funding (without cost sharing) to an organization because it is implementing a USAID initiative or because it simply is unable to contribute to costs. In July 1994, in response to recommendations of a joint PVO-USAID task force, USAID eliminated the 25 percent cost-sharing requirement for registered PVOs. Instead, all PVOs and NGOs will follow USAID Policy Determination 16, which encourages the "largest reasonable and possible financial participation" of recipients. In collaboration with PVOs and NGOs, USAID staff now have the flexibility to develop situation- or organization-specific cost-sharing formulas for PVO/NGO activities. Project Design Considerations Asked if they believe sustainability is an appropriate goal for USAID-funded PVO/NGO activities, interviewees overwhelmingly said "yes." PVOs and NGOs feel strongly about achieving greater sustainability, and they made a variety of suggestions for improvements. Among them: involving the target community, ensuring that beneficiaries are decision-makers, emphasizing empowerment of women, using community volunteers for project implementation, coordinating with appropriate government programs, developing management information systems, and ensuring adequate training. Project planners need to address sustainability early in the design of new activities. They should include such issues as -- Level of community demand for the project's benefits -- The project's probable contributions to sustainable development of the local area -- Host government attitudes toward NGO activities -- Project benefits that must be sustained by the local community Field case studies indicate that beneficiary participation in the design and implementation of projects is an important ingredient of success. Beneficiaries, after all, have the most to gain or lose from an activity. Their participation increases the probability that interventions will be relevant to local needs. It also provides a sense of local ownership. PVO/NGO implementers also need to work in partnership with community groups, private associations, local government, and other donors. Respondents stressed that the implementation effectiveness of a PVO or NGO is critical to sustainability. USAID project planners must consider a number of factors when selecting an implementer. Some topics suggested for the screening process are the organization's leadership, experience in the sector, current funding sources, ability to recover its program costs, number of years in the community, and whether the organization has a strong local constituency. In essence, program planners need to look for organizations (and leaders) with the following qualities: -- They have an entrepreneurial spirit -- They are motivated by the desire to create significant grass-roots change -- They are pragmatic and have problem-solving skills -- They are strategic planners able to develop management structures appropriate to carrying out their ideas USAID senior managers were asked if there are differences between PVOs and NGOs in achieving sustainability. The consensus is that neither PVOs nor NGOs are very successful in ensuring benefit sustainability. However, significantly more senior managers feel that NGOs are more successful in achieving sustainability and have far greater potential to do so. Project designers need to maintain realistic expectations of the time necessary to achieve results. Since benefit sustainability is a long-term process, activities often need to continue beyond the three- to five-year funding span normal for USAID awards. Also, prospects for self-funded project activities--and the phasing out of donor (and PVO/NGO) funding--should be considered during project design. Possible alternate funding sources are income-generating schemes, cost-recovery approaches (such as fees for service), use of endowments, and local fund-raising. Management Considerations The Agency's management of PVO and NGO activities can affect their sustainability. Management considerations include the Agency's rules and regulations, its short-term funding approach, attention to monitoring and evaluation, and measuring project impact. These topics are discussed more fully in appendix D1. Several case studies and interviews suggest that USAID's procedures and regulations can have a negative, indirect effect on sustainability--for example, if grantees are not permitted to adapt their projects to changing conditions. From the time of project conception, all partners need to agree on the activity's objectives. Objectives closely linked to the immediate needs of local communities have a greater likelihood of being sustained. Benchmarks must be established during project design to facilitate progress monitoring, and indicators that assess sustainable impact are particularly important for monitoring and evaluation. Umbrella Mechanisms During the design of this assessment, numerous questions were raised about USAID's increasing use of umbrella mechanisms for PVO and NGO activities,particularly as it relates to management efficiency. This section summarizes the major findings from the study's literature review and field interviews. A fuller discussion is found in appendix D2. An umbrella is a funding mechanism designed to deliver relatively small amounts of USAID funds to a number of organizations, such as PVOs and NGOs, through one financial award to a lead organization. Most commonly, a PVO receives a block grant award from USAID and subsequently makes smaller subgrants to NGOs or PVOs for project implementation. In addition to providing funds through subgrants, the lead organization often is responsible for providing administrative and technical assistance to subgrantees. Reported advantages to using umbrella mechanisms are numerous. They include reducing the Agency's management and technical assistance demands, since USAID deals with only one grantee; USAID funding of a wider range of local organizations, including those not registered with USAID; providing NGOs the opportunity to work in partnership with a more experienced lead PVO or NGO; and relieving subgrantees of some of the administrative requirements of direct grants. One possible disadvantage of using an umbrella mechanism is that USAID may not receive "credit" for funding subgrant activities. From the NGO perspective, umbrella grants may hurt their ability to develop long-term relations with donors, since the lead organization can compete for funding and visibility. Umbrella Models There are several models for managing umbrella grants. The lead organization may be a contractor, a PVO or an NGO, or an association of PVOs or NGOs. The most common arrangement is use of a PVO, although some larger or more experienced NGOs also serve as lead organizations. USAID/Bangladesh has developed a range of options for working with NGOs, including use of umbrella activities. Although the Mission has direct funding relationships with only 12 PVOs/NGOs, through these agencies USAID resources reach hundreds of indigenous NGOs. For example, the Mission's Family Planning and Health Services project provides direct funding to five organizations (two PVOs, two indigenous NGOs, and an international NGO). They in turn provide funding to 106 indigenous NGOs operating at more than 300 project sites. A number of factors should be considered in choosing a lead organization. They include characteristics of the local NGO community, the presence of PVOs and the nature of their local relationships, and the compatibility of USAID's objectives with those of the lead organization. In general, NGOs are likely to be more familiar with local needs, whereas PVOs tend to be better managed but more expensive. Project Management Concerns A majority of USAID staff believe that umbrella arrangements improve activity management and that using an umbrella works well in controlling costs. The cost efficiency of umbrella activities is a complex issue, though, and has not been adequately addressed in the literature. USAID senior managers generally agree that most Missions prefer funding NGOs directly rather than through an umbrella arrangement, which is usually managed by a U.S. PVO. But the reality of Mission management capacity (or lack of it) to work directly with NGOs often limits this preference and leads in most cases to use of a PVO intermediary. One problem cited by Mission staff is their limited ability to monitor technical quality of umbrella subgrant activities, which they say is necessary when the lead organization does not have this capability. Several implementers argue, however, that Mission staff need to let go of their overinvolvement, since monitoring subgrants is the responsibility of the lead organization. It seems reasonable to expect USAID to select lead organizations with adequate monitoring capabilities. Lack of coordination and communication problems also were cited by PVO, NGO, and USAID interviewees. Respondents note that poorly defined roles and lack of communication between the lead organization and subgrantees may lead to unsuccessful programs. In addition, many NGOs feel isolated from lead PVOs that manage subgrants from the United States. They say they are not kept informed about grant-related issues. PVO and NGO respondents recommend developing clear lines of authority and clearly defining the roles of USAID, the lead organization, and subgrantees. In addition, requiring PVO lead organizations to have local offices or representation may improve communications with subgrantees. Many USAID respondents expressed concern about financial accountability for subgrantees. They believe subgrantees' finances are not always being monitored properly. Project Impact and Capacity Building According to interview respondents, the most critical factor leading to successful umbrella projects is the competence of the lead organization. Respondents also say USAID needs to devote more time, attention, and resources to selecting the lead organization. Essential characteristics include technical assistance skills, ability to choose appropriate subgrantees, adequate management capacity to monitor and oversee subgrants, and ability to work in partnership with the local NGO community. Capacity building is seen as increasingly important in umbrella activities. It takes many forms: networking, fund-raising training, guidance during strategic planning, guidance on USAID's systems and procedures, and provision of technical, management, and membership-development assistance. An effective partnership between the lead organization and subgrantees is seen as critical to capacity building. The partnership should be a learning relationship for each organization. The lead organization should become increasingly confident in its mentoring role. For its part, the NGO subgrantees should gain new technical competencies, adopt new management practices, improve monitoring and evaluation systems, and master new methods of project design and implementation. Two Approaches Compared During field interviews, one team visited two Missions, each with an umbrella project. The projects have similar purposes: to increase the quality and quantity of PVO/NGO activities in priority sectors and to develop indigenous NGO capacity in those sectors. Team members compared the approaches used in these two umbrella activities, examining management arrangements and assessing success in developing indigenous NGO capacity. They discovered that although the Missions' approaches differ, both projects require substantial Mission management time. Neither project appears to emphasize NGO capacity building to the extent envisioned when each project was designed. One project uses a U.S. foundation as lead organization under a contract arrangement. The role of the lead organization is to provide training, technical assistance, and grants management for subgrantees; the lead organization does not directly implement project activities. In theory the use of one lead implementer should reduce the Mission management burden. This has not been the case, though, since Mission staff review and approve all subawards made under the contract. The team did not ascertain the exact breakdown of subawards between U.S. PVOs and indigenous NGOs, but it believes the PVOs have received a disproportionately large amount of project funding. There are many reasons for this, but the overall effect has been to deemphasize the project purpose of NGO capacity building. The second project works with eight U.S. PVOs as lead organizations. These groups have a dual role. They directly implement project activities, and they grant funds to 12 NGO partners. Although the lead organizations handle many project management details, the Mission also has significant responsibilities in managing eight direct grants. Because the lead organizations are directly responsible for implementing their own activities, this appears to be their priority. Only a small percentage of their grants are passed on to their NGO partners for project implementation; thus, they devote only limited time to capacity building for the indigenous groups. Other Donors' Work With NGOs During assessment planning, evaluation designers felt it would be useful to obtain information on the work of other multilateral and bilateral donors, to supplement findings on USAID's work.11 Data were collected primarily through field interviews in eight countries with other donors, U.S. and indigenous NGO representatives, and USAID officials. In addition, evaluators conducted a literature review of the management practices of European, Canadian, and multilateral donors. A fuller discussion of this topic appears in appendix D3. Donor Programming Approaches Although donor program objectives vary, there is considerable similarity among their NGO programs and substantial overlap in the reasons donors choose to work with NGOs. These include beliefs that NGOs -- Apply low-cost solutions and maintain streamlined, cost-effective services -- Have innovative and flexible approaches to improving local conditions -- Have a good sense of the needs of local communities -- Employ a high degree of participation in project implementation -- Successfully work to empower indigenous NGOs -- Work well in poverty reduction -- Reach less accessible communities and individuals--the poorest of the poor Donors vary greatly in the extent to which they invite NGO involvement in strategic planning. Although most pay some attention to it, the effect of NGO involvement on donor programming strategies seems to be limited. In field interviews, NGOs in general say they appreciate the overtures made by USAID and other donors to include them in their strategic planning processes. However, they report limited participation in actual strategic planning sessions. A few larger NGOs actively participate in country-level strategic planning with donors and are encouraged by their level of participation and impact. Indigenous and U.S. NGOs would like to see donors take a proactive approach to understanding their organizations' goals, objectives, and needs, and then to fund these, rather than predesigned projects that fit a donor's overall development strategy. They argue that the donor-implementer partnership should incorporate NGO involvement in every aspect of the development process: strategic planning, needs assessment, project design, implementation, and evaluation. By developing a broader partnership, U.S. and indigenous NGOs say, USAID and other donors could achieve better, more sustainable development results. Funding Arrangements Few donors set aside large amounts of money for directly funding indigenous NGO activities. Instead, they generally channel funding through NGOs based in their home country. These NGOs in turn team with indigenous NGOs. The donor NGOs work with indigenous NGOs in a variety of capacities, such as awarding subgrants, providing technical assistance, or jointly implementing development projects. In interviews, U.S. and indigenous NGOs criticized the short-term funding arrangements of many donors. U.S. groups pointed to this strategy as an impediment to their own long-term strategic plans; many argue that longer-term funding is essential for successful, sustainable projects. U.S. groups also expressed concern about the practice of USAID and other donors of funding discrete activities rather than entire NGO programs. Several funding mechanisms appear standard, including matching grants, block grants, and umbrella mechanisms. Many donors require NGOs to contribute to projects as a way of demonstrating commitment or developing financial independence. The typical cofinancing mechanism among other donors is a 50-50 matching grant. Consortium funding is a promising approach used by the Swedish International Development Authority, the Ford Foundation, and a few others. Donors contribute to a single fund, so that NGOs receive and administer funding in a simplified manner. Standard formats for financial reports, progress reports, and project monitoring are used, and the recipient sends the same reports to all donors. Project Design and Implementation U.S. and indigenous NGOs agree that donors need to give greater attention to local input before or during project design, saying that NGOs should be consulted about the needs of local communities. Although several donors have tried to include NGOs in the design stage, these efforts often have little effect because of practical limitations--inflexibility of donor funding mechanisms, limited staff resources available for collaboration with NGOs, and continued resistance of some governments and NGOs. Donors interviewed for the study frequently praised USAID's rules and regulations. They commented that Agency procedures hold NGOs accountable for project implementation and for meeting goals, requirements that many donor programs inadequately address. In many respects, donors view USAID's procedures as good standards to follow. U.S. and indigenous NGOs had mixed reactions, however, when comparing USAID's procedures and regulations with those of other donors. They overwhelmingly agree USAID's procedures and regulations are stricter; they perceive both positive and negative consequences of that strictness. Many U.S. and local NGOs observed that USAID gives more attention than other donors to monitoring and evaluation activities. Nonetheless, they repeatedly asked for more support to develop their capacity to undertake data gathering, analysis, and evaluation activities. Implications for USAID In comparison with other donors, USAID's U.S. and indigenous NGO programming has a number of widely recognized strengths, including USAID's in-country presence and its direct relationship with implementers. USAID's in-country presence facilitates more frequent interaction with NGOs and greater speed and flexibility in decision-making. Many U.S. and local NGOs believe other donors should adopt USAID's strategy of directly funding indigenous NGOs, as it increases opportunities for strategic partnerships in development. However, three weaknesses in USAID's programming were sometimes mentioned: 1) the Agency's lack of attention to capacity building and sustainability, 2) its short-term approach to project funding, and 3) excessive attention to detail and process. Conclusions Although PVO and NGO participation in setting USAID's country and global strategies is far from ideal, the climate for strategic collaboration recently has improved. PVOs, NGOs, and USAID staff all report more opportunities for dialogue with Missions and USAID/W. To maximize opportunities for PVO/NGO consultation, however, USAID/W and Missions should develop explicit, formal consultation strategies. Interviewees overwhelmingly support the concept of cost-sharing for PVO/NGO activities but feel the 25 percent cost-sharing requirement for registered PVOs should be relaxed. In point of fact, the requirement was eliminated in July 1994; the Agency now calls for the "largest reasonable and possible financial participation" of recipients. Study results confirm that sustainability should be considered early in project design. To the extent possible, projects should have flexible designs that allow revisions based on changing environments. In addition, extensive beneficiary participation in design and implementation, the involvement of local leaders and community groups, and an understanding of the capabilities of the proposed implementer are essential to benefit sustainability. The study confirms that umbrella activities can be a useful way to reach more NGOs than traditional projects afford. Well-designed umbrella projects also can minimize the USAID management burden. During project design it is important to consider the need for NGO capacity building and to carefully consider the characteristics and qualifications of the project's lead organization. When appropriate, USAID project officers should make NGO capacity building an explicit objective of umbrella activities. They also should ensure adequate levels of human and financial resources to address capacity-building concerns. In addition, to minimize the USAID management burden, the lead organization should have well-developed skills for selecting and monitoring subgrantees. USAID can assist with the development of NGO capacity in several ways. When appropriate, USAID projects can emphasize NGO capacity building as a project objective, including adequate human and financial resources in activity budgets to ensure progress. Project officers also should consider longer-term funding, when appropriate, to address capacity building and sustainability concerns, as well as participation in in-country funding consortia with other donors. The Agency can build on its ability to directly fund indigenous NGO activities by adopting a conscious strategy to do so in USAID priority sectors. 5. MANAGEMENT RECOMMENDATIONS Because the purpose of this assessment is to improve USAID's management of PVO/NGO activities, the following recommendations are aimed primarily at policymakers and project managers. There are obvious implications for PVO and NGO implementers, however, and suggestions for them are outlined at the end of this chapter. Cross-cutting Themes These general themes emerged from the study: PVOs have an experience edge over NGOs. Conventional wisdom says that, in general, PVOs are more experienced than NGOs in doing development work and managing USAID funds. This study confirms that. Although a great deal of diversity exists in the PVO and NGO communities, overall PVOs and NGOs do seem to have different levels of organizational development, implementation capabilities and implementation preferences. Reflecting their perceived shortcomings, NGOs are interested in having USAID staff assist with building their financial management capabilities and their project implementation skills. PVOs--which generally have a wider repertoire of skills--are more capable of (and prefer) implementing their activities with minimal USAID assistance. The USAID "system" is confusing. PVOs, NGOs, and USAID staff all have difficulty figuring out how the Agency's "system" works--if indeed there is such a system. Confusion prevails over what actual legal or Agency requirements are, as opposed to individual Mission, contracts officer, or project officer preferences. "It depends on the project officer." As a result of the above, interviewees frequently commented that successful implementation depends more on the personality or management style of the USAID project officer than on application of specific regulations or procedures. On the one hand, can-do project officers display trust and a collaborative attitude, and they try to cut red tape. On the other hand, some project officers believe successful implementation is directly related to the amount of control they have over the project activity. They insert frequent or unnecessary control measures, such as additional approvals and reports, into the implementation process. PVOs and NGOs empathize with USAID staff. PVOs and NGOs showed a surprising amount of empathy and understanding for the lot of the USAID project officer. They believe that USAID project officers would like to be more involved in the substance of their activities, but that they generally have to manage too many projects and are overwhelmed by the Agency's administrative demands to be effective managers. "Collaboration, not strangulation." PVOs and NGOs stressed they would like to collaborate with their USAID colleagues on programmatic matters. NGOs, in particular, are interested in technical assistance and assistance in building local networks of PVOs and NGOs. But implementers, particularly PVOs, said that USAID staff often interpret "collaboration" and "substantial involvement" to mean "micromanagement" and "more administrative control." Implementers said that Agency staff get lost in myriad administrative details and requirements. As a result, they lack time to provide the substantive programmatic support PVOs and NGOs desire. Inconsistent Management Over several months of interviews, it became clear that a pervasive problem affects the Agency's management of PVO/NGO activities: inconsistency of USAID staff in managing grants and cooperative agreements. Although staff appear knowledgeable about the technical differences between funding instruments, in practice these differences often are ignored. Preferences of individual project officers, rather than requirements of specific funding instruments, seem to determine how individual activities are managed.12 The following recommendations pertain to development of USAID staff capacity to manage PVO and NGO activities more consistently and equitably. Reinforce collaborative management. Senior managers should make a determined effort to communicate to staff management principles that reinforce the importance of collaboration with USAID's development partners. This could be accomplished by updating directives or by broadcasting Agencywide notices, for example. The Bureau for Policy and Program Coordination should take the lead in these efforts. Get incentive system right. As part of USAID's reinvention efforts, senior managers should develop an incentive system to recognize and reward hands-on, results-oriented project officers for excellence in working in partnership with PVOs and NGOs. The Office of Human Resources in the Bureau for Management should take the lead in developing such an incentive program. Provide additional training. Additional staff training, particularly of project officers, is needed to ensure there is reasonable consistency worldwide in applying USAID regulations and procedures. Training efforts could include collaborative, results-oriented project management and could aim at improving staff's "people" skills. The Office of Human Resources should take the lead in developing or revising Agency training courses. Certify project officers. The Agency needs to develop a certification program for project officers (similar to that for contracts officers) to ensure that project staff have the needed skills and knowledge for managing PVO/NGO activities. The Office of Human Resources should take the lead in this. Recommended Policy Changes Most of the study's recommendations, outlined in later sections, point to actions that require no changes to Agency policies and procedures. The following recommendations, however, do require policy review: Simplify NGO registration. Current legislation requires the Agency to register indigenous NGOs that meet the criteria for classification as PVOs. Given the Agency's emphasis on increased direct funding of indigenous NGO activities, registration requirements for NGOs should be reviewed and simplified, with only essential requirements retained. The Office of Private and Voluntary Cooperation in the Bureau for Humanitarian Response should take the lead in this effort. It would be assisted by the Bureau for Policy and Program Coordination and the Office of the General Counsel. Consider Mission registration of NGOs. The Agency also should consider the feasibility of direct Mission registration of NGOs, with Missions providing reports on registration activity to USAID/W for central data management. The Office of Private and Voluntary Cooperation should take the lead, working with the Bureau for Policy and Program Coordination and the Office of the General Counsel. Simplify preaward reviews. The Agency's preaward review procedures need to be reviewed to determine whether modified preaward reviews could fulfill all or some of the local NGO registration requirements. The Bureau for Policy and Program Coordination should take the lead in these efforts, assisted by the Office of Private and Voluntary Cooperation, the Office of Procurement, and the Office of the General Counsel. Clarify OMB requirements for NGOs. The Agency has determined that OMB circulars pertaining to management of grants and cooperative agreements (in particular, OMB Circulars A-110 and A-133) apply to both indigenous NGOs and U.S. PVOs. Many respondents indicated that smaller, newer NGOs can organize effective programs but have difficulty meeting OMB management requirements. Keeping in mind the importance of sound management principles and recognizing the need for NGO institutional strengthening, the Agency should review OMB requirements for the management of grants and cooperative agreements. The review would determine which requirements are essential for application to indigenous NGOs. The Office of Procurement should take the lead in this task. Explore wider use of donor consortia. To provide more funding options for indigenous NGOs and to streamline their reporting requirements, USAID should investigate the possibility of joining or establishing country-level donor consortia to provide joint funding for indigenous NGO activities. Using consortium funding would allow NGOs to greatly simplify their reporting and recordkeeping responsibilities. They could use one accounting system to track all donor funds and could prepare one set of financial and progress reports for submission to all donors. The Bureau for Policy and Program Coordination should take the lead role in the exploration of donor consortia. Immediate Management Actions In addition to addressing the problem of USAID officers' inconsistency in PVO/NGO grant management, many other changes can be made to improve management of PVO/NGO activities. The recommendations below are grouped according to proposed implementer. Suggestions in this section can be carried out by Mission managers, contracts officers, project officers, or other Agency staff without revisions to existing policy or procedures. Senior Management Actions Empowerment and capacity building. Senior managers--at field Missions or in USAID/W--can help strengthen the Agency's partnership with the PVO and NGO communities in a number of ways. 1. Formalize regular consultations. PVOs are well known for their international development expertise. As suggested in the 1993 Principles of Participation, senior managers should systematically tap the expertise of PVOs by including their managers in discussions on the Agency's global and country development strategies. USAID senior managers also should encourage NGO participation in country strategy development by formalizing a process of local consultation. 2. Support use of mentors and networking. Senior managers can encourage NGOs to learn from more seasoned organizations by supporting PVOs and NGOs as informal mentors for newer or smaller organizations. Encouraging development of implementer networks among PVOs and NGOs also will help the learning process. 3. Build capacity. Senior managers should encourage project officers to consider capacity building as an explicit project objective. They should include appropriate human and financial resources for this purpose in activity budgets. New funding approaches. Senior managers can take at least two steps in developing new approaches to funding PVO/NGO activities: 1. Go the consortium route. To provide more stable, sustainable options to NGOs and streamline their reporting requirements, senior managers should investigate the possibility of joining or establishing donor consortia to provide joint funding for NGO activities. 2. Provide longer term funding. When capacity building is identified as an activity objective, senior managers should consider allowing longer-term funding (5 years or more) to the funding recipient. At the same time they should ensure that appropriate, measurable institution-strengthening goals are included in the activity design. Strengthening design and implementation. Senior managers can encourage stronger activity designs and smoother implementation in three ways: 1. Design benchmarks. During project design, senior managers can encourage project officers to establish clear development-oriented project benchmarks so that the activity is geared toward measuring results. 2. Use a team approach. Senior managers can encourage a team approach to project design and negotiation. 3. Designate a contact person. For the implementation of each activity, senior managers can ensure that one USAID point of contact is established for the PVO or NGO. That contact person is preferably the project officer. Office of Procurement Actions Strengthening design and implementation. The Office of Procurement can facilitate improvements in the Agency's design and implementation processes in several ways: 1. Set clear standards. The Office of Procurement should communicate to USAID staff the differences in operational controls among funding instruments. It should monitor the appropriate uses of each instrument. 2. Specify required approvals. The office also should clarify for project officers and contracts officers the mandatory implementation approvals. 3. Provide translations. To smooth the Agency's work with indigenous NGOs, the office should make available to contracts officers Spanish- and French-language versions of the standard provisions for grants, cooperative agreements, and other relevant project implementation guidance. The office also should consider making small amounts of funds available to Missions for translation of key regulations into other local languages. 4. Use standardized formats. Standardizing reporting formats for progress and financial reports for grants and cooperative agreements also would strengthen project implementation. 5. Encourage prompt incremental funding. To help ensure regular, timely fund flows to PVOs and NGOs, the office should encourage contracts officers and project officers to separate the work plan approval and incremental obligation processes for grants and cooperative agreements (as appropriate) and to expeditiously obligate incremental funds. Project Officer Actions Project officers can make immediate improvements in the Agency's work with PVOs and NGOs during design and implementation of individual activities as well as in other actions aimed at institutional strengthening or networking. Because Agency policies or procedures do not need to be changed, these improvements can be implemented immediately. Empowerment and capacity building. PVOs generally are experienced in implementing development activities and in managing USAID funds, but NGOs often have a difficult time meeting financial and administrative requirements. USAID can take definite steps to overcome these problems. In addition, many NGOs have asked for USAID's help in sponsoring or encouraging PVO/NGO networks that increase opportunities for collaboration, information exchange, and professional development. Project officers can help increase NGO capacity and support networking in the following ways: 1. Promote mentoring, networking. Project officers can foster NGO development by encouraging seasoned PVOs and NGOs to serve as informal mentors for newer, smaller organizations. They also can encourage development of networks of PVOs/NGOs working in the same country or the same sector. 2. Increase funding opportunities. Project officers can help the Agency broaden its range of partners by providing more funding opportunities for smaller, inexperienced NGOs or PVOs. Or they can set up programs exclusively for organizations that have never received USAID funding. For example, small grants can be given to help less experienced organizations develop needed skills (such as in financial management) for working with larger awards. 3. Seek new funding approaches. The Agency's traditional approach to PVO/NGO activities has been to fund discrete, short-term project activities. Although this approach provides flexibility in budget management for USAID managers, it doesn't encourage sustainable activities or sustainable implementer organizations. In addition to making small initial awards to new or inexperienced organizations, USAID project and contracts officers can consider using more support grants that is, providing funding to an organization's broad portfolio of activities instead of funding individual activities. 4. Bolster NGO financial management. Project officers can help strengthen NGO financial management skills by a) using preaward reviews to assess existing management capacity, b) starting with small initial awards, and c) arranging for experienced organizations (PVOs, NGOs, or contracted accounting firms) to provide financial management services to smaller organizations. 5. Provide better education. By providing regular orientation sessions, project officers and contracts officers can more effectively educate PVO and NGO implementers about the Agency's minimum accountability requirements and differences in funding instruments. These sessions should be held with NGO funding recipients both before signing funding agreements and during project implementation. A U.S. or indigenous accounting firm might be contracted to provide these services. 6. Expand use of umbrella arrangements. Project officers should consider more frequent strategic use of umbrella mechanisms, especially when institutional strengthening of NGOs is desired. The lead organization should have demonstrated ability to administer and monitor subgrants and provide technical management assistance to subgrantees. Communications problems with subgrantees and USAID will be minimized when the lead organization has an in-country office and when roles and expectations for all parties (including USAID) are spelled out in advance. 7. Intensify capacity building. Project officers can help strengthen NGOs and PVOs by including capacity building as an explicit project objective, when appropriate, and by including adequate human and financial resources for capacity building in activity budgets. Strengthening activity designs. PVOs and NGOs often complain that USAID spends too much time on project development and review. But the study found that attention to design is one of the Agency's strengths, particularly in comparison with other donors. Careful attention to reviewing and critiquing activity designs appears to increase the likelihood of successful activities. Among the ways USAID project officers can strengthen the design of PVO/NGO activities are these: 1. Think sustainability. The study's literature review suggests that attending to sustainability concerns during project design and eliciting participation of the beneficiaries increase the likelihood of success. 2. Develop ways to measure results. During activity design, USAID project officers should attend to establishing development-oriented project benchmarks. That will enable project officers (and implementers) to concentrate on activity results rather than on process. 3. Provide for evaluation. Project officers should regularly include funds for evaluation in activity budgets. Many PVOs and NGOs commented on the importance of regular evaluation as a management tool. Midterm evaluations allow for needed project modifications. Final evaluations, by contrast, a) measure project impact, b) enhance institutional wisdom, and c) help implementers build a track record of accomplishments. Having a wide range of PVO/NGO evaluations broadens the knowledge base for PVO, NGO, and USAID project planners. In this way, lessons learned from earlier projects can be incorporated into new activities. 4. Clarify respective roles. To encourage smooth project implementation, project officers should ensure that the roles of all parties, including USAID staff, are well defined before the funding agreement is signed. Implementation. USAID managers can work to improve project implementation (thus increasing the likelihood of successful activities) by 1. Following "prudent management." USAID project managers should follow the principles of prudent management, which emphasize placing the fewest necessary controls on implementers. Also, when project requirements are clearly defined and agreed to before the start of an activity, there is less need for micromanagement. The recipient can concentrate on carrying out the project. 2. Calling regular meetings. Many interviewees recommend regular meetings between the USAID project officer and implementers to improve communications and quickly resolve implementation problems. 3. Favoring prompt incremental funding. PVOs and NGOs often report delays in receiving yearly incremental funds. They complain they often have to submit miniproposals before receiving the next year's funds. According to the Procurement Policy Office, however, work plan review is not an OMB requirement for incremental funding. Given the "substantial involvement" aspect of cooperative agreements, USAID project officers should determine when it is absolutely necessary to tie incremental funding to work plan approval. They should avoid this approach in other cases. PVO/NGO Actions Although recommendations in this chapter are aimed primarily at USAID managers, PVOs and NGOs can take steps to strengthen their collaboration with USAID: 1. Use USAID information sources. PVOs and NGOs should become more knowledgeable about the Agency's rules and regulations, particularly recent and proposed changes. Information sources include Mission contracts officers, Office of Procurement staff, and Agency notices posted to the Internet. Groups of PVOs and NGOs, in the United States or in a host country, also can request regular briefings from Agency procurement officers to explain current procedures or planned changes. 2. Network. Other PVOs and NGOs can be good sources of information regarding the successes and problems of their own USAID funded activities. Discussing common problems is an excellent way to discover innovative solutions or to pinpoint systemic weaknesses in USAID policies or operating procedures. 3. Clarify funding agreements. Before signing a funding agreement with USAID, PVOs and NGOs should make sure they understand all the provisions. They should examine the procurement procedures, required approvals, financial management requirements, progress and financial reporting requirements, and the roles and responsibilities of each party. This is particularly important for organizations that have never before received USAID funding. Before signing--not after--is the time to clarify any ambiguities. APPENDIX A: USAID POLICY FRAMEWORK A number of sources of U.S. policy and guidance govern USAID's work with PVOs. The most fundamental is Section 123 of the Foreign Assistance Act, which authorizes a program to assist the development assistance activities of U.S. PVOs and cooperatives. USAID's assistance policy is based on the Federal Grant and Cooperative Agreement Act of 1977 and the Office of Management and Budget's (OMB's) final implementation guidance on that act. USAID's most recent PVO policy statement (USAID 1995) was issued in April 1995 replacing the September 1982 policy. Although the policy primarily is aimed at USAID's relationship with U.S. organizations, USAID's relationship with indigenous NGOs is addressed in several areas, and a separate policy on USAID's relationship with indigenous organizations is planned. The policy includes statements of policy principles regarding: consultation in establishing country development priorities; participation in developing and implementing activities; program integration and managing for results; U.S. PVO independence; support for relationships of U.S. PVOs and indigenous NGOs; capacity building; USAID-U.S. PVO cost-sharing; and administrative simplification. USAID issued new "principles on participatory development" in October 1993. These principles include practicing a "respectful partnership" with indigenous and U.S. organizations that collaborate with USAID in providing development and humanitarian assistance, and supporting the initiatives of indigenous communities and organizations in defining USAID's global objectives and country strategies. OMB Circular A-110, Grants and Agreements with Institutions of Higher Education, Hospitals, and Other Nonprofit Organizations, provides the basic standards for management of USAID-funded PVO activities. While OMB Circular A-110 is applicable only to U.S. organizations, as a matter of USAID policy it is applied to non U.S. organizations to the extent practicable. OMB Circulars A-122 (cost principles for nonprofit organizations) and A-133 (audit requirements) also apply to USAID-funded PVO and NGO activities. In addition, USAID's implementation guidelines for PVO and N