USAID AED suspension: Why did USAID suspend one of its biggest contractors without any explanation?

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March 31 2011 3:37 PM

Contract Killer

Why did USAID suspend one of its biggest contractors without any explanation?

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It's impossible to say definitively what happened until the inspector general's report is released. (If you have information, Slate wants to hear from you.) But members of the development community are voicing their disappointment with what they call USAID's lack of transparency during the investigation. In a letter that circulated widely within AED, former USAID officer Marcia Bernbaum wrote to agency director Rajiv Shah to express her "serious concerns regarding the way that USAID has handled the suspension."

The main complaint has been that USAID suspended AED without sufficient explanation. Its announcement of the suspension uses strong language—"serious corporate misconduct, mismanagement, and a lack of internal control"—but doesn't provide examples. Another objection is that USAID opted to suspend the entire organization rather than targeting the problematic programs in Pakistan and Afghanistan.

Others argue that USAID should have known that suspending AED, a low-margin nonprofit that relies overwhelmingly on government funds, would be a death sentence. AED receives 90 percent of its funding from USAID and other federal agencies, according to Galley, and many of those contracts require annual renewal. The suspension effectively dried up AED's revenues. "It's a tragic case of somebody who just wanted to smack somebody and hit them, and they fell over backwards and died," said a senior executive at another development organization.

Then again, the financial health of a company is not a consideration when USAID is weighing suspension or debarment of the contractor. "We did not force AED to dissolve," says Lars Anderson, a spokesman for USAID. Indeed, it was the decision of AED's board to find an acquirer to buy the company's assets, according to Galley. At that time, says Anderson, USAID and AED were negotiating an administrative agreement that would have allowed parts of the organization to continue operating.

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Accident or not, AED's collapse is just the latest chapter in the ongoing effort for better oversight of federal contractors. Every president since Ronald Reagan has emphasized government based on measurable results. In Obama's case, that's meant cracking down on spendthrift contractors who don't deliver. Congressional Republicans have joined the crusade, too, in the name of efficiency and reducing spending overseas. In a 2009 report, USAID's inspector general urged USAID to make more use of its powers to suspend (cut off funds to an organization temporarily) and debar (cut them off permanently).

USAID took the task to heart. By February 2011, the agency had "made great strides forward," said USAID chief acquisitions officer Maureen Shauket in testimony before the Wartime Contracting Commission. (Shauket, who did not return a phone call to her office, was the person who made the decision to suspend AED.) Between 2003 and 2007, USAID issued 17 suspensions or debarments, according to USAID. Between 2008 and February, 2011, that number rose to 37. Their greatest "success story," deputy inspector general Michael Carroll told the Wartime Commission at the same hearing, was "the recent suspension of the Academy for Educational Development, AED."

Yet USAID has uncovered instances of fraud that have not resulted in suspensions. In November 2010, the Louis Berger Group agreed to a $69 million settlement after allegedly overcharging USAID by $15 million to $20 million over 10 years for development projects in Afghanistan, Iraq, and Sudan. Two former executives went to prison for fraud. Yet the settlement allowed the company to continue to working on government contracts. USAID did suspend Deloitte Consulting LLP in March after the contractor failed to crack down on corruption at Kabul Bank in Afghanistan. But unlike the suspension of AED, the suspension of Deloitte applied only to its Kabul Bank contract. Its other contracts with USAID remain.

It's impossible to gauge USAID's decision to suspend AED without seeing the full inspector general's report. But AED employees say it is possible to get a rough sense of proportionality. The AED executives responsible for any high-level mismanagement have left the company or been pushed out. The money has been paid back. What was the point of suspending—and, inadvertently, destroying—the entire organization? "The terms of the suspension appear to be disproportionate to the possible infractions and mismanagement," Bernbaum wrote in her letter to Shah.

In interviews, several AED employees brought up a recent article by Andrew Natsios, the head of USAID in the Bush administration, about the rise of a government "counter-bureaucracy" that prioritizes compliance over effectiveness. When contractors operate in corrupt and high-risk countries, it's impossible to avoid being tainted to some extent by that corruption. Accountability is important, but not at the expense of doing good work. "A point can be reached when compliance becomes counterproductive," he writes. "I believe we are well past that point."

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