February 02, 2012
Peace Dividend Trust (PDT), an organization that has been in Haiti since 2009, released a study last week (PDF) on the construction sector in Haiti based on surveys with both procurement officers of international organizations and Haitian businesses. PDT created the Peace Dividend Marketplace in 2009, to help facilitate the use of local businesses. Their local business directory now contains hundreds of companies. PDT’s website states that, “its objective is to help create jobs and inspire long-term economic growth and stability in Haiti by encouraging the international community to use locally available goods and services to carry out their project work.”
The surveys reveal that while many Haitian businesses have won contracts or subcontracts since the earthquake, many others have been left out. There is also a severe disconnect in many areas between local contractors and international organizations. While procurement officers were generally supportive of local procurement, the report does not, as the authors point out, provide an idea of the actual level of local procurement taking place since the respondents were primarily organizations that had used the PDT marketplace previously. Explaining this bias the report states, “PDT is a well-known advocate for local procurement in Port-au-Prince, hence those that were willing to take part in a survey from PDT are more likely to support local procurement themselves.”
PDT interviewed 303 Haitian construction companies and while the percentage of those that received a contract from an international organization increased from 25 percent to 45 percent since the earthquake, many reported feeling excluded from the contracting process. For instance, the survey found that “[a]pproximately 43% of the Haitian businesses surveyed believed that international organisations were neither good nor bad for the economy. Eleven per cent even stated that international organisations do the Haitian economy more harm than good.” Only half of Haitian companies believed international organizations were interested in working with local companies. PDT is advocating for a “Haiti First” policy, “in which both the Government of Haiti and the international community agree to procure locally as often as possible and adopt recognised best practices that ensure maximum development impact from local procurement.”
Interestingly, despite their professed preference for local businesses, 67 percent of procurement officers interviewed “do not believe the local market can deliver technical work to the required quality without high levels of supervision and guidance.”
Bias Towards Large Firms
A primary problem with local procurement in the construction sector appears to be a reliance on large companies. Firms with over 50 employees were twice as likely to receive a contract compared to companies with 1-5 employees. Additionally, many international organizations – 63 percent – reported using pre-qualification lists. These lists are often not open to new businesses, restricting competition and reinforcing a reliance on larger firms.
The report states that, “[t]he largest companies are seen by some to monopolise the market and leave fewer opportunities for the rest. Consistent with this, several respondents reported that they have relationships with a few particular (usually larger) companies that are always able to meet their technical needs. A common response from the conversations was that once an international organization finds a business it can trust, it is less likely to invest time in broadening its supplier base.”
Larger firms are also favored by international organizations because they don’t always require an upfront payment, which “often privileges them in the contract award process.” On the other hand, the majority of businesses interviewed – 60 percent – reported receiving delayed payments from international organizations and nearly half of procurement officers “rarely or never” give advance payments. As credit is not often available to smaller companies in Haiti, this is a serious impediment to increased local procurement.
This is a common complaint from critics of local procurement. In a country like Haiti with such high levels of inequality, the reinforcement of the status quo through the use of the largest companies, many owned by the same small group of families, can be a possible downside to poorly planned local procurement.
To help increase opportunities for smaller businesses, PDT recommends opening up pre-qualification lists and breaking up contracts into smaller parts.
The divergent views between procurement officers on the one hand and local businesses on the other are a good indication that a lack of communication is preventing a greater level of local procurement. Although many local firms did not find a problem with tender documents being published only in English, the survey results suggest that making a greater effort to translate these documents into French and Creole could especially help smaller firms. It should come as little surprise that international organizations with longer track records in Haiti find it easier to procure locally. As the report states, “In general, international organisations with a larger procurement staff, including staff members who spoke Haitian Creole, and organisations that have been working in Haiti for many years find it easier to locate quality Haitian construction suppliers.”
While those companies that have received their first contract from an international organization have found other opportunities open to them, those that have been excluded are often not given any feedback. In fact, the survey found that 88 percent of companies that have not received a contract have “never received feedback for their failed bids.” Greater communication both before and after the bidding process as well as greater efforts in capacity building and longer submission deadlines could help alleviate some of these problems.
USAID and Local Procurement
Although it is clear that, at least rhetorically, many international organizations want to conduct more local procurement, it is still largely a mystery exactly how much money out of the billions spent in Haiti has gone to local firms. One aspect of this relationship not explored in the PDT report is the use of subcontractors. One of the case studies in the PDT report looks at TEMPO construction, which built a temporary building to house the parliament. Yet TEMPO was not a primary contractor but rather a subcontractor to the Washington DC-based for-profit development firm Chemonics. Chemonics has been the largest single recipient of USAID money since the earthquake. While it is positive that the firm is giving subcontracts to local businesses at least on some level, there is very little transparency on the general level of funding going to local businesses or how much money Chemonics takes off the top in “indirect costs” which go back to Washington.
USAID has committed itself to increase the use of local procurement; however this rarely takes the form of direct contracts with local NGOs or businesses. Over the last three years, the average amount of USAID funds worldwide that have gone directly to local businesses is just 0.63 percent. In Haiti, since the earthquake, this number is even lower at around 0.02 percent while companies based in the greater Washington DC area have received over 80 percent of USAID primary contract funding.
Although USAID recently made some positive steps to increase their ability to source products locally, there still remain many barriers. For instance, as Scott McCord of PDT points out in a blog post, the rule changing the Source/Origin/Nationality requirements for USAID contains an exception for the construction sector:
“The Final Rule also raises the amount, from $5 million to $10 million, for which foreign-owned (non-governmental) local firms will be eligible for construction procurement because that amount has not been raised in over fifteen years, and confirms the current requirement that USAID determine that no capable U.S. construction company is operating in the cooperating/recipient country or, if there is such a company, that it is not interested in bidding for the proposed contract.”
As McCord notes, “[w]hile the overall regulatory reform marks progress, it’s that fine print that perpetuates the idea that some bilateral donors are not necessarily operating in the best interest of the countries where they work.” Additionally, the USAID reform maintains some of the most detrimental regulations such as those affecting food aid, shipping and pharmaceuticals.
While the PDT survey provides evidence that local procurement is occurring on some level, more research must be done to understand how much money from foreign donors is really getting to local businesses. This will require much greater transparency on the part of NGOs, bilateral and multilateral donors, and private foreign contractors all of whom rarely if ever publicly break down expenditures to the level where they could be useful in determining the impact of local procurement in Haiti.