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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 NGO
activities are found in several Agency handbooks, primarily
Handbook 13 (Grants), Handbook 1B (Procurement Policy) and
Handbook 3 (Project Assistance). USAID Policy Determination 16,
dated October 1987, outlines financing arrangements with
independent organizations, including PVOs and NGOs. Handbook 3,
Supplement A, Project Officers' Guidebook for the Management of
Direct USAID Contracts, Grants and Cooperative Agreements, is a
useful summary of information contained in the various Agency
handbooks.



APPENDIX B: SUMMARY OF RECENT AND PROPOSED REFORMS


Recent Changes

Customer service standards: PREVIOUS: No guidance provided. NEW:
In August 1994, USAID developed and published its initial
customer service standards covering three areas: quality
(improving processes and simplifying business practices);
timeliness (improving turnaround time for USAID processes); and
greater access and more transparency to Agency activities and
information. Specific reform targets were included for each area.
(Source: Phase I Customer Service Plan: Establishing Quality
Service Standards for Working with USAID's Development Partners:
Private Voluntary Organizations, Universities, and Private
Businesses, August 1994)

Registration: PREVIOUS: To become registered, new applicants were
required to submit 18 documents. Annual registration renewal
required 6 documents. NEW: USAID's Office of Private and
Voluntary Cooperation revised the U.S. PVO registration
requirements in January 1995; the number of required documents
has been reduced from 18 to 6 for new applicants, and from 6 to 3
for annual registration renewals. (Source: BHR/PVC materials
dated 1/24/95)

Cost sharing: PREVIOUS: USAID required PVOs to make a 25 percent
contribution in order to receive an operational program grant or
specific support grant. NEW: All PVOs and NGOs will follow USAID
Policy Determination 16 (as revised), which encourages the
"largest reasonable and possible financial participation" of
recipients. (Source: Cable 1994 State 184498 dated 7/11/94)

Systems approvals: PREVIOUS: There was no provision for approval
of a recipient's management system. NEW: Procedures have been
developed for approving recipients' financial systems and
procurement, personnel and travel policies. (Source: USAID
General Notice dated 8/8/94)

Salary approvals: PREVIOUS: The policy for contracts (requiring
special approval for salaries above the ES-6 [previously FS-1]
level) often was applied to assistance instruments. NEW: Unlike
contracts, however, there is no requirement under grants and
cooperative agreements for approval of salaries above the FS-1
level. (Source: USAID General Notice dated 8/8/94)

Individual consultants: PREVIOUS: Common practice was to require
approval of individual consultants under a grant or cooperative
agreement. NEW: No approvals are required for hiring individual
consultants. (Source: USAID General Notice dated 8/8/94)

Key personnel approvals: PREVIOUS: Assistance instruments often
contained requirements to approve unlimited numbers of key
personnel. NEW: No more than five persons, or 5 percent of the
total number of employees, may be designated as key personnel,
over which USAID is permitted to exercise approval. In addition,
there is no requirement to submit multiple candidates for key
positions. (Source: USAID General Notice dated 8/8/94)

International travel: PREVIOUS: Recipients were required to
secure approval from USAID before beginning travel. NEW: As of
August 1992, the standard provision under assistance instruments
requires the recipient only to notify the USAID project officer
of international travel plans. (Source: USAID General Notice
dated 8/8/94)

Trip reports: PREVIOUS: Individual grants/cooperative agreements
often required separate trip reports. NEW: Trip reports are to be
included in regular technical (progress) reports, and not
submitted separately. (Source: USAID General Notice dated 8/8/94)

Audit: PREVIOUS: USAID required all NGO recipients or
subrecipients of grants/cooperative agreements to comply with OMB
Circular A-133 audit requirements if they received $25,000 or
more annually in USAID funds. NEW: USAID and the Office of the
Inspector General have increased the audit threshold for NGOs.
Now, NGOs that receive less than $100,000 per year per agreement
in direct USAID funding (up to a total of $250,000 per year) no
longer are required to follow OMB Circular A-133 audit
requirements. (Source: USAID General Notice dated 5/6/94)

USAID codification of OMB Circular A-110 (administrative
requirements for grants and cooperative agreements): These
USAID-specific revisions were published in the Federal Register
on 1/19/95 and were effective on 2/21/95. (Source: M/OP/POL)

--   Additional requirements: PREVIOUS: No specific guidance.
     NEW: Prohibits imposing requirements additional to those
     outlined in A-110.
--   Exceptions: PREVIOUS: No specific guidance re: less
     restrictive requirements. NEW: USAID may apply less
     restrictive requirements when making small awards (currently
     defined as less than $25,000).
--   Funding instruments: PREVIOUS: Not covered. NEW: Provides
     guidance on the appropriate use of grants and cooperative
     agreements as funding instruments.
--   Annual certifications: PREVIOUS: Not covered. NEW: USAID
     encouraged to accept annual certifications and
     representations on a recipient basis rather than an
     award-by-award basis. To avoid duplicate submission of these
     routine documents by prospective recipients, the Agency is
     exploring setting up a central repository for this
     information.
--   Procurement: PREVIOUS: No specific requirement for written
     procurement procedures. NEW: Recipient must establish
     written procurement procedures that cover three minimum
     standards: that unnecessary items not be purchased; that a
     lease/purchase analysis be conducted; and that all
     solicitations meet certain minimum standards.
--   Progress reports: PREVIOUS: Progress and financial reports
     were required with the same frequency. NEW: Eliminates the
     requirement for submitting progress and financial reports on
     the same schedule, allowing for progress reports to be
     submitted less frequently.
--   Report copies: PREVIOUS: Not covered. NEW: Recipients will
     not be required to submit more than the original and two
     copies of progress reports.

Proposed Changes

"Reengineering": CURRENT: Procedures outlined in USAID handbooks
and other official Agency guidance. PROPOSED: In November 1994,
USAID completed its Operations Business Area Analysis report,
which contains recommendations for restructuring the way USAID
programs its development assistance. The Agency began
implementing its "reengineered" operating systems  on October 1,
1995. Key aspects of the new operating system include:
participatory planning with USAID's partners and customers;
focusing on the achievement of activity objectives; empowering
customers and partners (that is, investing them with authority to
make and implement decisions), as well as holding them
accountable for those decisions; and the use of teams to achieve
agreed-to objectives or results. (Source: Operations Business
Area Analysis Core Report, November 1994)

Principles for award of assistance instruments: CURRENT: Guidance
as provided in USAID handbooks. PROPOSED: At its January 1995
meeting, the Advisory Committee on Voluntary Foreign Aid approved
a set of principles for the award of assistance instruments
(grants and cooperative agreements) to PVOs and NGOs. These
principles, which were developed in collaboration with USAID's
Office of Procurement, were forwarded to the USAID Administrator
for review and action. The principles include: achieving a higher
degree of standardization of policy and procedure in assistance
to PVOs/NGOs; selection of grant or cooperative agreement;
clarification of "substantial involvement"; and focusing on
activity results rather than inputs or outputs. (Source: ACVFA
January 1995 Quarterly Report)

Proposed revisions to OMB Circular A-133 (audits): As of February
1996, these proposed changes had not yet been published in final.
(Source: M/OP notice on Internet, dated 11/13/94)

--   Application: CURRENT: USAID policy is that A-133
     requirements apply to foreign recipients. PROPOSED: USAID
     will determine the appropriate dollar level of review for
     foreign recipients of awards.
--   Audit threshold: CURRENT: $25,000 per year.
     PROPOSED: $250,000 in awards per year.
--   Frequency of audit: CURRENT: Usually annually, but not less
     than every two years. PROPOSED: Annually.
--   Timing of audits: CURRENT: Thirteen months after the end of
     the fiscal year. PROPOSED: Nine months after the end of the
     fiscal year.
--   Major programs: CURRENT: Opinion on compliance with laws and
     regulations based on review of all major programs. PROPOSED:
     Opinion on compliance based on review of 50 percent of
     federal expenditures.
--   Audit findings: CURRENT: Not covered. PROPOSED: Requires
     schedule of status of findings and corrective actions.
--   Subrecipients: CURRENT: Not covered. PROPOSED: Increased
     prime guidance to its subrecipients; management decision on
     subrecipient audit findings.
--   Quality managed: CURRENT: Not covered. PROPOSED: Two years
     of clean audit reports would result in less burdensome
     audits--i.e., testing of 25 percent of federal expenditures
     or A-133 audit every 2 years and GAGAS (generally accepted
     government auditing standard) audit every other year.


APPENDIX C: METHODOLOGY

This appendix describes the methodology used for data collection
and analysis for the study's principal evaluation question and
for supplementary studies on senior managers' views, strategic
collaboration, sustainability, "umbrella" mechanisms, and other
donors' work with NGOs.

The original study design included an additional evaluation
question on the effectiveness of PVO- and NGO-implemented
activities. Data for that part of the study were collected
through the review of 151 completed PVO/NGO activities and were
analyzed under several statistical procedures. However, because
of the technical complexity of the data analysis, to present a
clear, understandable discussion of the findings, the results of
that portion of the study are being published separately.


Key Evaluation Question

The purpose of this assessment is to critically examine the
working relationship between USAID and the PVO/NGO communities.
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. To examine the working
relationship, 259 interviews were conducted with PVO, NGO, and
USAID officials in the United States and eight countries where
USAID works. The interviews dealt with a set of predetermined
topics, and the findings were synthesized across locations.

Data Collection

Data collection instruments: To answer the key evaluation
question, eight topics on management of USAID-funded PVO/NGO
activities were developed during assessment design: location of
the USAID project officer ("management locus"); choice of funding
instrument; PVO registration; the negotiation process; general
implementation concerns; approvals; reporting requirements; and
financial management. These topics became the basis for the
categories of questions used in the structured interviews.

Four separate data collection instruments were developed, for
different categories of interviewee, as shown in the below table.
Interview form 1, the most frequently used instrument, is
included in this appendix. (Four additional data collection
instruments, developed for other study purposes, are discussed in
the next section.) The data collection instruments were
field-tested and refined during the first two country visits to
Bangladesh and Poland. Subsequently, identical forms were used
for data collection in the remaining six field visits and for
U.S. interviewing.

Country selection: To ensure a broad range of views would be
captured in study interviews, plans called for field visits to at
least six countries. Criteria for selecting countries for field
interviews included:

--   Wide geographic representation
--   At least one country where USAID does not work directly with
     the host government--that is, where PVOs and NGOs are the
     principal implementers of USAID assistance activities
--   At least one advanced developing country--that is, with a
     minimal USAID presence in-country
--   At least one country where USAID has taken an innovative
     approach to using PVOs and NGOs for development activities

>From these criteria, eight countries were selected for fieldwork:
Bangladesh, Guatemala, Mali, Mexico, Poland, Senegal, Swaziland
and South Africa, as well as the United States. Members of the
Bangladesh field team made up the core team for subsequent field
visits; at least one member of the Bangladesh team served on each
of the remaining field teams, usually as team leader.

As mentioned earlier, the Bangladesh fieldwork, in October 1993,
and the Poland visit, in December 1993, served as opportunities
for testing and refining data collection instruments. The
remaining six field visits, which took place in January and
February 1994, and the U.S. interviews, in May 1994, utilized
identical data collection instruments.

Interview procedures: The general purpose of the interviews was
to obtain a range of views about how USAID manages PVO- and
NGO-implemented activities, and to obtain suggestions for changes
that might improve project performance.

Field teams of two to four people spent two weeks in each
country, interviewing PVO and NGO staff, USAID staff, and
representatives of other donor agencies. Interviewees were
selected using a "target of opportunity" approach, that is, team
members attempted to interview as many PVO, NGO, and USAID staff
as possible during the two-week field visit.

USAID/Washington interviewees were selected on the basis of the
extent of their work with USAID/W-funded PVO and NGO activities.
A range of U.S. based PVO representatives was selected for U.S.
interviews; criteria included geographic location (within and
outside the Washington, D.C. area) as well as USAID-funded
program size (those with small activities as well as those who
receive extensive USAID funding).

Two-person teams conducted most interviews; one team member
served primarily as the questioner, with the other as the primary
note-taker. The note-taker was responsible for word processing of
interview notes at the end of the day. Composition of the
interview teams was rotated on a daily basis, as were roles as
interviewer and note-taker.

Interviewers were provided the preprinted interview forms and
instructed to ask the questions as worded and in the prescribed
sequence, unless the circumstances of particular interviews
dictated otherwise. For example, communication problems might
require a restatement of a question using different words.
Responses to some questions were closed-ended; others were
open-ended. On open-ended questions, prompts were offered when
the interviewee's response was more limited than expected.

When interviewees were non English speaking, interviewers
provided the necessary translation. Spanish-language versions of
the pertinent interview forms were prepared in advance of the
field work; however, due to time constraints, no advance
French-language translations were provided to team members.

PVO/NGO interviews were sometimes conducted with groups of
respondents, usually a senior official plus one or more
assistants, who provided more detailed answers to particular
questions. Individual responses in group interviews were combined
to yield a single interview protocol.

Data Analysis

Note-takers were responsible for entering the qualitative
responses to study questions on WordPerfect computer files, and
for maintaining hard copies of interview forms, which contained
responses to closed-ended (yes/no or scaled) questions. To ensure
confidentiality, an identification number was assigned to each
interviewee, and subsequent data analysis used only the
identification number.

Because the interviews resulted in more than 400 pages of
interview notes, a computer program, "Analysis of Qualitative
Data" (AQUAD), was employed to help sort responses. From the
predetermined interview categories, a scheme was developed for
coding both the qualitative material and the closed-ended
interview responses. Two research assistants reviewed the
material from each interview and entered the appropriate codes
into each interview file. AQUAD then was employed to sort the
responses by category as well as to provide frequency counts of
the closed-ended responses. This sorted information was analyzed
to determine major concerns and themes. A table showing the
coding scheme and some representative pages displaying AQUAD data
are included in this appendix.

Within each interview record, distinct comments on each topic
were coded individually. For example, when a respondent made
several observations on the subject of registration, each comment
was coded separately. This procedure allowed more in-depth
analysis of responses in each topic area. However, since a
respondent may have made either no comments or several comments
on an individual topic, frequency counts of the total number of
responses in an interview category were not a useful way to
determine response trends. Similarly, it was not possible to
accurately determine the percent of respondents in each response
category. Instead, the analysts looked at the pattern of
responses in each interview category, and used less precise terms
such as "nearly all," "most," "some," and the like to reflect
response trends.


Supplementary Study Areas

In addition to the key evaluation question, information was
collected on several other topics: the views of USAID senior
managers; strategic collaboration; sustainability; use of
"umbrella" mechanisms; and other donors' work with NGOs.

As mentioned earlier, several other data collection instruments
were developed for the study, primarily to gather information on
issues not included in this report. But these data collection
instruments also included questions related to the supplementary
study areas. Information on the additional data collection
instruments is shown below. Interviewers also conducted 17
unstructured interviews, for example, with PVOs/NGOs that do not
receive USAID funding, or background interviews with U.S. Embassy
officials.

A summary of the data collection and analysis procedures for the
supplementary study areas is shown in the table below. Additional
information on each topic is provided in the following sections.

Senior managers' views: As part of the larger study looking at
the issue of USAID's working relationship with PVOs and NGOs, the
views of senior USAID managers were gathered to complement those
of USAID officers who worked directly with PVOs and NGOs. A total
of 19 interviews were conducted with senior officers based in
USAID/Washington and with Mission Directors and Deputy Directors
based in USAID Missions overseas. Similar interview forms were
used with both Washington and field-based senior managers. These
were far less detailed than those used with PVO, NGO and USAID
project managers, and were designed to elicit more broad-based
perspectives and insights on a range of PVO/NGO and USAID
programmatic and policy concerns.

As with the study's principal investigation, two-person teams
conducted the interviews, and the results were entered onto
computers. Because of the small number of respondents, data were
analyzed manually on a topic-by-topic basis. The findings are
summarized in Appendix E and are cited at appropriate points in
the main study report.

Strategic collaboration: The topic of "strategic collaboration"
explored the extent to which PVOs and NGOs were consulted during
development of USAID's global and country assistance strategies.
Responses on this topic were received from 291 interviewees: 146
PVO/NGO representatives (68 PVOs and 78 NGOs); 124 USAID staff
(94 project officers, 11 contracts officers and 19 senior
managers); and 21 other donor representatives. These interview
responses were sorted through use of the AQUAD program and then
analyzed.

Sustainability: Information on sustainability was collected from
a literature review of approximately 51 documents as well as
responses from 308 interviewees. Of these respondents, 170 were
PVO or NGO representatives; 117 were USAID staff (102 project
officers, 11 contracts officers and 8 financial management
officers); and 21 were representatives of other donors. Interview
information was sorted using the AQUAD program, and then was
analyzed and synthesized with the findings of the literature
review.

"Umbrella" mechanisms: Information on umbrella mechanisms, or
financial intermediaries, was collected from a literature review
of approximately 22 documents as well as responses from 280
interviewees. The interview respondents included 146 PVO or NGO
representatives; 113 USAID staff; and 21 other donor
representatives. Interview information was sorted using the AQUAD
program, and then was analyzed and synthesized with the findings
of the literature review.

Other donors: Other donor practices with PVO/NGO activities were
assessed through a review of 16 documents, interviews with 21

other donor representatives, and responses from 270 interviews.
The 270 interview respondents included 146 PVO/NGO
representatives and 124 USAID staff. Information from the 270
interviews was sorted using the AQUAD program. All interview data
then were analyzed and synthesized with the literature review
findings.



APPENDIX D1: RESEARCH SUMMARY: SUSTAINABILITY


Introduction

PVOs and NGOs have a special place in USAID's development
strategy, largely because of the Agency's belief in NGOs' and
PVOs' capacity to implement sustainable development activities.
This perception is founded on a number of assumptions. PVOs and
NGOs

--   Adapt simple, often innovative, labor-intensive technology
     to local conditions
--   Build long-term relationships with local communities
--   Have wide information networks, local counterparts, and
     other institutional contacts
--   Are less dependent on government inputs for their programs,
     compared with other organizations
--   Historically, have made deliberate attempts to foster and
     draw on local capacities for self-help (VanSant 1987)

Although these assumptions may be true in certain circumstances,
they are not always valid. Characteristics of NGOs and PVOs that
may decrease the likelihood of project sustainability include

--   Limited ability to leverage formal systems or access
     decision makers
--   Inadequate attention to market forces
--   Staffing problems, such as high staff turnover and lack of
     professional (technical) qualifications
--   Inconsistencies in program implementation
--   Dependency on external financial support (VanSant 1986)

This appendix presents findings from a number of sources:
interviews with several hundred NGO, PVO, and USAID staff; a
field survey of more than 20 completed projects; and an extensive
literature review.13 Topics discussed in this appendix include
definitions of sustainability, cost sharing, project design
considerations, and implementation considerations, including
monitoring and evaluation.


Definitions of 'Sustainability'

"Sustainability" is best defined in the broadest possible way.
Definitions limited to financial, social, or institutional
sustainability are insufficient. Issues concerning impact and
potential trade-offs need to be addressed and incorporated into a
workable, flexible definition.

Addressing local conditions is important to defining
sustainability. Not all project components may be sustainable;
they may change according to circumstances. Sustainability of one
project component may have unintended repercussions or hinder
other ongoing community initiatives. A useful definition of
"sustainability" will be broad and well suited to individual
environments.

Interviewees generally expressed a strong interest in
sustainability.14 Most PVOs and NGOs believe sustainability to be
a critical part of their work. Beyond this enthusiasm for the
concept, respondents noted that sustainability needs to be better
defined by both donors and implementers. The literature review
supports this, illustrating that USAID does not apply a uniform
definition of sustainability to its activities. PVOs and NGOs
distinguished three types of sustainability: benefit,
institutional, and financial. 

Benefit Sustainability

Benefit sustainability involves the indefinite continuation of
benefits that result from or flow from an activity, rather than
continuation of specific project outputs. It is the demand for
particular outcomes that gives them value and provides a test of
whether they continue. According to VanSant, benefit
sustainability is the continuation of valued benefit flows or
outcomes with or without the programs or organizations that
stimulated those benefits in the first place. The nature of these
benefits may change, their source may shift, or responsibility
for their costs may be assumed by a new mix of benefactors. What
is important is that the benefits or outcomes be valued by the
intended beneficiaries and that they continue (VanSant 1987).

Defining "sustainability" as the continuation of benefits is the
most comprehensive view. This also is the definition most often
used by PVO and NGO respondents and is considered the most
prevalent in USAID programs. But both PVO and USAID staff
recognize that achieving benefit sustainability takes a great
deal of time, effort, and resources.

Many PVOs and NGOs expressed concern about the amount of time and
resources required to achieve benefit sustainability. Most
respondents say that achieving benefit sustainability takes from
10 to 20 years, depending on the level of institutional
development. PVOs and NGOs believe USAID programming generally
runs counter to this need, since project funding averages 3 to 5
years.

Discussions of benefit sustainability with PVOs, NGOs, and USAID
staff included deliberations about differences in implementation
methods. NGOs and PVOs often said their development approach
deals more with sustaining behavioral changes (as a result of
project activities), whereas USAID seems to pay more attention to
project sustainability.

PVOs and NGOs see their long-term local commitment as critical to
achieving benefit sustainability. A 1988 ACVFA report supports
this. It states, "PVOs have a comparative advantage in achieving
sustainable benefits where sensitivity to local conditions,
cooperation of local institutions, and lean operating costs are
particularly critical to project success" (ACVFA 1988).

Several of the assessment's field case studies provide examples
of benefit sustainability, with mixed results. One USAID-funded
South African NGO has labored to develop programs that deal with
community needs, such as adult literacy, income generation, and
children's issues. Although the NGO's goal is developing
sustainable projects, staff question whether the programs will
achieve sustainable benefits. They are taking steps to realize
greater success in this.

Mexico provides another example of an activity emphasizing
benefit sustainability. A USAID-funded microenterprise initiative
there has attempted to build the confidence and skills needed to
bring sustainable benefits to local communities. According to the
NGO implementer, an important aspect of the project has been to
prepare people to participate in development projects.
Beneficiary participation is seen as having a strong influence on
the success and sustainability of the activity.

Institutional Sustainability

Key components of a sustainable organization include the
following:

--   A clear organizational mission
--   Strong leadership, including housing necessary technical and
     management resources
--   Ability to plan strategically and an aptitude for recovering
     costs
--   Support from the local community and capacity to mobilize
     beneficiary participation
--   Ability to supply a continuous stream of benefits (Kean
     1987)

Recent studies indicate the importance of building sustainable
organizations to achieve sustainable development benefits. The
1988 ACVFA report is a well-referenced account that links
organizational capacity to sustainable benefits (ACVFA 1988).

PVO and NGO interviewees voiced their desire for greater
attention to organizational capacity building. Many respondents
say the Agency's projects and programs provide insufficient
resources for capacity building. Several suggested that USAID
emphasize this area by helping NGOs develop long-range strategic
plans, financial management capabilities, and human resources. A
recent USAID-funded study noted that

     The best way for USAID to ensure institutional
     sustainability among its grantees is to enable them to
     attain management skills necessary to continue securing
     . . .  funding from a variety of donors as well as to
     continue to implement effective development programs [MSI
     1992].

PVOs and NGOs offered several reasons why, in addition to
providing activity funding, donors should support institutional
strengthening. First, NGOs serve as a voice for the public and
provide a system of checks and balances for government actions.15
Second, supporting and strengthening NGOs provides them with the
capacity to serve marginal and underserved groups.

PVOs and NGOs suggest that USAID provide funding for longer
periods--for 10 to 15 years instead of 3 to 5 years. This would
allow them time and resources to strengthen their organizations
while devoting appropriate attention to project implementation.

Interviewees also recommend that USAID encourage greater
networking and sharing of knowledge and resources among the
PVO/NGO community. PVOs and NGOs say USAID's programs could
foster better collaboration and learning from both sides. Local
networking is seen as critical to long-term organizational
sustainability as well as the sustainability of the entire NGO
community.

Financial Sustainability

There are two types of financial sustainability. One pertains to
NGOs and PVOs as organizations. The other concerns project
activities.

Research suggests the importance of gaining control over key
resources, including financial and human resources (Fries 1994).
Sustainability thus goes beyond organizational development to
developing income-producing activities and control over funds
generated. Financial sustainability of an organization refers to
a group's ability to recover costs, allowing it to continue to
provide services. It can be considered a component of
organizational sustainability; the two often are confused.

Many USAID evaluations state or imply that self-reliance--the
ability of an organization to develop a mixed portfolio of
financial support--is a valid measure of financial
sustainability. This mix of financial resources might include
fees for service, local or national government funding, donor
grant funds, charitable contributions, and endowment proceeds
(Fries 1994).

Project financial sustainability is achieved when an activity is
financially supported by those it serves. This can include
in-kind support, financial or technical assistance, or both. As
beneficiaries support ownership of the project, including a role
in its design and cost, the activity can take on more importance
to the community, bolstering its potential for sustainability.

Informants gave examples of project financial sustainability when
beneficiaries shouldered part of project costs. Ideally,
beneficiaries would be involved in project design, support
project activities, be willing to accept a portion of the
project's expenses, or have the capacity to maintain the project
once initial funding ends.

PVOs and NGOs encourage the Agency to think more creatively about
activity funding. Support for endowment and trust funds,
income-generating activities, fund-raising techniques (including
obtaining funding from U.S. private sources, other donors, and
the host country government), and developing innovative
cost-recovery techniques all are seen as avenues that can
contribute to long-term growth and financial sustainability.

Replication

Many project implementers consider replication an element of a
sustainable program. A host of new problems can arise, though,
when a project that is designed and implemented by local
beneficiaries is expanded into new areas.

Some evidence links expansion or replication of benefits with
risks to benefit sustainability. The risks are that expansion or
duplication of a program requires different skills from those of
the original project concept and may generate significantly
different kinds of costs. At least in some instances, expansion
of benefits to new persons and new areas may not be sustainable.
The trade-offs between these concepts should be explored before a
project is designed and implemented, since replication may not
always be an attainable goal (Borton 1992).


Cost Sharing

Cost sharing is a mechanism that requires PVOs and NGOs to make
financial or in-kind contributions to the overall costs of a
project. The Agency's Handbook 3 (Project Design) long has
included a 25 percent cost-sharing requirement for U.S. and
indigenous organizations registered with USAID as PVOs. This
requirement is in addition to the guidance in USAID Policy
Determination 16, of October 1987, which simply encourages the
financial participation of recipients.

USAID began requiring cost sharing for PVO/NGO activities for a
number of reasons:

--   Cost sharing is seen as a means of leveraging USAID
     development assistance with other sources of money
--   Cost sharing is considered a mechanism to prevent NGO and
     PVO dependence, both financially and programmatically
--   Cost sharing encourages PVOs and NGOs to gain a sense of
     ownership of programs by financing a portion of the costs
--   Cost sharing makes it less likely that USAID will be able to
     force its own agenda on organizations that are accountable
     to other sources or constituencies (USAID 1982)

NGO and PVO interviewees provided a number of reasons why cost
sharing is useful. Cost sharing

--   Fosters ownership and commitment
--   Promotes greater financial involvement of beneficiaries
--   Encourages PVO and NGO financial independence
--   Allows PVOs and NGOs to simplify procurement by using their
     own funds for certain purchases
--   Prevents reliance on one donor for funding
--   Requires strategic planning for cost recovery once project
     funding ends

Asked if the Agency should require cost sharing for PVO/NGO
activities, PVO, NGO, and USAID interviewees overwhelmingly said
"yes." Nearly all USAID staff support cost-sharing requirements,
closely followed by PVOs. About three fourths of the NGOs
interviewed support USAID cost-sharing requirements.

Most NGO and PVO respondents indicate that USAID's cost-sharing
requirements are understandable and are a way for them to show
their commitment to a given activity. But many expressed their
concern about the inflexibility of cost-sharing rules. They felt
cost sharing should be approached with greater flexibility,
depending on circumstances, and should take into account an
organization's financial limitations.

Respondents who favor cost sharing in general oppose it under
certain circumstances, such as when activities are not intended
to be financially self-sufficient. Examples are education, policy
research, legal assistance to the poor, drug prevention and
education, nutrition and family planning programs, women's
empowerment activities, and human-rights initiatives.

On the negative side, some USAID and PVO respondents say
monitoring PVO and NGO contributions is time consuming. There
appear to be no set guidelines on establishing dollar values for
in-kind contributions, making them difficult to calculate. Some
Agency staff say cost-sharing arrangements have entailed
additional monitoring, management, and paperwork requirements.

Several NGO staff feel the standard 25 percent contribution is
inappropriate for many organizations. They consider this
percentage onerous, especially for young or smaller
organizations. NGOs feel this financial burden could prevent them
from seeking initial funding from USAID and could limit the types
of organizations that work with the Agency.16 USAID staff also
expressed the belief that NGOs should not be required to
cost-share until they have established a certain level of
institutional viability.

The literature review supports NGO, PVO, and USAID perceptions.
Although the objective of cost sharing may be to reduce
dependence on Agency funding, it does not always succeed. Strict
cost-sharing formulas may not be as useful as other arrangements
that more accurately reflect an organization's financial
capacity. In addition, some groups need assistance to identify
other mechanisms to achieve financial sustainability.

In general, respondents believe the Agency should have flexible
cost-sharing guidelines. Some NGOs suggest that USAID review its
cost-sharing requirements on a case-by-case basis. Interviewees
recommend that cost-sharing requirements be established in
Missions and that they show flexibility in relation to an NGO's
capacity and the activity's goals and objectives. In some cases
the Agency may want to provide funding (without cost sharing) to
an organization that is implementing a USAID initiative, or if it
cannot contribute to costs.

There also were suggestions that USAID require limited cost
sharing for smaller organizations. These cost-sharing
arrangements could range from 5 to 10 percent and increase each
year. Resources also could be devoted to training organization
staff in fund-raising and providing information and training on
other income-generating activities.

In July 1994, in response to recommendations made by a joint PVO-USAID task force (part of the Agency's Advisory Committee on
Voluntary Foreign Aid), the Agency eliminated the 25 percent
cost-sharing requirement for registered PVOs that was mandated in
USAID Handbook 3. Instead, all PVOs and NGOs will follow Policy
Determination 16. It encourages the "largest reasonable and
possible financial participation" of recipients but does not
prescribe a formula. In collaboration with PVOs and NGOs, USAID
staff now have flexibility to develop situation- or
organization-specific cost-sharing plans for PVO/NGO activities.

Project Design Considerations

Defining and incorporating sustainability concerns into projects
is difficult. But methods do exist for incorporating
sustainability elements into project designs. They are discussed
in this section.

Asked if they believe sustainability to be an appropriate goal
for USAID-funded PVO/NGO activities, respondents overwhelmingly
said "yes." PVOs and NGOs feel strongly about achieving greater
sustainability. They made a variety of suggestions for
improvements. Among them:

--   Build from the most basic grass-roots level
--   Involve the target community at all levels
--   Ensure that project decision-makers are the project
     beneficiaries
--   Help groups make their own decisions
--   Emphasize empowerment of women
--   Use volunteers from the community to implement projects
--   Coordinate with available government programs
--   Develop implementers' management information system
     capabilities
--   Ensure that adequate training is incorporated into every
     project, for project beneficiaries as well as project
     managers

Other themes regarding the design of sustainable activities
emerge from the literature review, field case studies, and key
informant interviews.

Flexibility

Project planners need to consider sustainability early in the
design of new activities.17 The appropriate definition of
"sustainability" must be determined for each new project, taking
into account its particular context and developing indicators
against which sustainability can be measured. Issues that must be
considered early in the project design include the following:

--   Is there community level demand for the project and its
     benefits?
--   How will the project contribute to sustainable development
     of a community (or region or country)?
--   What are the attitudes of the central and local governments
     toward NGO activity in the sector?
--   How will the project be sustained by the local community?
     (Russell et al. 1994) 

Ability to test and revise the project design--and its underlying
assumptions--is critical to sustainability. Initial errors can be
corrected if the implementer and its partners are sufficiently
informed and flexible in making adjustments. When the implementer
encourages feedback and project modification, sustainability is
enhanced (USAID 1989).

Broad Participation

Some sources indicate there is a link between beneficiary
involvement and sustainability. According to a 1988 ACVFA report:

     Of all the factors that affect sustainability, local
     organizational capacity to identify and solve problems with
     the involvement of beneficiaries is the most important
     (ACVFA 1988).

The field case studies also indicate that beneficiary
participation in design and implementation of projects is a main
ingredient of success, since it is the beneficiaries who have the
most to gain or lose from an activity. Their participation
creates an opportunity for interventions that are relevant to
local needs and that provide a sense of ownership for
beneficiaries.

PVO and NGO implementers also need to work in partnership with
community groups, private associations, local government, and
other donors, among others.18 Project designers should try to
incorporate into the planning process powerful local interests
and local decision-making bodies (e.g., village chiefs, the
military) (Russell et al. 1994).

Successful NGOs often learn to collaborate with government
officials as well as with targeted beneficiaries and local
groups. These NGOs keep the government fully informed of ongoing
and planned activities and give officials public credit for
project success. At the same time they maintain credibility with
their constituents. Project planners should be cautious, though,
about proposed NGO activities that replace or bypass government
services. These efforts can foster a difficult relationship
between implementer and government. Or they could result in
government neglect of a service area.19

Sustainable projects need the support of local institutions to
run and maintain activities. Sometimes local institutions must be
established, but often existing organizations can be adapted or
strengthened.20 Project planners must assess the capacity and the
interest of existing local institutions to continue activity
benefits (VanSant 1987).

Implementer Capability

Capacity of an organization to implement a project is critical to
sustainability. While there is no formula for selection, time
must be set aside to learn about and understand proposed
implementers. For example, many foundations have an interview
process, including multiple site visits, for prospective
implementers. Identification of an organization's strengths and
weaknesses during this period is important. Since no implementer
is likely to have all the technical and administrative skills
that designers find important, it is essential to understand and
address implementer limitations, and to build on the
implementer's strengths.21

Morss stipulates that institutional capacity is a critical
element of project sustainability, saying that few project ideas
are so compelling that they will perpetuate benefits without
institutions equipped to carry them forward (Morss 1982). Other
studies support this assertion, such as a 1987 study that found a
high correlation between organizational capacity and overall
sustainability.22

Project planners must consider a number of factors when selecting
an implementer.23 Screening questions include the following:

--   What is the organization's leadership like? Have leaders
     been involved in setting up other NGOs? If so, were they
     successful?
--   Does the organization have a sectoral specialization?
--   What are the organization's current funding sources? 
--   Does the organization recover its program costs?
--   How long has the organization worked in the region? country?
     community? Has the organization a strong constituency?

In essence, program planners need to look for NGOs (and leaders)
with an entrepreneurial spirit, that is, they are pragmatic
problem solvers. They are strategic planners able to develop the
organization to carry out their ideas. They are, moreover,
motivated by the desire to create significant grass-roots change.

inancial Concerns

Activities often take longer to attain goals and objectives than
project planners anticipate. Designers need to maintain realistic
expectations of the time frame necessary to achieve project
results. For several reasons, donors may need to consider longer
term funding arrangements. First, benefit sustainability is a
long-term process. If sustainability is to be achieved,
activities may need to continue for more than 3 to 5 years (the
usual funding span). Second, longer term funding arrangements
allow NGOs and PVOs to look to longer range financial and
strategic planning for continuation of activity benefits.

Prospects for self-funded project activities--the phasing-out of
donor resources--should be considered during project design.
Issues to consider include possible income-generating schemes,
cost-recovery approaches (e.g., fees for service), use of
endowments, and fund-raising techniques (Fries 1994).

Another issue raised by development practitioners is whether
activities can be sustainable if they compete with government
services.24 The issue of private sector provision of public
services has several sides. NGOs may be able to provide services
more efficiently and effectively than the public sector, but some
point out that equal access to services may be less likely when
impoverished users must pay private providers. Others contend
that public service delivery is more easily controlled by elite
and ethnic groups, making equal access less likely (Russell et
al. 1994).


Management Considerations

USAID's management of PVO and NGO activities can affect their
sustainability. Some management considerations are the Agency's
procedures and regulations, its short-term funding approach,
attention to monitoring and evaluation, and measuring project
impact. These are discussed below.

USAID Practices

Several case studies and interviewees suggest that the Agency's
procedures and regulations can hinder sustainability. That, in
the long run, has negative implications for NGOs' capacity to
achieve benefit sustainability. One example is the inflexibility
of grants: once a grant is signed, NGOs say, they have difficulty
adapting their projects to changing conditions even though
adaptation is critical to sustainability. Other unsustainable
practices mentioned by interviewees include English-language
reporting requirements, infrequent USAID site visits, and minimal
implementation support.

Funding Approach

USAID's project-oriented approach to development usually means
short-term perspectives and programming. According to several
interviewees, the Agency's short-term funding practices hinder
sustainability. Projects often are designed with a 3- to 5-year
time frame; after this period, implementers are encouraged to
seek other funding sources. This short-term approach often is
unrealistic for long-term project results, which can require many
years or even decades of continuous support. As a result, NGOs
and PVOs continually search for new funds and are limited in
their ability to undertake long-term financial and management
planning.

Monitoring and Evaluation

Evaluations and reports consistently indicate the importance of
devoting resources to monitoring and evaluation, but managers
often give this area insufficient attention. From the time of
project conception, short-term objectives and long-term goals
must be clear and realistic. Responsibility for defining goals
and objectives is central to sustainability, since all partners
need to agree, explicitly and in advance, on the project's scope
and what it hopes to accomplish. Case studies, interviews, and
the literature review all suggest that the demand for an activity
drives its success, and that goals and objectives that are
closely linked to the immediate needs of local communities have a
greater likelihood of sustainability.

Benchmarks must be established during project design to allow for
progress monitoring. In addition, indicators that look at
sustainable impact also must be incorporated into a monitoring
and evaluation system. Developing benchmarks and indicators
allows implementers to track progress while ensuring activity
sustainability.

Both USAID and implementers can do more in the areas of
monitoring and evaluation. The Agency can provide NGOs and PVOs
with additional training and resources for establishing
benchmarks, developing realistic impact indicators, setting up
management information systems, and conducting evaluations. NGOs
and PVOs can increase the amount of resources devoted to their
own monitoring and evaluation activities and can work to improve
their skills in these areas.

Measuring Impact

Several interviewees raised the issue of trade-offs between
sustainability and project impact. They say that some development
objectives, such as behavioral changes (e.g., for health
projects) or acquiring new skills (e.g., through training
programs) are difficult to measure and to sustain. In these
examples, respondents consider project impact to be more
important than sustainability.25

An ACVFA report notes that although sustainability is vital, it
is not the sole indicator of success; "[while] project benefits
may be sustained over time, the magnitude of a project's impact
may be insignificant. Sustainability is not synonymous with
impact" (ACVFA 1988).

Other studies indicate that donors often overlook NGO project
impact while centering attention on project implementation
activities and operational performance. In addition, failure to
establish clear and measurable indicators at the project level
makes impact evaluation difficult (VanSant 1986).

The Agency currently is undertaking a major initiative on design
and measurement of performance-based activities. USAID staff are
developing indicators to effectively measure results. But NGOs
and PVOs often have difficulty demonstrating broad-based results.
They may devote limited resources to developing impact indicators
and monitoring results. In addition, small-scale initiatives may
work effectively in one village but have limited application in
others.


Conclusions and Recommendations

USAID has a long history of employing sustainable development
concepts in its projects and programs. Its NGO and PVO activities
are considered central to these endeavors.

In the assessment, three types of sustainability have been
defined: benefit, organizational, and financial (pertaining to
both the organization and project activities). Benefit
sustainability is the continuation of valued benefit flows after
USAID funding ends, with or without the programs or organizations
that stimulated those benefits in the first place. Benefit
sustainability is the approach generally used by PVOs, NGOs, and
USAID.

Cost sharing was overwhelmingly supported by interviewees, but
there was widespread agreement that the strict 25 percent
cost-sharing requirement for registered PVOs should be relaxed
and that PVO/NGO shares of project costs should be determined
more flexibly. In fact, the requirement was eliminated in July
1994 (after completion of study interviews). The Agency's
guidance now is for the "largest reasonable and possible
financial participation" of recipients.

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 and local involvement in
project design and implementation, and the capabilities of the
proposed implementer, are essential to the sustainability of
project benefits.

PVOs and NGOs indicated that USAID's short-term funding approach--financing activities for 3- to 5-year periods--may have a
negative effect on sustainability. PVO/NGO experience indicates
that long-term project impact often requires 10 years or more of
continuous intervention.

The literature review and interview respondents indicate the
Agency places insufficient attention on sustainability aspects of
project monitoring and evaluation. Clear, measurable benchmarks
and impact indicators should be established at the beginning of
activities. There can be trade-offs, however, between
sustainability and impact, as projects that have significant
impact may not be sustainable.


Appendix D1: References

Advisory Committee on Voluntary Foreign Aid. 1988. The
     Effectiveness of Private Voluntary Organizations.
     Washington: USAID.
Borton, Nan. 1992. Strategies for Sustainable Development:
     Essential Elements in Planning and Implementation for
     Benefit Sustainability. Washington: Automation Research
     Systems.
Cotter, Jim. 1988. USAID-Financed PVO Co-Financing Projects in
     the Philippines and Indonesia: Reshaping the Arms of PVO
     Collaboration. Washington: USAID.
Finsterbusch, Maussolff, and Van Wilkin. 1992. Factors
     Contributing to the Effectiveness and Sustainability of
     Development Projects. Washington: International Development
     Management Center.
Fries, Tami. 1994. Sustainability: A Literature Review.
     Washington: Development Alternatives, Inc.
General Accounting Office. 1982. Changes Needed to Forge an
     Effective Relationship Between A.I.D. and Voluntary
     Agencies. Washington: GAO.
Harkins, Allen, and Azucena Quan. 1990. Evaluation of Belize
     Enterprise for Sustained Technology. Washington: USAID.
Institutional Reform and the Informal Sector Project. 1991.
     Project Implementation Document: FSDP. Washington: USAID.
John Snow, Inc. 1991. Promoting NGO Sustainability: Lessons From
     Enterprise. Washington.
Kean, John, et al. 1987. Analysis of Institutional
     Sustainability: Issues for USAID 1985-86 Project Evaluation
     Reports. Devres, Inc. Washington: USAID.
Management Systems International. 1992. A Review of the Quality
     and Coverage of A.I.D. Evaluations, FY 1989 and FY 1991.
     Washington: MSI.
Morss, Elliot, et al. 1982. Toward Self-Reliant Development: A
     Guide for Evaluating the Sustainability of Project Benefits.
     Washington: Development Alternatives, Inc.
Russell, Diane, et al. 1994. Sustaining the Vision: Lessons for
     USAID's Move Toward Sustainability and Sustainable
     Development. Center for Development Information and
     Evaluation. Washington: USAID.
Tendler, Judith. 1982. Turning Private Voluntary Organizations
     into Development Agencies: Questions for Evaluation. CDIE
     Discussion Paper. Washington: USAID.
USAID. 1982. A.I.D. Partnership in International Development with
     Private and Voluntary Organizations. Policy Paper.
     Washington: USAID.
USAID. 1989a. Sustainability of Development Programs: A
     Compendium of Donor Experience. CDIE Discussion Paper.
     Washington: USAID.
USAID. 1989b. Project Assistance Completion Report: Zio River
     Development Project, Togo. Washington: USAID.
USAID. 1993. PVO Co-Financing II Project: PACR. Asia Bureau.
     Washington: USAID.
VanSant, Jerry. 1987. Benefit Sustainability. Washington:
     Development Alternatives, Inc.
VanSant, Jerry. 1986. The Role of Non-Governmental Organizations
     as Intermediaries in Decentralized Rural Development. Chapel
     Hill: Development Alternatives, Inc.


 
APPENDIX D2: RESEARCH SUMMARY: UMBRELLA MECHANISMS

Introduction

During the design of this assessment, a number of questions were
raised about USAID's increasing use of "umbrella" funding
mechanisms for PVO and NGO activities, particularly for
management efficiency. To obtain more information on this topic,
a literature review was prepared by Development Associates, Inc.
To supplement the literature review, evaluators collected
information on the effectiveness of umbrellas through more than
250 field interviews. This appendix summarizes the major findings
from the literature review and field interviews.

An umbrella is a funding mechanism designed to deliver relatively
small amounts of Agency funds to a number of PVOs and NGOs
through one financial award to a lead recipient. Most commonly, a
U.S. PVO receives a block grant award from USAID and subsequently
makes smaller subgrants to PVOs and NGOs for project
implementation. There are several umbrella models, described
below.

The umbrella mechanism originally was developed for expediency.
USAID first used umbrellas as an administrative mechanism to
channel funds to more PVOs and NGOs than was possible through
direct grants. Also, in politically sensitive situations, USAID
was able to provide funds indirectly--through an intermediary--to
the intended recipient. However, as time progressed, it became
evident that subgrantees often needed assistance managing their
grants. Consequently, capacity building has become a major
component of umbrella activities.

In addition to providing funds through subgrants, the lead
organization often is responsible for providing administrative
and technical assistance to subgrantees. This may include
providing training, assisting with project implementation,
helping to develop or improve standardized financial and
administrative practices, or assisting with the development of
monitoring and evaluation systems.

Umbrella mechanisms have been used to implement activities in a
number of sectors, including agriculture, education, training,
income generation, rural development, health and family planning,
and environmental and natural resources management.


Advantages and Disadvantages

There is a range of assumptions regarding the advantages of
umbrellas. The most widely asserted is that umbrella mechanisms
reduce USAID's management demands, since the Agency deals with
only one grantee instead of several. Other potential advantages,
provided by NGO, PVO, and USAID interview respondents, include
the following:

--   Umbrellas permit the Agency to fund a wider range of small
     rural or grass-roots community groups
--   Umbrella activities provide NGOs the opportunity to work as
     partners with a lead PVO or NGO, to obtain implementation
     guidance and capacity building assistance
--   Umbrellas minimize the need for USAID to directly provide
     technical assistance, training, and supervision to grantees

One possible disadvantage of using an umbrella mechanism is that
USAID may not receive "credit" for funding subgrant activities.
Although this may be desirable in politically sensitive
situations, in other cases the Agency may want its presence
known. Project planners need to recognize and address the
limitations of the umbrella approach on the Agency's in-country
visibility.

>From the subgrantee perspective, there also are pros and cons to
receiving subgrants under umbrella activities. On the one hand,
subgrants can be a way to avoid many of the administrative
requirements of direct grants. On the other hand, NGOs say that
umbrella grants can hurt their ability to develop long-term
relations with donors such as USAID, since the lead implementer
can compete for funding and visibility.

Some PVOs and NGOs say that when USAID uses the lead implementer
simply to administer subgrants--instead of also assisting with
project implementation and institutional strengthening--PVOs and
NGOs are being used "like contractors." Respondents say the
strengths of PVOs and NGOs are their project implementation
skills, innovative development approaches, and knowledge of local
issues. These advantages are lost when the organizations are
employed merely as financial intermediaries.


Selection of Lead Organization

Several models exist for management of umbrella grants. The lead
organization may be a PVO or an NGO, an association of PVOs or
NGOs, or a contractor. The most common arrangement seems to be
use of a U.S. PVO, although some larger or more experienced NGOs
also serve as lead implementer.

Significant factors in choosing a lead implementer include the
following:

--   Size and organizational capacity of the local NGO community
--   Extent of U.S. PVO presence and PVO relationships with local
     organizations
--   Whether USAID's activity objectives are compatible with
     those of an existing organization, and whether the
     organization can carry on the project's objectives without
     hurting its own
--   Whether USAID's project objectives as carried out by the
     lead organization complement services already being
     performed by other PVOs and NGOs
--   Whether the local political situation will enable the lead
     organization to function effectively to carry out the
     activity objectives

According to an evaluation of Latin American umbrella activities,
if USAID's principal purpose is to provide funding for NGO
activities (as opposed to institutional development), then using
a PVO or NGO--rather than a membership association--as lead
implementer/financial intermediary is simpler and more efficient.
But if the purpose of the project is to strengthen an
organization to coordinate with and represent NGOs, then using a
membership association works better. If USAID's purpose is to do
both, then either type of organization can be used, depending on
local circumstances (Checchi 1989).

Although membership associations are best employed when the
objective is to strengthen the NGO sector, several issues arise
regarding use of membership associations. These issues include 1)
attempts by individual member PVOs or NGOs to control the
association and its policies, 2) members' lack of understanding
about the appropriate roles and functions of the board of
directors, and 3) staff relations with the board and its members.
In addition, one evaluation found that the financial
sustainability of the membership organization was questionable,
owing to lack of dues payments and absence of other
income-generating activities (Buzzard 1991).

A number of factors must be considered in choosing a PVO or NGO
as lead implementer; each strategy has its own strengths and
weaknesses. In general, NGOs may be more familiar with local
needs, whereas PVOs may be better managed but more expensive.

In some countries there may be no local NGOs that can effectively
award and administer subgrants. In other countries, a strong NGO
sector skilled in grant administration and management may exist.
NGOs usually will demonstrate a good understanding of the local
economic, political, and social situation. Although NGOs may have
a better sense of local realities, they may not have the capacity
to effectively implement complex projects. NGOs also may bring
with them political biases and perspectives about other NGOs.
Such attitudes may hurt their capacity to act as neutral
decision-makers.

PVOs, by contrast, may provide a stronger management
infrastructure26 and may come with a good understanding of USAID
regulations and the complexities of umbrella activities. PVOs may
bring needed skills to local development projects but may lack
sensitivity to local perceptions and practices. U.S. PVOs can be
considerably more expensive than NGOs. In addition, PVOs usually
have expatriate staff that rotate every 2 or 3 years. This can
create continuity problems and questions about whether PVOs can
comprehend local development needs.


Project Management Concerns

Most problems noted by interviewees involve project
implementation and financial management. Respondents' major
themes, as well as pertinent findings from the literature review,
are provided in this section.

Management Efficiency

During field interviews, all categories of respondents stressed
the overall management efficiency (including cost efficiency) of
umbrella projects. A majority of USAID staff state that umbrella
arrangements improve activity management and that using an
umbrella mechanism works well in controlling costs.27

But the cost efficiency of umbrella activities is a complex issue
that has not been adequately addressed in the literature. An
assessment of costs must include an accurate comparison of
USAID's usual costs for direct grant administration with costs
under an umbrella arrangement. Cost estimates need to include
1) staff time and resources to manage multiple NGO/PVO
activities, 2) opportunity costs of the Agency's direct
management of multiple PVO grants, and 3) costs and benefits of
reaching more NGOs.

There are two conflicting views regarding the cost efficiency of
umbrella activities. The first considers umbrellas to be more
cost efficient than direct USAID management for both USAID and
the implementers, for a number of reasons:

--   Less duplication and reduced competition for funding among
     NGOs
--   Greater reliance on local resources and expertise
--   Streamlined reporting and monitoring requirements
--   USAID's increased capacity to work with multiple NGOs
     through one grant mechanism28
--   Less USAID staff time and resources needed to manage and
     monitor multiple small grants
--   The Agency's limited role in providing technical assistance
     and training

The second view holds that umbrellas are a more costly
alternative than direct grants. That, critics say, is because
1) USAID pays overhead costs for both the lead implementer and
subgrantees, 2) activity start-up times are longer, 3) subgrant
disbursements are slower, and 4) subgrantees need capacity
building and technical assistance.

A 1989 evaluation of several USAID-funded Latin America
membership associations found that providing funds through these
associations did not always result in decreased Mission
involvement, at least in the short term. According to the
evaluation,
     
     Missions should recognize that working with such
     organizations will involve them in problems affecting the
     operations and development of these organizations; and that
     resolving [those problems] will require staff time,
     including that of Mission management. This will be
     particularly the case if the Mission also seeks to have the
     organization assume a leadership role among the NGOs and
     achieve institutional sustainability. Consequently, the
     saving on staff time is most likely to occur over the long
     run rather than in the short run [Checchi 1989].

Given the absence of much empirical evidence regarding management
(and cost) efficiency of umbrella activities, several unanswered
questions remain:

--   Does the award of umbrella grants permit USAID to fund more
     organizations and activities while using fewer human and
     financial resources?
--   Do umbrella activities minimize USAID's need to provide
     technical assistance and training to PVOs and NGOs?
--   Do umbrella activities reduce USAID staff time for
     administrative and oversight responsibilities?

Communications and Coordination

USAID's experience implementing umbrella activities illustrates
problems with communications and poor coordination. A major
finding of a 1991 evaluation of a USAID/Senegal umbrella activity
was that the project designers failed to take into account the
need for coordination and communication among the various actors.
The design did not reflect the complexities of the project, its
multiple partners, or its levels of intervention. The evaluation
recommended that future activities include resources for PVO and
NGO communications and coordination in order to provide an
opportunity for the organizations to learn from each other and
share experiences and expertise (Ba et al. 1991).

In another case, the office of the USAID representative to
Afghanistan had grants with a PVO and a foundation to fund a
women's education program through subgrants to local NGOs. A 1992
program evaluation found a lack of coordination and communication
among the various donors and the implementing organizations. It
recommended that all delivery organizations work together more
closely to share resources and expertise (El-Sanabary 1992).

Lack of coordination and communication problems also were
frequently cited by PVO, NGO, and USAID interviewees. Respondents
say undefined roles and lack of communication between the lead
implementer and subgrantees contribute to unsuccessful programs.

In addition, many NGOs feel distant from lead PVOs that manage
subgrants from the United States. The NGOs say they are not kept
informed about issues concerning the grant and, as a result, they
are unable to plan their own activities well.29 PVOs also admit a
need for better communication and efficiency in financial and
administrative matters. The use of umbrella grants also can make
it more difficult to communicate USAID's goals and objectives to
subgrantees (Kelly 1994).

Informants conclude that umbrella activities can be more
difficult to manage when poor communications exist between USAID,
the lead implementer, and subgrantees. PVO and NGO respondents
recommend that lines of authority and roles and responsibilities
of USAID, the lead implementer, and the subgrantees be clearly
developed before the signing of grant agreements.

Project Monitoring

USAID staff have limited time and resources to monitor and assess
direct grants and even less capacity to monitor subgrants. One
problem cited by Mission staff is their limited ability to
monitor the technical aspects of umbrella subgrant activities.
Agency staff say it is necessary to monitor subgrants because
they believe the lead implementer may not always have this
capability.

Several NGO respondents expressed the view, however, that Mission
staff need to "let go" of their overinvolvement, and trust the
PVO/NGO community to do its job. PVOs and NGOs feel that
monitoring subgrant activities is their responsibility, and
unless they are permitted to do so, the umbrella process will not
work properly.

Financial Management

Many USAID respondents expressed their concern about financial
accountability matters when the Agency does not have a direct
relationship with subgrantees. Although there is a sense that the
Agency's administrative oversight is reduced through the use of
subgrants, some USAID staff are concerned that subgrantees'
finances are not being monitored properly.

The range of interviewee comments on financial procedures
reflects the extent of PVO/NGO knowledge about USAID's rules and
regulations. Some PVOs and larger NGOs appear to understand the
various financial and auditing requirements, but there are many
others that do not. Also a great deal of confusion exists among
key informants about the financial requirements of umbrella
agreements and subgrants. Some PVOs and NGOs feel that umbrellas
make it easier to deal with USAID's requirements. Others
criticize the process as being the same for both direct and
subgrantee recipients.

Some respondents say there are no requirements for lead
implementers to exercise strong financial management oversight
over subgrantees. They add that only lead implementers are bound
by USAID rules regarding procurement, travel and per diem,
personnel, and the like. However, all procurement rules and
regulations, as outlined in USAID's standard provisions, apply to
subgrant recipients.

The Agency has developed two sets of standard provisions, based
on OMB Circular A-110, which are attached to each grant or
subgrant. One set of standard provisions applies to U.S.
organizations; the other, to non-U.S. organizations. No
distinction is made between principal and subgrantee; rather, the
distinction is between U.S. and non-U.S. When a U.S. PVO makes a
subgrant to another U.S. PVO, both organizations follow the same
procedures. But when a U.S. PVO makes a subgrant to a local NGO,
different, more relaxed standard procedures apply.

Interviewees had many complaints about USAID's financial rules
and auditing requirements, including the expense of audits, the
time and resources devoted to establishing "appropriate"
financial systems, and not having capable local expertise to
conduct audits. Recommendations include changes to OMB
requirements to more accurately reflect realities faced by local
NGOs. NGOs and PVOs also believe that USAID should consider
different standards of financial accountability for local NGOs
than for other not-for-profit organizations and contractors.

The audit requirements recently were relaxed for NGOs that
receive direct USAID grants. In March 1994, the OMB Circular A-133 audit threshold was raised; A-133 now applies to NGO direct
grantees if they receive more than $100,000 annually in Agency
funds. The threshold for subgrantees, however, remains at
$25,000. In other words, it is simpler--as regards auditing
requirements--for NGOs to receive a grant directly from USAID.
According to USAID's Procurement Policy office, this subgrant
audit provision may be changed in the future.


Project Impact

As discussed above, using an umbrella mechanism to implement a
project involves trade-offs. It may, on the one hand, take longer
to set up the project and make subgrants under an umbrella. On
the other hand, a wider range of organizations may be reached and
strengthened through umbrella grants. Questions remain, however,
regarding the extent to which project-level impact is achieved
through the use of umbrella grants.

For the most part, evaluators have found that umbrella activities
do achieve their objectives. For example, the 1992 evaluation of
the Bolivia Regional Development project found that the NGO
component was helping USAID achieve its strategic objectives of
increases in crop yields and incomes (Kraljevic 1993). A 1989
evaluation of umbrella groups in Latin America found that
subprojects were meeting their objectives and having a beneficial
effect on recipients (Checchi 1989).

According to field interview respondents, the most critical
factor leading to successful projects is the competency of the
lead implementer. Respondents feel that USAID project designers
need to give more time, attention, and resources to the selection
process, including obtaining a thorough understanding of an
organization's capabilities and experience in implementing
similar programs. "Competency" also includes concerns such as the
ability to choose appropriate subgrantees, adequate management
capacity to oversee subproject activities, the skills to provide
necessary technical assistance to subgrantees, and the ability to
work in partnership with the local NGO community.


Capacity Building

Capacity building is taking on an increasingly important role in
umbrella activities. According to a 1992 USAID study, the ability
of a lead implementer to strengthen subgrantee NGOs is
appealing.30 The PVO and NGO community welcome this finding and
have rallied around the task of strengthening their community and
building new networks of collaboration and information sharing.

Many of the umbrella activities reviewed for this assessment
included efforts by the lead implementer to build the capacity of
subgrantees. This assistance takes many forms, including
technical assistance, training in fund-raising, membership
development, strategic planning, management assistance,
networking and information sharing, and guidance on USAID's
systems and procedures.

A collaborative partnership between the lead implementer and
subgrantees is critical to the capacity-building process. This
partnership can be a learning relationship where NGO subgrantees
master methods of project design and implementation, gain new
technical competencies, adopt new management and administrative
practices, and develop and use monitoring and evaluation systems.

A midterm evaluation of a Bolivian NGO umbrella activity found
that NGOs look to the lead implementer as a source of guidance
and assistance--not just for funds. They perceive the lead
organization as their "broker" with regional development agencies
and donors (Kraljevic 1993). A 1992 study of a Colombian
membership association supports these assertions, concluding that
a membership association can be an excellent vehicle for
institutional strengthening, program expansion, and channeling of
financial resources (Alfonso et al. 1992).

Several USAID staff interviewed for the study question whether
the need for capacity building overshadows the issue of achieving
project impact. A 1989 evaluation of Guatemalan umbrella
activities concluded that the use of umbrella grants appears to
have limited potential for contributing to the institutional
sustainability of PVOs assisting microenterprises (Canellas et
al. 1989). However, a 1992 evaluation of African PVO/NGO projects
notes that most of the umbrella activities evaluated "included
training and technical assistance for the NGOs--although the
importance of this activity to the achievement of the projects'
objectives is not always appreciated" (Otto and Drabek 1992).

The literature review illustrates the difficulty of assessing the
success of umbrella activities in NGO capacity building; the
evidence to date is inconclusive. However, NGO and PVO
respondents believe USAID should devote greater resources to
capacity building to enable lead implementers to strengthen
smaller NGOs and build sustainable, community-based
organizations.31 NGO and PVO interviewees say the effectiveness of
umbrella arrangements would be greatly enhanced if lead
implementers are allowed to invest more resources in
strengthening indigenous NGOs.


Conclusions and Recommendations

Key informants made a variety of suggestions regarding the use of
umbrella mechanisms. Recommendations include greater attention to
communications and information sharing, the unique role of U.S.
PVOs in capacity building, and subgrantee selection criteria.

NGOs and PVOs stress the important role of capacity building in
umbrella activities; in general, the positive contributions of
capacity-building efforts appear to outweigh weaknesses. NGOs in
particular recognize the opportunity umbrella mechanisms offer to
work in partnership with PVOs. Many NGOs feel this collaboration
can provide them with the financial, technical and administrative
skills necessary to strengthen their organizations. The NGO/PVO
community also recommends that USAID devote more resources to NGO
capacity building as well as toward improving communication among
grantees. Increased NGO networking and information sharing is
seen as critical to NGO organizational development.

Although PVOs like the flexibility of umbrella grants in
selecting subgrant recipients, many state that clearer selection
criteria should be established. PVO recommendations include
USAID's development of country-specific guidelines for the
selection of subgrantees. These guidelines should include
organizational criteria as well as guidelines for project
identification and funding.

Given the appropriate conditions and attention to design and
implementation, umbrella grants can be a useful way for USAID to
reach greater numbers of NGOs throughout the developing world.
However, umbrella grants do not always provide the Agency with
the intended management savings, such as reduced administrative
and oversight responsibilities. A 1989 evaluation of Latin
America and Caribbean umbrella activities concluded that

     USAID Missions can conserve staff time by utilizing
     intermediary organizations [U.S. PVOs and local NGOs] to
     prepare, monitor, and evaluate project activities by NGOs.
     However, it is unlikely that, without losing its own
     coherence, one organization will be able to handle the
     necessary range of required NGO activities; and [it is
     likely] that a USAID Mission will be unable to utilize it
     for all the types of activities it wants to support. Thus,
     it will not be able to avoid all direct relationships with
     NGOs unless it has a very highly focused, limited program
     [Checchi 1989].

Umbrella mechanisms offer one approach to the Agency's provision
of assistance to NGOs and PVOs. The attention that USAID and the
NGO/PVO community devote to working in partnership are key to
successful design and implementation of umbrella activities.
Through the joint planning and decision making of all parties--including subgrantees--umbrella mechanisms provide USAID with an
opportunity to support local sustainable development initiatives.

Appendix D2: References

Alfonso, Arelis Gmez; Nan Borton; and Carlos Castello. 1992.
     Apex Study of the Asociacin de Grupos Solidrios de
     Colombia. Washington: USAID.
Ba, Thierno; Robert H. Brandsetter; and George Butler. 1991.
     Community and Enterprise Development Project/PVO Component.
     USAID/Senegal. Washington. 
Buzzard, Shirley. 1991. The Cooperative Agreement Between
     AID/FVA/PVC and Private Agencies Collaborating Together
     (PACT): An Evaluation Report. Washington: Heartlands
     International Consultants.
Canellas, Andrew; Michael Hirsh; and Cressida McKean. 1989.
     Microenterprise Stock-taking: Guatemala. Washington: USAID.
Checchi and Company. 1989. Evaluation of Experience of USAID
     Missions with PVO Umbrella Groups in Costa Rica, Guatemala,
     Honduras, Haiti, and Jamaica. Washington: USAID.
El-Sanabary, Nagat. 1992. Evaluation of Programs for Afghan Women
     Funded by the O/AID/Rep and the Asia Foundation. Washington:
     USAID.
Kelly, Margo. 1994. Umbrella Activities Literature Review.
     Working paper. Washington: Development Alternatives, Inc. 
Kraljevic, Kvo J. 1993. Midterm Evaluation of the Nongovernmental
     Organizations Component of the Cochabamba Regional
     Development Project. Washington: USAID.
Otto, Jonathan, and Anne Drabek. 1992. Designs for Collaboration:
     A Study of PVO/NGO Umbrella Projects in Africa. Washington:
     USAID.
USAID. 1990. Project Paper: PVO/NGO Support Project.
     USAID/Senegal. Washington.
USAID. 1990. Project Paper: South Pacific Regional Family
     Planning. Bureau for Asia, Near East, and Europe.
     Washington.


APPENDIX D3: RESEARCH SUMMARY: OTHER DONOR'S WORK WITH NGOS 

During assessment planning, evaluation designers decided it would
be useful to obtain information on the work of other multilateral
and bilateral donors, to supplement findings on USAID's work with
U.S. and indigenous NGOs.32 Data were collected primarily through
field interviews in eight countries with donors, U.S. and
indigenous NGO representatives, and USAID officials. In addition,
a literature review of the management practices of European,
Canadian, and multilateral donors was conducted.

The overall size of an organization (i.e., number of staff and
budget) appears to have an effect on reported problems. Smaller
NGOs seem to have more difficulty interacting with donors,
understanding their bureaucracies, and working in partnership
arrangements. U.S. and larger indigenous NGOs seem better
prepared to handle donors' implementation guidelines, reporting
requirements, and auditing procedures and, perhaps, to have more
productive relationships with donors.

Topics discussed in this appendix are donor programming
approaches, partnership approach, funding arrangements, project
design, project implementation, capacity building, and
implications for USAID.

Donor Programming Approaches

International development assistance to NGOs varies from donor to
donor. Each donor has perceptions about NGOs, which engender
different programmatic objectives. Sometimes NGOs are viewed as a
contracting vehicle to execute a donor's development strategy.
More often, NGOs are considered an appropriate entity to
implement grass-roots poverty alleviation programs. In other
cases, an NGO's entire portfolio may be supported through
institutional-strengthening grants.

Although country program objectives vary, there is considerable
similarity among donor NGO programs and substantial overlap in
the reasons donors choose to work with NGOs.33 These include the
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 local NGOs
--   Work well in poverty reduction
--   Reach less accessible communities and individuals--that is,
     the poorest of the poor

Donors' views vary greatly regarding the importance of NGO
involvement in strategic planning. Most pay some attention to it,
but the impact of NGO involvement in donor programming strategies
seems to be limited. The Canadian International Development
Agency makes a concerted effort to include Canadian NGOs in its
strategic-planning process; this also is done, to some extent,
with local NGOs. The European Commission in South Africa makes a
significant effort to include local NGOs in the formation of its
development strategy. The Swedish International Development
Authority also includes NGOs in the formation of Swedish
development assistance policies (Gwynn 1994).

In field interviews, NGOs in general say they appreciate the
overtures being made by USAID and other donors to include them in
their strategic-planning processes. Nevertheless, many NGOs are
concerned that their voices are not being heard. Several NGOs
cite USAID's decision to close a number of Missions as one
instance in which NGO perspectives were not considered.

NGOs report feeling removed from donor strategic-planning
processes. Several NGOs acknowledge some overtures by donors but
say they are halfhearted and often come too late in the
decision-making process. Many NGOs also note their own lack of
time or ability to be involved in strategic programming. A few
NGOs--most notably, larger ones--actively participate in
country-level strategic planning and are encouraged about their
level of participation and impact.


Partnership Approach

Many implementer comments address other donors' preoccupation
with "process" concerns (as opposed to a "results" orientation).
In their view, other donors pay relatively limited attention to
the substance of NGO activities. Many implementers say they would
like donors to limit their attention to details even more, while
not adopting an entirely hands-off approach. Striking an
appropriate balance between detail orientation and a hands-off
approach is viewed as a "partnership" approach to development. In
addition, some U.S. and indigenous NGOs believe that donors,
including USAID, tend to use them as "contractors." Such an
association does not advance the principle of two equal sides in
the development relationship.

NGOs say they would like to see donors take a more proactive
approach to understanding organizations' goals, objectives, and
needs--and funding these instead of predesigned projects that fit
into a donor's overall development strategy.

To work effectively, U.S. and indigenous NGOs say the donor-implementer partnership should incorporate NGO involvement in
every aspect of the development process: strategic planning,
needs assessment, and project design, implementation, and
evaluation. By developing a more holistic approach, NGOs say,
USAID and other donors can achieve better, more sustainable
development results.


Funding Arrangements

Most donors do not program large amounts of money for directly
funding indigenous NGOs.34 Instead, donors generally channel
funding through NGOs based in their home country; these NGOs in
turn team with local NGOs. The donor NGOs work with indigenous
NGOs in a variety of capacities, such as awarding subgrants to
NGOs, providing technical assistance, or jointly implementing a
development project (SECOMA 1992).

In interviews, U.S. and indigenous NGOs criticized the short-term
funding arrangements of many donors. Numerous U.S. NGOs point to
this strategy as an impediment to their own long-term strategic
plans. Many interviewees link longer term funding to successful
and sustainable project implementation.

U.S. NGOs also expressed concern about USAID and other donors'
practices of funding discrete activities rather than entire NGO
programs. As a result, many organizations are left with the
impression that donors are seeking a vehicle (or "contractor") to
implement an activity rather than selecting organizations that
have a commitment to a particular community or sector. U.S. and
indigenous NGOs in general believe that greater donor resources
should be devoted to capacity building of indigenous NGOs.

Several funding mechanisms are widely used by all donors. These
include matching grants, block grants, and umbrella mechanisms.
The main NGO cofinancing mechanism of other donors is a 50-50
matching grant (Gwynn 1994).

Many donors require NGOs to contribute to projects as a way of
demonstrating commitment. Cost sharing is considered a way to
ensure that U.S. or local organizations have "legitimacy" as
independent entities with community-based support. Cost sharing
also is viewed by donors as a way to encourage the financial
independence of NGOs.

Many indigenous NGOs claim to enjoy indirect relationships with
donors. They say they do not want to deal with the various rules,
regulations, audits, and reports demanded by donors. Through a
partner or subgrant relationship, many local groups believe they
are buffered from these issues. But a significant number of
indigenous NGOs advocate direct relationships with donors. They
feel this is the best way to develop true partnerships with
donors and is essential to understanding donor organizations and
developing long-term relationships.

Consortium funding is a unique approach used by a number of
donors, including Swedish International Development Authority,
the Ford Foundation, the German development agency Deutsche
Gesellschaft fur Technische Zusammenarbeit, the Norwegian Agency
for International Development, the Danish International
Development Agency, and the European Community. Consortium
funding was developed as a mechanism to enable NGOs to receive
and administer funding from multiple sources in a simplified
manner. For example, standard formats for financial reports,
progress reports, and project monitoring are developed; the
recipient sends the same forms to all donors.

In Bangladesh, some NGOs have begun to accept consortium funding.
Such groups include Grameen Bank, Bangladesh Rural Advancement
Committee, and Proshika. Their use of consortium funding has
reduced administrative costs associated with reporting and
monitoring, completing separate evaluations, and conducting
multiple audits (Stallard 1993).

Although U.S. NGOs, indigenous NGOs, and donors all like the
concept of consortium funding, many pointed out the potential
pitfalls of this approach, including limited flexibility and
adaptability to changing local conditions. In addition, setting
up "standard" procedures acceptable to all donors can be a
time-consuming process.

U.S. NGO, indigenous NGO, and donor interview responses indicate
a need for more coordination among donors on types of programs
funded, funding mechanisms, and reporting requirements. Among
problems cited by implementers are excessive reporting
requirements, poor management coordination, overlapping and
competing development agendas, and overlaps or duplication in
auditing and other financial requirements. To advance the
effectiveness of NGO programming, implementers recommend that
donors develop a common set of procedures, quality guidelines,
and strategic plans.


Project Design

The study's literature review revealed that involvement of
funding recipients in project design is critical to project
success. However, donors have not been highly successful in this
area (Gwynn 1994). Donors have made efforts to include NGOs in
the design stage, but these efforts often do not work well. Among
the reasons: inflexibility of many funding mechanisms, limited
staff resources available for collaboration with NGOs, and
continued resistance of some host country governments and NGOs to
closer collaboration.

U.S. and indigenous NGOs agree that donors need to give greater
attention to local input before or during project design. They
say NGOs should be consulted about the needs of local communities
and should participate in strategic planning. Respondents say
that this will result in more successful and sustainable
development activities.

U.S. NGOs, indigenous NGOs, and donors all say that USAID has a
much better project design process than other donors. Although it
is seen as detailed and labor-intensive, interviewees concede
that USAID's attention to project design results in more
carefully developed activities.


Project Implementation

Donors frequently praised USAID's rules and regulations, saying
that these procedures hold the NGOs accountable for project
implementation and for meeting goals, something 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 on questions
comparing USAID's rules and regulations with those of other
donors. Although they overwhelmingly agree that USAID's rules and
regulations are more difficult than those of other donors, they
made both positive and negative comments about the consequences
of USAID's regulations.

Overall, U.S. NGOs seem to have less difficulty with USAID's
rules. Although the NGO community experiences more problems
following Agency procedures, NGOs often commented on the benefits
of these rules. Advantages include gaining credibility by working
with a large donor organization, learning how to handle large
sums of money, and acquiring skills in proposal design and
preparation. In general, NGOs agree they learn a great deal while
working with USAID that enables them to subsequently approach
other donors for funding.

Negative remarks from U.S. and indigenous NGOs centered on the
implied lack of trust resulting from the Agency's strict
application of its rules and regulations. Several respondents say
that NGOs' decision-making responsibility seldom is commensurate
with their project implementation accountability.

NGOs say they are confused about USAID's and other donors'
administrative processes, such as decision-making procedures and
funding sources. Recipients of USAID funding claim to be
overwhelmed by its multiple funding sources (central, regional,
and Mission) and its layers of decision-makers (civil service,
foreign service, foreign service nationals, personal services
contractors, political appointees, and others).

U.S. and indigenous NGOs admonished all donors, including USAID,
for not having a better balance between accountability and
flexibility. Implementers criticized donors for simply giving out
funds and then disappearing. At the same time, USAID is seen as
too process oriented and paying too much attention to rules. U.S.
and indigenous NGOs would like to see the donor community develop
a true partnership, with both parties treated as equals in
decision-making responsibility, management, and accountability.

Many U.S. and indigenous NGOs say USAID gives more attention than
other donors to monitoring and evaluation activities. The
literature review supports this, finding that donors have not
been good at systematically evaluating NGO initiatives or helping
them develop their internal capacity for conducting benchmark
studies or project evaluations. In addition, evaluations appear
to have examined more closely administrative and implementation
problems than impact or sustainability (Gwynn 1994). For their
part, donors often say that it is NGOs that limit monitoring and
evaluation efforts, owing to their lack of understanding of the
benefits of these activities.

Many NGOs say they have a limited capacity to evaluate their own
activities because of the high cost of evaluations and the
limited value donors place on them. U.S. and indigenous NGOs
repeatedly asked for more support to develop their capacity to
undertake data gathering, analysis, and evaluation. Several
indigenous NGOs recommend that donors increase their emphasis on
monitoring and evaluation during project design. This could be
accomplished by devoting more time and attention to developing
the necessary skills within the NGO community and by providing
resources to educate and raise the awareness of NGOs regarding
the benefits of establishing benchmarks, gathering data, and
monitoring results.


Capacity Building

Donors need to pay greater attention to the institutional
strengthening of NGOs. Reasons for this lack of attention are,
first, the insufficient funds that donors have thus far devoted
to capacity building and, second, donors' inability to develop a
systematic approach to institutional development (Gwynn 1994).
Although many Canadian and European donors use a "partnership"
approach to funding (i.e., linking international and local NGOs),
the lead organizations have not performed well in developing
their counterparts' capacity (Cameron and Cockey 1993).

NGOs interviewed for this assessment believe donors should give
greater attention and resources to institutional strengthening.
They feel that donors' emphasis on funding projects for short
periods runs counter to the institutional needs of their
organizations. Most NGOs say that longer term funding of
activities, coupled with resources to support capacity building,
are essential.


Implications for USAID

Each donor has its strengths and weaknesses in project
administration. Highlights of USAID characteristics, identified
through informant interviews and the literature review, are given
in this section.

USAID's NGO programming has a number of strengths, including
USAID's in-country presence and its direct relationship with U.S.
and indigenous NGOs. In comparison with donors using centralized
decision-making, USAID's in-country presence gives the Agency the
ability to work in a more interactive, partnership manner. It
also provides greater speed and flexibility in decision-making.
And maintaining locally based staff provides the Agency with
substantive information on local conditions and changing
political, social, and economic environments.

In contrast to some donors, USAID often funds NGOs directly, with
no U.S. NGO partner. When there is sufficient NGO capacity, U.S.
and indigenous NGOs agree that this probably is the most
beneficial arrangement. Although working directly with USAID can
entail more paperwork and financial regulations, it also permits
greater dialogue with Agency officials. Many organizations feel
the Agency's hands-on attitude allows the NGO community to learn
about Agency operations while simultaneously receiving continuous
input and assistance with implementation problems. Many
indigenous and U.S. NGOs believe other donors should adopt
similar strategies that increase the likelihood of partnership
approaches to development.

Informants mentioned three weaknesses regarding USAID's NGO
programming; these are supported by the literature review.
Weaknesses are the Agency's lack of attention to capacity
building and sustainability issues, its short-term approach to
project funding, and its emphasis on detail and process.

U.S. and indigenous NGOs unanimously agree that the Agency's
limited funding for capacity building is a deficiency. Rhetoric
about institutional strengthening and sustainability abounds, but
concrete ideas often are left out of project designs and
implementation procedures. Respondents note that among donors,
the Canadian International Development Agency is known for its
emphasis on project and organizational sustainability.35

As for short-term funding, U.S. and indigenous NGOs in several
countries cited instances in which Missions funded an activity
for 2 or 3 years and then expected the organization to find
outside funding. In several cases, Mission staff perceived the
activity as successful (and sustainable) because the organization
obtained funding from other donors. Many NGOs question this logic
and applaud the efforts of some donors, such as the Swedish
International Development Authority,36 to fund entire NGO
portfolios for longer periods.

Although several positive outcomes were noted regarding the
Agency's rules and regulations, U.S. NGOs, indigenous NGOs and
donors generally feel these requirements are a stumbling block to
effective implementation. Some respondents believe the Agency's
attention to rules and regulations may limit its ability to be
innovative. In addition, key informants say that USAID's strict
attention to details, such as accounting and reporting
procedures, limits the Agency's ability to concentrate on project
impact. NGOs report that USAID's rules sometimes hinder
implementation and that they also can impede flexibility and
trust--two qualities greatly appreciated by the NGO community.

The Agency's preoccupation with holding its staff accountable for
details limits its capacity to work in a more hands-on,
partnership style. More direct involvement with NGOs requires
greater time, resources, and energy, which may be precluded by
mandated reporting requirements.


Conclusions

The most important issue emerging from the analysis of other
donor practices is that USAID and other donors need to change
their philosophies regarding NGOs away from process concerns to
those of substance and impact. Although practices differ from
setting to setting, in the long run a process-oriented approach
may be more likely to have a negative influence on effective
project implementation.

Other themes that emerged from the review of other donor
practices include the necessity for longer-term funding of NGO
portfolios and for capacity building and development of more
substantive relationships with the NGO community.

Some donors have successfully addressed some of these issues. The
Swedish aid agency, for example, has been able to establish
longer term relationships aimed at institutional as well as
project-level sustainability issues. By applying these lessons,
USAID should be able to develop long-lasting partnerships with
the NGO community and obtain better results for its development
activities.


Appendix D3: References

Cameron, Catherine, and Jane Cockey. 1993. The Evaluation of NGO
     Activities, Organizations, Methodology and Results. Paris:
     Overseas Development Administration.
Gwynn, Cheryl. 1994. Literature Review of Other Donor Funding of
     NGOs. Development Alternatives, Inc. Washington: USAID.
SECOMA. 1992. Evaluation of CIDA's Non-Governmental Organization
     Program-Final Report. Vol. I. Ontario: Canadian
     International Development Agency.
Stallard, Janice. 1993. Donor NGO Funding and Collaboration:
     Summary of Findings from Bangladesh. Center for Development
     Information and Evaluation. Washington: USAID.




APPENDIX E: PERSPECTIVES OF USAID SENIOR MANAGERS

Evaluators solicited the views of senior USAID managers to
complement those received from project officers who work directly
with PVOs and NGOs. Nineteen interviews were conducted with
senior officers based in Washington and Mission directors and
their deputies based in the field.37 Although the sample was
relatively small, as a percentage of total Agency policymakers,
it was substantial.

The experience and knowledge of these officers varied
significantly and yet, cumulatively, covered a wide range of
issues and a diversity of perspectives regarding the Agency in
general and PVOs/NGOs in particular. Those interviewed included
political appointees with little more than 2 months on the job,
to "old field hands" with well over 20 years of international
experience and service with the Agency. In most cases,
interviewees have had experience both in the field and in
Washington.

Interviews of senior managers were far less detailed than those
of PVO, NGO, and USAID project managers, and were designed to
elicit broad-based perspectives and insights on a range of
PVO/NGO and USAID programmatic and policy concerns. This appendix
provides findings and conclusions from the interviews.

Management Capabilities

Regarding the respective management capabilities of PVOs and
NGOs, interviewees considered both PVOs and NGOs capable of
attracting and retaining qualified staff, but for different
reasons. Although PVOs generally were viewed as having stronger
internal management capacity and being better able to comply with
USAID regulations and procedures, respondents also believed that
over time NGOs could achieve a level of institutional capacity
adequate to meet USAID requirements. In general, senior managers
saw no distinction between PVOs and NGOs regarding potential
effectiveness. The following responses elaborate these views:
     
     NGOs have thin management capacity and often depend on a
     charismatic leader; PVOs are starting to attract more
     well-rounded staff,  but high turnover is decreasing the
     number of "old hands" who work for them, with possible
     negative effects.

     Internal management warrants higher and more focused USAID
     attention--more so for NGOs than PVOs, but there is a wide
     diversity of capacity in both communities. . . .  USAID
     regulations are a horror, and we must be willing to help
     both PVOs and NGOs work within it in a more partnership
     approach that achieves both sets of institutional
     objectives.

     PVO skills have improved over the years, both in the United
     States and in the field, and in part due to USAID-financed
     institutional strengthening. PVOs' ability to attract and
     retain qualified staff is due in large measure to USAID
     funding.

     Local NGOs have weak management capacity and operate in an
     autocratic manner, which discourages highly qualified staff
     from staying. . . . NGOs that received capacity
     strengthening through PVOs tended to be stronger than those
     that received it directly from USAID.

     PVO staff are motivated with career choices available to
     them; if individuals choose to join a PVO it is because they
     want to. . . .  People who join NGOs are normally more
     technically competent than [those who join] PVOs, reflecting
     the lack of employment opportunities in developing
     countries.

     There is tremendous variability in PVO management ability.
     . . .  NGOs are weak and often burdened by domestic
     political agendas. They have problems trying to compete with
     the private sector in low-income countries over the same
     pool of experienced individuals.


PVO/NGO Sustainability

The consensus among senior managers was that neither PVOs nor
NGOs are successful in ensuring sustainability of their
organizations or programs. More respondents felt that NGOs were
more successful in achieving sustainability and had far greater
potential to do so:

     Sustainability is a good idea, but we need flexibility.
     . . .  With NGOs it is almost impossible to get a 25 percent
     matching contribution and it is difficult to calculate
     in-kind support.

     Cost recovery is always a good idea but must be achieved
     over time for sustainability to occur.

     PVOs are not interested in developing capability for
     achieving sustainable results. . . . They get mixed messages
     from USAID on the importance of sustainability. NGOs are
     better at achieving sustainability. They can't leave.

     PVOs have questionable capability to achieve sustainability.
     Sustainability is a function of many factors over which PVOs
     and NGOs have no control, including host government support,
     a stable economy, environmental changes, population growth,
     peace, etc.

     The issue is a waste of time. The U.S. has not been able to
     make it happen at home or in USAID projects generally, so
     why the preoccupation with making it happen in other
     countries?

     PVOs' success at sustainability is a mixed bag. It depends
     on what their role in the country is. Do they want to leave
     anything behind, and if so, what? Sustainability is harder
     for NGOs working in poor countries where they cannot build a
     membership base or raise funds easily.


USAID's Objectives in Funding PVOs and NGOs

One line of questioning was aimed at understanding senior manager
views on 1) the purposes of USAID funding for PVOs and NGOs by
central and regional Bureaus and field Missions; 2) the
worthiness and actual attainment of these objectives; 3) the
relative priority of funding among these three levels, including
allocation of budgetary resources; and 4) the capabilities of
each level to manage and support PVO/NGO activities.

Discussion of centrally funded programs dwelled primarily on the
Matching Grant Program (MGP) of the Bureau for Humanitarian
Response's Office of Private and Voluntary Cooperation (BHR/PVC).
Also discussed was the PVO/NGO program of the Bureau's Office of
Food for Peace (BHR/FFP). Responses about regional Bureau and
field Mission objectives tended to address more their overall
rationale for supporting PVOs and NGOs than to address specific
programs. These questions were asked only of Washington-based
managers.

Central (Bureau for Humanitarian Response) Program Support

According to BHR/PVC, the principal objective of the Matching
Grant Program is to build the capacity of fairly well established
PVOs to branch out into new program areas. PVOs with a good track
record, that can provide a 50 percent match, are eligible for
support. The following are senior managers' descriptions of MGP
objectives:

     To provide a means for PVOs to leverage additional funding
     to that gained in their own fund-raising; or, put
     differently, to leverage additional resources to those
     provided by USAID in centrally funded activities.

     To permit the Agency to meet congressionally mandated
     earmark requirements.

     To strengthen the Bureau's FFP implementing partners, some
     of whom work in difficult circumstances.

     To build a PVO constituency for USAID and American foreign
     assistance.

     To avoid the negative views held by field Missions of PVO
     programs, primarily in food aid and humanitarian assistance.

     To provide easier cross-country, cross-regional sources of
     funding; or, to provide a central service for multicountry,
     multiregional activities.

     To fund expansion of ongoing PVO programs (let them do more
     of the same).

The feeling was that these objectives were worthwhile given "real
world" conditions, including political realities. But the opinion
was more negative when these objectives were discussed in "truly"
developmental terms, or in light of whether they were actually
being accomplished or if they meet Mission objectives and needs.

Roughly half the respondents argued that if the Agency is hit
with budget cuts, central Bureau grants to PVOs should be among
the first to go or, at least, should not be protected from such
cuts. A slight majority felt funds for PVOs could be better
utilized and managed by field Missions. A minority felt that
central bureau PVO programs could be shut down altogether, with
funds transferred to the field.

The outlook of BHR managers was, not surprisingly, different.
They felt that moving these programs to the Missions would be to
place them in the hands of "unsympathetic" field staff who would
sacrifice important Agency objectives for the more narrow
interests of the Missions (e.g., through "projectizing" food
aid). The following comments reflect the views, pro and con:

     If the PVO is sufficiently mature and competent to qualify
     for this [MGP] program, it should be able to undertake its
     own further capacity growth without USAID assistance.

     MGP has been very successful in helping PVOs gain expertise
     and develop program models in such areas as microenterprise
     and child survival, which will have far-reaching spinoffs in
     the developing world, and at a relatively small overall
     budget ($45.0 million in 1993).
     
     MGP is not worth it because you are not going to leverage
     very much additional funds for the amounts involved.

     I don't think the purposes are being accomplished because
     PVOs are still beating up on us; they are not happy.


Regional Bureau Program Support

All the regional Bureaus provide funding to PVOs. The perceived
objectives of these programs are at least as diverse as those of
the centrally funded MGP. Senior managers identified these
program objectives:

--   To fund PVO participation in regional sectoral programs
     (e.g., the environment, microenterprise)
--   To get PVOs involved in new sectors (e.g., democracy and
     governance, natural resource management) of strategic
     importance to the regions; or to promote new ways of doing
     business, such as with private companies or regional
     networks (e.g., women's political network)
--   To permit achievement of a regional Bureau mandate such as
     the Development Fund for Africa
--   To stimulate indigenous NGO growth and, in a larger context,
     civil society through PVOs
--   To respond to PVO lobbying efforts--that is, providing
     funding in response to political clout
--   To maintain a USAID presence in countries where a Mission
     has closed out; or as a means to provide assistance in
     countries with no USAID Mission

A majority of respondents distinguished between the BHR and
regional Bureau programs in that the latter provide support to
PVOs within a strategic framework developed with and for their
field Missions, while the former responds directly to PVO plans
and needs. Thus, while the regional Bureaus also fund PVO
capacity building, it is for the express purpose of encouraging
them to tackle new sectoral activities consistent with new
program directions the Bureaus have set for themselves. It is
clearly understood that once their portfolios have become better
defined and programmatically sound, regional Bureau funded PVO
activities will be phased out and left for the Missions to fund
or not as needed.

In a similar vein, regional Bureaus have funded PVO programs
because Missions did not have the staff to adequately design and
manage such programs (the example given was the large number of
new country programs begun in Europe and former Soviet Union).
But the principle remained the same: once Missions were capable
of assuming management responsibility, the regional Bureau would
phase out of this role.

In general, respondents felt Bureau objectives were worthwhile
and, overall, were being achieved. A significant number of
respondents expressed views similar to those about BHR
programs that is, the need to maintain Bureau responsibility for
funding of PVO activities and not turn them over to the Missions
until, in the words of one respondent, "the negative attitudes of
Mission directors toward PVOs have changed." In this regard, some
directors apparently see PVOs as annoyances, simply creating
"patches of green" amidst general conditions of poverty and thus
not contributing directly to development.

As for which locus merits priority funding for PVO activities,
opinion split about evenly between regional Bureaus and field
Missions. When faced with the possibility of budget cuts for the
Bureaus, though, most respondents felt PVO programs should hold
no special priority within the larger program portfolio.

Mission Program Support

Senior managers listed a variety of objectives that reflect their
perceptions of why field Missions fund PVOs and NGOs. At least
one senior manager noted that a major reason for funding PVOs
involved domestic politics, in some cases when Missions believe
that programs funded are not consistent with their country
strategic plans. There was, however, virtual unanimity that the
only valid approach for supporting PVOs and NGOs is within the
framework of a Mission's strategic objectives. The following
represent senior managers' perceptions of Mission objectives for
funding PVO/NGO activities:

--   To use PVOs/NGOs as the most efficient way to carry out
     projects and achieve country objectives
--   To complement host country governments in providing public
     services
--   To provide continuity, through PVOs, to Mission-funded NGO
     programs
--   To carry out whatever the Mission's development objectives
     are at either project or program levels (i.e., to serve as
     implementing agents)
--   To support politically sensitive activities (e.g., human
     rights, family planning), which may be inappropriate through
     direct bilateral programs
--   To promote (through NGOs) a force for change in both
     sectoral activities and in the larger society (strengthening
     civil society)
--   To respond to the political pressure of PVO lobbying or
     congressional earmarks

The respondents felt all these objectives, except the last one,
were worthwhile, although their achievement was by no means
uniform. For instance, while most senior managers agreed PVOs
bring motivation and energy to the work of development, they feel
the qualities are largely being negated because of USAID's
management regulations and accountability requirements, which
keep them, as one manager put it, "behind their desks pushing
papers rather than in the field promoting change."

As discussed above, a significant number of senior managers feel
that, while in principle the Missions may be the priority locus
of Agency support of PVOs/NGOs, in practice their attitudes are
not always positive toward these groups (PVOs in particular).
Some doubted that overall achievement of Agency objectives and
mandates can be ensured through field Mission activities, so
there remains a justification for central and regionally funded
PVO/NGO programs.

Umbrella Mechanisms

Respondents generally agreed that most Missions prefer funding
NGOs directly rather than through an umbrella intermediary,
normally a PVO. A number of senior managers argued a direct
relationship contributes to achievement of important Mission
objectives. However, they noted that the reality of limited
Mission capacity to work directly with NGOs often limits this
preference and leads, in most cases, to using a PVO intermediary.
One senior manager pointed out that umbrella mechanisms have
little to do with increasing or decreasing the chances of
achieving a Mission's developmental objectives; they are used for
administrative ease for management (not program) purposes. The
following responses provide a cross-section of senior manager
views:

     While considerable funding can be wasted through umbrella
     projects, it is a good compromise in an imperfect world.

     Umbrellas are more costly and time consuming, and the
     intermediary organizations are less likely to develop a
     partnership arrangement with USAID; they have their own
     agenda, which gets in the way.

     Every opportunity to work directly with NGOs should be taken
     if they are strong enough; however, we must question USAID's
     capacity to work directly with local groups, given staff
     resources, time, management, etc.

     Umbrellas are better because they lighten a Mission's
     management role and burden, and circumvent attitude problems
     at the Mission level.

     In exchange for management efficiency, Missions lose their
     hands-on relationship with local NGO communities because the
     umbrella becomes a buffer; moreover, PVOs can be
     patronizing.


USAID's Evolving Relationship with PVOs and NGOs

As discussed in various ways in the preceding sections,  PVOs and
USAID have engaged in dialog for the better part of two decades
over the appropriate role of PVOs in formulating and implementing
American foreign assistance policy. The next two sections deal
with senior managers' comments on questions concerning 1) the
validity of funding "autonomous" PVO/NGO programs with public
funds and 2) the appropriate degree and actual influence of
PVO/NGO collaboration in developing strategic plans at all levels
of the Agency.

PVO/NGO Program Autonomy or Alignment

Should USAID funding to PVOs/NGOs be undertaken to support their
own programs and thus ensure their autonomy, or should funding be
in alignment with USAID-defined country program objectives? This
was the principal issue raised of senior managers in this series
of questions. Interviewees generally supported the view that PVOs
and NGOs deserve support only if they can assist in fulfilling
USAID's objectives. But a  significant minority believed funding
should sometimes support PVO/NGO activities independent of USAID
objectives. The following responses provide rationales for these
views:

     If USAID is going to be held accountable for the impact of
     PVO/NGO activities, their programs must be closely aligned
     with our own. Perhaps if the nature of the USAID PVO/NGO
     relationship were different--a truly competitive grants
     program, for instance--then we could lean toward funding
     independent activities.

     PVOs have the perception that they deserve funding, if for
     no other reason than they are PVOs. Even if this were valid,
     a programmatic rationale also must be present. I'm not sure
     whether USAID has found that rationale.

     We should fund both independent and "instrumentalist"
     programs of PVOs/NGOs. At the macro or programmatic level,
     funding should support USAID's purposes; at the micro or
     project level, funding can be made to PVO/NGO initiatives.

     It is important to fund PVO/NGO-initiated activities as they
     are likely to have greater commitment and thus become
     sustainable.

     PVOs/NGOs should work in close alignment with USAID
     objectives. Missions are responsible to the Agency,
     Congress, and ultimately the American people for identifying
     problems and judging how to address them. . . . We will make
     partnerships with those who share our views.

     PVOs/NGOs should work in close strategy alignment with
     USAID. The Agency should provide broader, long-term strategy
     direction since it understands the economics of development.
     PVOs and NGOs understand only micro, local-scale
     development.

     Projects should be closely aligned with USAID objectives and
     strategy, but when a PVO/NGO project is well chosen, then
     give them the go-ahead to implement it without close
     supervision. There is no correlation between heavy USAID
     involvement and a successful PVO/NGO activity.



Strategic Collaboration

In general, senior managers felt PVOs have had a reasonable level
of influence in developing USAID's strategic plans, although
probably not so much as PVOs would have liked. NGOs, by contrast,
have had far less influence, and a majority of respondents felt
this is an area in which the Agency needs to increase its
efforts. The following responses illuminate these findings:

     PVOs have had some influence on strategy formulation in that
     they have caused the Agency to pay more attention to
     agriculture, natural resources, and equity issues; however,
     it is probably not as much as they [PVOs] would like. There
     needs to be more input in terms of substantive dialog, but
     not in the review of USAID documents. . . . Let USAID be the
     bureaucrats.

     Both PVOs and NGOs have had an influence on our strategies,
     but we could do more at the Mission level. In particular, we
     could do a better job of explaining why we do or do not fund
     their activities.

     PVOs have had an influence on the formulation of USAID's
     strategies. It has been satisfactory but not well rounded in
     that the process has been dominated by a small number of
     larger, more active organizations. NGOs need to be more
     intensively consulted.

     More recently PVO/NGO collaboration and influence have
     increased. . . . PVOs have had a historic influence on the
     Hill with such issues as microenterprise and child survival.

     USAID must determine its own general areas of involvement in
     the beginning, but then it is important to increase PVO/NGO
     involvement. Once broad sectors are identified, PVOs/NGOs
     should be brought in to help define the specifics, given
     their knowledge of country conditions.

     Ours is a politically driven program. While PVO/NGO input
     and collaboration are desirable in most countries, that is
     not the case here where bilateral issues (such as trade and
     immigration) define the nature of our programs and
     objectives.

     Implicating PVOs and NGOs in strategy development is not
     useful. They often want things that are not sustainable and
     don't increase per capita income, but rather meet immediate
     needs. Perspective is too short-term to be able to focus on
     long-term development.

     [They have] only marginal influence in USAID's development
     strategies because they don't have the wherewithal, the
     human capital. . . . Would like to see much more involvement
     of NGOs because they serve as proxies for the grass roots.

     PVO influence is too strong, and they exercise undue
     influence. Too much of our time is spent in trying to
     satisfy the felt "greeds" of PVOs.


Conclusions

This section analyzes and interprets interviewees' statements.
The purpose is to raise issues and stimulate thinking in areas
where much discussion has taken place but no definitive actions
have been taken.

Management capability and sustainability: Senior managers saw no
overwhelming differences between PVOs and NGOs regarding their
capacity to undertake successful development projects or to
ensure project or organizational sustainability. The far longer
experience of PVOs in international development and their greater
access to financial resources need to be balanced against NGOs'
local presence and commitment to grass roots development. Agency
policymakers should reflect on where budget allocations can be
best invested for long-term effect. 

USAID objectives: Interviewees raised a number of critical issues
on USAID's objectives in funding PVOs and NGOs. The most
important issue is finding the proper locus of decision-making
within the Agency. Should it take place at the central Bureau
level or in the field Missions? This age-old debate, not limited
to PVO/NGO policy considerations, concerns the proper role and
functions of central Bureaus relative to field Missions. Policy
concerns that flow from this issue, and corresponding decisions
that must be made, include the following:

The role of PVOs in USAID implementation: What is the appropriate
role of PVOs in program and project implementation as the Agency
downsizes and Missions lose staff or are closed out altogether?
While this issue pertains primarily to field programs, there are
a number of central and regional Bureau programs that utilize or
support PVOs to accomplish Agency objectives.

In an era of dwindling resources for official development
assistance, this question raises a number of policy concerns:
1) Should USAID support PVOs only insofar as they contribute to
achievement of USAID objectives (at any level), or should the
Agency support activities that are initiated by PVOs and which
may or may not contribute to USAID's objectives? 2) What does
"partnership" between the Agency and PVOs mean if implementation
of USAID strategies is the only or the primary role of PVOs in
USAID programs? 3) What is the relative advantage of using PVOs
in an implementation capacity versus using contractors or
universities?

PVOs versus NGOs: As we enter the last half of the fourth
development decade, a major question is the proper role of PVOs
(or international NGOs in general) in the national development
efforts of our partner countries. More specifically, what is the
role of PVOs relative to their NGO counterparts? How does USAID's
capacity to work with and manage support to NGOs affect its
development objectives in host countries, particularly the
objective of promoting sustainability? Should a fund for NGO
capacity building be created along the same lines and for the
same objective as the Matching Grants Program is for PVOs? Is it
possible or necessary to develop criteria for supporting one set
of actors over another, particularly in the absence of a declared
policy?

These two sets of policy concerns as well as the larger issue of
the proper locus of decision-making and implementation
responsibility for PVO and NGO support must be dealt with if
USAID programming is to lead to achievement of overall Agency
objectives. Absent such decisions, relationships within USAID and
between it and the PVO/NGO communities will continue to be marked
by tension and less-than-optimal use of our foreign assistance
resources.

USAID's evolving relationship: On the issue of PVO/NGO
participation in USAID strategy development and program
implementation, senior managers generally oppose greater
involvement. And yet, these same managers admit PVOs and NGOs
have played an indispensable role in implementing U.S. foreign
assistance. One suspects there has been far greater PVO/NGO
influence in policy and strategy formulation, albeit indirectly
and informally, than is indicated by the specific responses cited
above.

Senior managers say the USAID PVO/NGO relationship has an
inherent element of conflict, and this is not necessarily bad. In
a democracy, the making and execution of public policy depends on
expression of a variety of views and interests and a recognition
that nongovernmental actors have a legitimate role in both
formulation and implementation.

Much of USAID's relationship with PVOs and NGOs has been driven
by the need for accountability, for it is after all a public
agency entrusted with public funds. If PVOs and NGOs are going to
enter the public domain and participate with USAID in the
delivery of American foreign assistance, they must accept and
share the responsibility that goes with it.


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NOTES

1This summary is based on material found in USAID Handbook 13,
chapter 1, section B.2.a., and in Handbook 3S, supplement A,
chapter 1, section 3.

2See USAID Handbook 1B, chapter 25, section 25E, for the
selection criteria for choice of implementation instrument.

3This section looks only at differences in USAID/W and Mission
management of PVO/NGO activities, since interviewees provided
little information on management of regionally funded activities.
4See the general definition of "PVO" in chapter 1. USAID refers
to registered organizations as either "U.S. PVOs" or "local
PVOs."

5See USAID Handbook 13, chapter 4, for a fuller discussion of
preaward reviews.

6Source: USAID Handbook 13, chapter 1, section b.2.b.

7This summary of the roles of contracts officers and project
officers is taken from Handbook 3S, supplement A, chapter 3. A
useful table illustrating the respective roles of the contracts
and project officers can be found in appendix B of USAID Handbook
3S.

8Requirements for establishment and operation of financial
management systems, based on OMB Circular A-110, are extensively
documented in USAID Handbook 13. In addition, payment provisions
are outlined in Treasury Circulars 1075 and 1083 and summarized
in Handbook 13. Audit requirements are found in OMB Circular A-133.

9These methods are explained in more detail in OMB Circular A-110
and the Standard Provisions for U.S. and non-U.S. NGOs, contained
in Handbook 13.

10Definitions of "sustainability" are discussed more fully in
appendix D1. Briefly, "organizational (or institutional)
sustainability" refers to the continued existence of the PVO or
NGO. "Financial sustainability" refers to the organization's
ability to recover costs, allowing it to continue to provide
services. Project financial sustainability is achieved when an
activity is financially supported by those it serves, including
in-kind support or financial or technical assistance.

11To conform to international conventions, in this section the
term "NGO" refers to a not-for-profit organization engaged in
international development work. It can be based either in the
donor's home country or in a developing country.

12Of course, there is a distinction between "inconsistency" and
the flexibility needed to deal with varying country
circumstances. But respondent comments indicated that, other than
individual USAID staff preferences, in many cases there appears
to be no underlying reason for management inconsistencies.

13The literature review, completed by Tami Fries of Development
Alternatives, Inc., consisted of analysis of 51 reports,
evaluations, and studies on USAID's PVO and NGO programs. It is
available from CDIE as a working document.

14Sustainability is one aspect of the sustainable development
process. For a further discussion on sustainability and
sustainable development, see Russell et al. 1994.

15A 1987 evaluation of the Indonesia PVO Cofinancing Project
(Betts, A Strategic Assessment of NGO Development in Indonesia)
found that local NGOs' capacity to create a positive policy
environment is a more important contribution than direct delivery
of services.

16This finding is supported by a 1982 General Accounting Office
report, which noted that rigid cost-sharing requirements
discouraged smaller (and perhaps more innovative) organizations
from applying for programs that require a matching component (GAO
1982).

17See International Development Management Center, 1991, The
Logical Framework and Benefit Sustainability, for further
information on incorporating benefit flows into project designs.

18For example, the success of a USAID-funded activity in Belize
suggests it was the solid partnership between the government, the
private sector, and PVOs that allowed resources to be directed
most effectively and that directly contributed to the project's
sustainability (Harkins and Quan 1990).

19This occurred in the Zio River project in Togo, where a PVO took
over provision of many agricultural services in a given area. As
a result, the government was discouraged from providing
assistance to the region and discontinued extension services to
this area (and other areas) that had been taken over by PVOs or
donor programs (USAID 1989).

20Efforts also can be made to look to informal groups (e.g.,
neighborhood associations, ethnic groups, and extended families)
through which investments can be channeled.

21Case studies from Indonesia and the Philippines show that
training exercises to increase NGO skills in financial
management, project monitoring, and evaluation are critical to
project success (Cotter 1988).

22In this study, 55 percent of the projects with high
organizational capacity ratings also had high overall
sustainability ratings (Kean 1987).

23The Agency has developed a set of guidelines to be followed when
working with local organizations in microenterprise development.
These guidelines are outlined in Policy Determination 17,
Microenterprise Development Program Guidelines.

24A USAID respondent referred to a U.S. PVO in Swaziland that
worked in a sector the government seemed unable to service. After
several years of PVO success in distributing commodities, the
host government appeared resentful of the organization's funding.
Although the PVO continues to operate, it now receives no
government support. The PVO may be forced to cease services if
outside donor assistance ends.

25Some informants say that USAID places too much emphasis on
sustainability, to the detriment of examining project impact.

26One USAID contracts officer believes it is better to use PVOs as
umbrellas because they have more developed management
capabilities than local NGOs and can better isolate themselves
from political pressures or corruption in selecting local NGOs
for subgrants.

27One USAID respondent says that a Mission would need six to eight
personal services contractors to do what one PVO umbrella grantee
does.

28For example, the USAID South Pacific Regional Development Office
funded a project through a PVO and the South Pacific Alliance for
Family Health to promote population and family planning
activities in the region. Using this mechanism, USAID was able to
provide assistance to ten cooperating countries and their NGO
communities through one funding arrangement (USAID 1990).

29Both local NGOs and Mission staff comment that they feel out of
the loop regarding disbursements and expenditures because these
activities are often handled by a PVO's home office in the United
States. There often seems to be a lack of transparency between
the PVO, the local NGO, and USAID.

30A 1992 study of African NGO umbrella grants found that umbrella
activities are a flexible mechanism for enlarging NGO operations
and improving their institutional capacities (Otto and Drabek
1992).

31In general, PVOs and NGOs appeal for more funding in areas such
as operating costs (e.g., personnel, equipment, and other
expenses), training, marketing, strategic planning, and technical
assistance.

32To conform to international conventions, in this appendix the
term "NGO" refers to a not-for-profit organization engaged in
international development work and based either in the donor's
home country or in a developing country.

33See USAID 1982, for its guiding principles for working with U.S.
and indigenous NGOs.

34Several donors say they set aside small sums of money for
small-scale NGO initiatives, which seems to be a major source of
direct funding for local NGOs. These small grant programs often
award noncompetitive, short-term grants, which allow local NGOs a
great deal of flexibility and independence. NGOs have mixed
feelings about these programs, though; they enjoy the flexibility
and creativity the funds allow but are limited by the grants'
short-term nature and the donors' lack of participation in
activity design, implementation, and evaluation.

35This includes project sustainability that concentrates on
community involvement and on organization sustainability,
including technical assistance on how to run an organization--such as training, strategic planning, and management and
administration.

36SIDA was mentioned as an example of how donors should work with
NGOs. SIDA's approach to NGOs is longer term; it often funds an
NGO's entire portfolio. In general, SIDA does not use NGOs to
implement its own strategic objectives, but to complement SIDA's
bilateral government funding.

37USAID/Washington respondents came from the Bureau of
Humanitarian Response (BHR) and within it both the Office of Food
for Peace (FFP) and the Office of Private and Voluntary
Cooperation (PVC); Bureau for Management; Bureau for Africa;
Bureau for Europe and the New Independent States; Bureau for Asia
and the Near East; and Bureau for Latin America and the
Caribbean. Directors and Deputy Directors were interviewed from
Missions in Guatemala, Mali, Mexico, Senegal, South Africa, and
Swaziland.