MCC is managed by a chief executive officer (CEO), appointed by the President with the advice and consent of the Senate, and is overseen by a Board of Directors. The Secretary of State serves as board chair and the Secretary of the Treasury serves as vice-chair. MCC’s model is based on a set of core principles deemed essential for effective development assistance, including good governance, country ownership, focus on results, and transparency. According to MCC, country ownership of an MCC compact occurs when a country’s national government controls the prioritization process during compact development, is responsible for implementation, and is accountable to its domestic stakeholders for decision making and results. In keeping with the MCC principle of country ownership, MCC enters into a legal relationship with partner country governments. During the 5-year compact implementation period, the partner government vests responsibility for day-to-day management, including monitoring and evaluation of the progress of compact projects, to an accountable entity established to implement the compact (an entity’s name is usually formed from “MCA” plus the country’s name—for example, MCA-Benin). MCC provides the framework and guidance for compact implementation, monitoring, and evaluation that MCAs are to use in implementing compact projects. Following the compact end date, the partner government must close the program within 120 days (the closure period). During the closure period, MCC funds may be used only for project goods, works, or services incurred before the compact end date, or for closure expenses. For example, the government may expend MCC funds to settle final invoices and claims, secure unfinished project sites against potential health or safety hazards, prepare final reports, and conduct other activities specified in MCC’s closeout guidelines. However, the government may not expend MCC funds to undertake or continue activities that were planned for completion within the compact term, including expenses for activities such as completion of works, supervising engineer services, and consulting services. MCC places several requirements on MCAs to ensure proper management and quality assurance of MCC-funded infrastructure projects. These requirements create a quality assurance framework for infrastructure projects that requires that each MCA have an individual project director—for example, a roads director—who oversees the activities of the other actors, including outside implementing entities or project management consultants, construction supervisors, and construction contractors. Project management consultant/implementing entity: Before receiving project funding, MCC requires the MCAs to engage the services of a project management firm or an implementing entity to help manage administrative aspects of compact projects. Construction supervisor: MCAs contract with construction supervisors to conduct oversight of day-to-day construction and the activities of the construction contractors to ensure compliance with contract requirements. Construction supervisors play an important role in ensuring construction quality by performing such tasks as approving construction materials, overseeing testing, and inspecting completed work. Construction contractor: MCAs contract with construction firms to build the project. The construction contractor is also responsible for controlling the quality of its work, which involves, among other tasks, material and construction testing. In general, MCAs deliver infrastructure projects through a design-bid-build approach in which the MCA contracts with a design engineer to develop technical plans and specifications that are used by a construction contractor, hired under a separate MCA procurement action, to build the project. In some cases, project designs already exist and MCAs do not engage a design engineer in implementing the project. In other cases a design-build approach is used and MCA contracts with a contractor that becomes responsible for both project design and construction. In addition, MCC may hire an independent engineer to assist in overseeing the progress of construction as managed by the MCAs and executed by their contractors. The objective of engaging an independent engineer is to obtain high-quality technical support in order to strengthen MCC’s ability to better assess the quality of ongoing program activities and to make better informed judgments about the status of ongoing activities, particularly where assessment of project activities affects MCC’s ability to further disburse funds. An independent engineer may also provide technical input on program decisions and documents submitted by MCC partner-country counterparts and help MCC ensure that funds are being spent according to the conditions and frameworks established in the compact. Figure 1 depicts the oversight, management, and contractual relationships among MCC, the MCA, and their contractors for infrastructure projects. MCC takes steps to ensure the sustainability of the projects it funds during both the design and implementation phases. First, MCC compacts are to be designed so that projects are sustainable for about 20 years, or as appropriate for the structure. Also, during the compact development process, MCC assesses the mechanisms in place to enhance sustainability, including a partner country’s policies and practices that will enable MCC investments to continue to provide benefits. For instance, as part of compact proposals submitted to MCC, partner countries are required to identify risks to project sustainability and describe the measures needed to ensure that project benefits can be sustained beyond the period of MCC financing. Partner countries are to consider a number of issues affecting sustainability, including environmental sustainability; institutional capacity for operations and maintenance; and, for proposed infrastructure projects, recent funding, performance, and expected expenses for operations and maintenance. During compact implementation, MCC tracks progress against key policy reforms and institutional improvements that were included as conditions in the compact to enhance project impact and sustainability. Such conditions in an agreement are known as conditions precedent, which must be met by one party before a second party to the agreement can perform or do its part. In the case of an MCC compact, MCC establishes conditions precedent that must be met by the partner government or MCA before financial disbursements are made. For example, MCC may require that the government increase its budget allocation for road maintenance before releasing final payments. For the purposes of this report, transportation infrastructure comprises public works that provide the conveyance of passengers or goods from one place to another. It includes structures such as roads, seaports, airports, and railways. Such projects may take years to plan and implement. For example, typical highway projects in the United States can take from 10 to 15 years for planning, design, and construction. Transportation infrastructure construction contracts may contain a defects liability clause that obligates a contractor to repair or rectify defects in the construction for a set period after the construction supervisor has deemed the works substantially complete. In a construction agreement, a contractor’s main obligation is to carry out the works to final completion, free of defects and to the standard set out in the agreement. A defects liability clause is intended to supplement this obligation by ensuring that the contractor remedies any defective work that becomes noticeable during the defects liability period, usually 1 year. The clause also provides a mechanism for repairing defects that may arise during the defects liability period. In Georgia, MCC funded the rehabilitation of about 217 kilometers of road linking the previously isolated Samtskhe-Javakheti region with Tbilisi, the country’s capital. However, the urgency to meet fixed time frames resulted in problems implementing the quality assurance framework and led to construction defects in parts of 5 of the 11 road lots. Furthermore, while MCC took steps to ensure the road project’s sustainability, the Georgian government has demonstrated limited ability to keep the road operational and maintained up to this point. MCC signed a compact with the Republic of Georgia in September 2005 to stimulate growth in regions outside Tbilisi where more than 40 percent of the country’s total population resides. A rough asphalt road before the compact, the Samtskhe-Javakheti Road was in such disrepair it prevented residents in the region from easily reaching Tbilisi. The purpose of the rehabilitation was to improve transportation for regional trade to increase exports from the region; increase social, political, and economic integration of the people in the region with those in the rest of Georgia; expand international trade by providing a more direct link from Tbilisi and eastern and southern Georgia to Turkey and Armenia; develop the tourism potential of Vardzia, a 13th century rock-cut monastery. MCC originally granted $295.3 million for the compact’s two projects— Enterprise Development and Regional Infrastructure Rehabilitation, which included the Samtskhe-Javakheti Roads Rehabilitation activity (see fig. 2). In November 2008, after Georgia’s war with Russia over South Ossetia, MCC increased the compact by $100 million. The compact entered into force in April 2006 and ended in April 2011. MCC originally planned to rehabilitate 245 kilometers of existing road at a cost of $102.2 million (or $417,000 per kilometer), but after several changes to the project’s scope, rehabilitated about 217 kilometers at a cost of about $212.9 million (or $981,000 per kilometer). The road project’s length was first reduced after the initial contract solicitation attracted bids that exceeded the amount of funding originally available for the road work. As a result, the project was divided into shorter sections and contracts were let for about 170 kilometers of road. In the winter of 2008-2009, after MCA-Georgia allocated an additional $60 million to the road project, about 50 kilometers of road were added to the project (see fig. 3). MCA-Georgia also reallocated an additional $50.7 million from other activities to the road project between May 2008 and January 2011 to cover additional cost increases, including costs to accelerate work to ensure its completion before the end of the compact. The road was rehabilitated at an increased cost in a compressed construction time frame because of insufficient planning, work added late in the compact, and poor performance by one contractor. Because of the compressed construction time frames, MCA-Georgia’s construction supervision and construction contractors had difficulty fully implementing the quality assurance framework. In addition, problems identified by MCC’s independent engineer were not adequately addressed.