We are now starting this session of the International Development Committee in our inquiry into the FCDO’s approach to value for money, something that with a reduced budget has become even more of a priority for this Committee. I will start by asking the panel to introduce yourselves and tell us why you are here with your organisational hat on; Anisa, can I ask you to start please?

Good afternoon everyone, I am so pleased to be here with you all today. I am the global director of the evidence and impact team with MSI Reproductive Choices, one of the largest organisations delivering access to sexual reproductive health services in 36 countries, serving 24 million women every single year. I have a master’s in public administration from the London School of Economics, focusing on health economics, which is very close to the topic of value for money. I started my career in the private sector working with pharmaceutical companies, then moved into government, supporting the Ministry of Health in Burundi with their decisions on investing money where it will have the biggest impact. I also worked with the World Bank as an economist on their nutrition programme before I joined MSI. I have been at MSI for 12 years, where I lead the team that focuses on generating data and analysis that can be fed back into the programme to improve its effectiveness. I have led work in establishing the value for money framework for MSI, which follows and mirrors the value for money framework that DFID generated from 2011, and together with my team I have been responsible for embedding it across organisations. Today, I hope to be able to bring this wealth of practical experience from our implementing partners, who deliver services day in and day out to women who need them, on why value for money is so important, and how we need to be using it in a way that can really maximise impact given the goals that we have set ourselves.

I know your organisation because I also chair the all-party parliamentary group on sexual and reproductive health rights; thank you very much for being here. Mark, could I come to you please?

I am the chief executive of Oxford Policy Management. I started my career as an economist in the Government of Uganda, initially as an ODA fellow, then as a macro policy adviser. I have also worked at the IMF, in the economics team at BP, and was acting director of the International Growth Centre at the LSE, now at OPM. We are here because we have some distinctive in-house capabilities at OPM, in particular on monitoring, evaluation and learning—MEL—and value for money assessments. We are also distinctive for having half our permanent staff based in our offices in sub-Saharan Africa and Asia.

I am also an economist, so there is clearly a theme here, but I guess that makes sense given the topic.

It is as if we organised it that way.

I am the head of evaluation for the UK at Verian. Verian has rebranded relatively recently; people may be less familiar with Verian, but we are what was Kantar Public and before that TNS BMRB back in the day. We are a global research and advisory organisation with our main focus in the UK, Brussels, and the Australian Pacific, but we also have an international development practice which I oversee as well as the UK domestic evaluation work. We are one of the top research services and evaluation providers to all the UK Government departments, though probably less so to the FCDO.

It is starting to go into a bit of a sales pitch.

Sorry.

Anisa, can I ask you, from MSI’s point of view, what is value for money?

For us, it is making the most use of strategic resources to respond to client needs and maximising the impact for the people who need it the most. That is what value for money means for MSI.

Could I ask both Mark and then Alex, briefly, do you agree with that assessment? Is that what you work on?

Very broadly, yes. We take the FCDO definition—drawn from the DFID document—which is, “The best possible use of our resources to maximise our impact on poor people's lives.” We develop a framework on that basis, which looks at the five E’s and tries to unpack how value is created in order to make sure there is a good chance of it being delivered and delivering value for money.

Alex, do you see that the FCDO specifically is following its own definition?

There is always a challenge here in terms of what we mean by value and whether we are going for a narrow economic value focused on monetisable benefits or whether we can go for something that is broader. The definition allows for a broader scope, but how that is operationalised is key. The approach that Mark outlined—which sounds like it aligns very much with MSI—allows that broader definition, really being key on what is the change in the world that you are looking to create and what is the value of that to society and the people you are trying to help. I would say that the FCDO does follow that, despite the fact that the intro to the Committee inquiry information said it had not been refreshed since 2011. In my experience the DFID BFM guidance is still being applied, even if it has not been refreshed since the merger.

One of my particular concerns is local authority procurement, where value for money means the cheapest. Do you see any evidence of the FCDO shifting from DFID, with a focus on poverty, to an attitude of, “What is the cheapest way we can get this?”

That is not my experience. There was an evolution within DFID around 2011 with that guidance where it was easier to focus on money spent and things produced and delivered—outputs, we might call them—but there was an evolution from both sides, from suppliers as well as from the evaluation specialists on the DFID side, to really shift the lens and shift the perspective up to the impact and outcomes. I ran training with OPM for FCDO economists and evaluation specialists in the autumn of last year and the focus was very much on that bigger picture value impact rather than “Let’s minimise costs.”

Anisa, what is the importance of having strong monitoring, evaluation and learning processes to ensure value for money is achieved in development programmes?

As an implementing partner at MSI, we are accountable to millions and millions of women who need these services, and we are accountable for making sure that the money that is being trusted to us, in this case by the British Government, goes to the furthest mile possible. You will not be able to do that until you have proper systems in place to really know, first and foremost, who you are reaching, what you are providing, whether the quality of the service you are providing is the right way and whether there are other ways of doing things even better. As implementing partners, we make sure that we set up systems of routinely understanding who we are reaching, where they are, what kind of service we are providing and, equally important, whether we are delivering at the quality that is expected by every single woman. Whether a woman is here in London or in rural Madagascar, she should expect the same level and quality of services. By setting out these processes and really being able to track not only the expenditure that goes in delivery but the impact that you are having, you can make a decision; you can either say, “This intervention is cost-effective,” or, “Actually, I can identify new ways of doing this intervention that could generate cost savings to put back into the programme and enable us to reach even more women.” I believe that rigorous systems and clarity on the type of data are really relevant. You can be expansive when it comes to data; donors can ask for thousands and thousands of pieces of data, but at the end of the day we have to be practical. What really matters? Who is it we are trying to target? What is the impact that we want to be achieving? Then we can set up systems in a way that helps us answer those questions.

Just following on from that, in terms of the systems, in your experience how can you best evaluate value for money at different points of a programme, from the beginning, through midway and up to the end?

I am going to bring in the example of MSI again. We are starting a new programme in Niger, for example, where we are going to set up eight outreach teams to go out to rural areas and deliver services. We can evaluate the impact that we are having at different points. First, in the beginning, looking at the set-up costs, there are a lot of set-up costs that go into building up new teams to start delivering services. But as this team is set up and they are embedded in the communities and they are accepted for the services that are delivered, you can see that the number of people they are reaching increases. So their cost per impact, or the cost per client for a woman reached, and the cost per maternal death averted, or the cost per couple of years of protection, goes down because they are reaching the level where the sunk costs have gone, and they are operating at the optimal level of the number of women they are reaching. The data really helps us to understand the breakdown of how much it costs to set up a new programme, how long it takes for this programme to reach optimal impact, and then within this journey, being able to identify what areas are working, and what areas are not working. Unless you can be really critical with your own data, with your own self, to say, “This just didn’t work”, or “We didn’t do it the right way”, it is very difficult to continue improving value for money.

We very much align with that. We might work alongside as a MEL partner or as an independent evaluator, but you can systematically assess the different components of the five E’s at these different stages in time. In the early stages it is economy, then efficiency, and then you get to effectiveness and you can build that in systematically so that you are not trying to get ahead of yourself, very much along the lines of what you just said. It will be part of your value for money design and framework.

Anisa, we have talked a lot about evaluating impact for women and girls in particular, and whether people really value that. In your experience, do you feel that monitoring the impact for women and girls has been more difficult or maybe less valued by donors, or do you feel like it is prioritised? How easy is it?

Frankly, right now—to be very open—it is not. We are at a crossroads where there are so many competing priorities. We have wars, we have climate change, we have everything, and a limited pool of resources is being distributed. Very openly, it has not been prioritised. Women’s health, women’s autonomy, and their right to decide about their own body is not being prioritised, especially when it is effectively established that it is probably the most cost-effective intervention out there; for one dollar you are investing, you are getting $120 in return. It has taken 300,000 years that we humans have been living in communities, and only for the last 60 years have we tried to make a little impact on women having rights. We are seeing these rights, which have taken so many years to accumulate, being crumbled in a matter of days right now. Unless we focus, think and prioritise, are we ready to allow a generation of women—50% of the population—who could be future leaders and future scientists, to be lost completely because we are not thinking about their needs?

That is powerful.

That is a very good question. It is not easy. Once the project is finished, to be able to continue to monitor the impact requires resources. If you are working on project cycles where you have a certain amount of money that is being given to you to do X, Y and Z, and that finishes, then the same people who get new cycles of funding but for a different project will be focusing on that. So that does not give us enough space and capacity to be able to follow up. However, now we are learning that there are ways you can do that. We are doing a lot of work on public sector strengthening, working with public sector providers in building their capacity to deliver range and choice on sexual and reproductive health services. We are working with 10,000 of those. But Governments in a lot of countries have invested heavily in their health monitoring information systems. So even if the project has finished, we can still follow it and access it to really understand, “These 300 facilities that I supported in Burkina Faso for the past five years, are they continuing to deliver services? Are we seeing a similar number of clients that are being served? Is a choice being provided?”, and so on. So, there are ways that cost-effectively help us to monitor, but not as we should because the resources are not available.

It is being mentioned a lot when you are putting a project together; for example, there is a big component of sustainability in the current WISH programme, the biggest FCDO flagship sexual reproductive health programme. That is why we are working in partnership with Government, because we want to be able to build capacity, so that even when MSI or other partners fall back, that impact can continuously last for many months. So there is an emphasis around it, but in terms of being able to follow up whether it is happening or not, that is a different story.

Alex, what is an example of a strong monitoring, evaluation and learning system from a development actor, and what makes a good example?

There is a distinction between a monitoring, evaluation and learning system which has been set up as an integrated function from the start—you do see that, but what you see more often is these patchwork quilts, which is probably the wrong phrase. Across time, these different components or projects have been funded by, for example, the FCDO alongside an implementation programme to track success, performance and impact. I would argue, in response to Noah’s question, that there is an intention from the FCDO to track longer-term impacts. Sometimes the procurement cycles do not lend themselves to the impact length of time. A good example that I was personally involved in is over a decade of work in Kenya around the Hunger Safety Net programme. I was involved in the very first impact evaluation randomised controlled trials; eventually these became embedded in Kenya’s own social safety net system and had a more integrated MEL function alongside them. The emphasis from the donor was that MEL suppliers would be doing it at the beginning, and then alongside that was more capacity building so that the Kenyan Government and unit could do it themselves. I could pass on to Mark for some more detail because I left at that point and OPM colleagues continued, but I would say it was successful because it demonstrated impact and therefore proved why it was an effective programme. So that is a good case of where a good idea was evidenced to perform and therefore showed value for money. It had a great impact on many people.

What would you see as the most critical components of an effective MEL system?

It is important to get buy-in from the implementers so it is not seen as something being done to them, it is being done with them. That is where I would see a big distinction between MEL and an external auditor; I always think of someone on the sidelines with a clipboard.

Following directly on from that, the institutional memory is important, but do you actually evaluate that?

Do we evaluate the way evaluation is being done?

The institutional memory that is there.

One of the things that we are concerned about is if there is a heavy reliance on contractors and they then move on. Is there a way that the FCDO can embed that learning back into the organisation, and is that something you monitor?

I work with lots of other Departments in the UK now, and I would say there is still a stronger evaluation culture in the FCDO, despite all the changes that have happened, than there is in many other Government Departments. It is more, I would argue, about an evaluative culture than it is about individuals having a specific memory. It is about recognising the importance of this and building it in from the outset rather than doing it as an afterthought. To come back to your question, probably the most important thing about a MEL system is that you do it from the very start. So at the same time as you are setting up your programme, you are already thinking about how you are going to monitor and track performance and success so that you can build for success, and that is of course correct.

So the institutional memory with the partners should be there from the start, but is that something that gets evaluated?

The people who are delivering the project are evaluated, yes. I would say that in the international sphere monitoring, evaluation and learning is vital. You are an implementer, right? It is in your DNA now in a way that it was not maybe 15 or 20 years ago.

Just to bring in the implementing partners, I have been there for 12 years and a lot of my colleagues have been there for seven or eight years. We have that institutional knowledge, and it is about that knowledge management that happens rigorously inside the organisation. But where things have changed is that there was a lot of transition from DFID to the FCDO and there have been a lot of changes in the people who are working with the FCDO.

I am not so much interested in your institutional memory, I am more interested in the partners’ institutional memory in the developing country.

You mean, for example, if we are working with the Government? Well, we have been working with MSI country programmes for years; we have been in Nigeria for 30 years. The relationships that have been built with communities, with the Government, whether it was the FCDO, whether it was Gates, whether it was another party, they still remain. By being the same organisation, well-connected within the system, you have that institutional knowledge that continues to use the lessons from the past in the new programme. So yes, in the example of MSI where we have been operating country programmes for a long period of time, that institutional knowledge is driving us to be even more effective.

Thank you. Alex has answered these questions, so I am going to propose them to Mark. What would be your assessment of the FCDO’s current MEL processes across its programming?

In our experience, they are generally good, and we think that reflects what Alex talked about in terms of evaluative culture. For the FCDO, there is a bit of institutional memory that comes through the evaluation unit. Where there are in-country MEL advisers, those too provide continuity, and we think it is taken seriously. It has become part of the way in which programmes get delivered, so we think it is generally strong. Picking up on the earlier question, when you look at different FCDO programmes, you can see different examples of MEL systems. The thing about the HSNP programme that Alex referenced in Kenya is that it started as a donor initiative with monitoring, evaluation and learning attached, but because the MEL worked well, it is now a Government of Kenya programme. It is part of their safety net for people living in arid areas, so it has been integrated into the way the Government of Kenya provides social protection. Another example of the way in which MEL works for FCDO programmes is when they are ambitious; if you are ambitious you have delivery risk. You cannot be sure that what you are setting out to do by way of project outputs is going to get you the outcome that you want unless you use ongoing MEL processes to check back, learn, and then adapt your delivery. If you can run a programme which has multiple work streams that use MEL as part of strengthening delivery, you can manage delivery risk, and that is a feature of a number of FCDO programmes. We run a load of them. But perhaps one of the good examples is the subnational government programme in Pakistan, which has worked with the government of provinces in Pakistan to deliver a number of reforms; those have now become part and parcel of the way the provinces deliver public services or run the public pension scheme, for example.

Thank you, those are really illuminating examples. How does this compare with the situation before the merger, when it was DFID?

We have seen some continuity, and our sense is that the strength of the DFID frameworks has come through. It is clear that what DFID used to do is not quite what the FCDO used to do, because the activities were different. So there will be moments where there may be a risk of over-rigidity with accountability instruments, meaning that you end up with a lot of caution. That does not quite allow risk management in delivery to get you to ambitious objectives. On the whole, however, the evaluative culture, the evaluation unit and the quality assurance through the EQuALS programme, mean it is strong and we think that is positive.

There was a report by ICAI in March 2024 which said that, as a result of the reduction of ODA from 0.7% to 0.5%, less programme budget was given over to MEL. That would suggest that there was a drop in MEL because there was a lack of programme budget, but you seem to say otherwise.

We are not finding it to be a serious problem.

That is interesting.

We continue to run MEL to what we believe are high standards. We think it is an important part of value for money; value for money assessments should be strengthened if they are integrated with good MEL processes, but as we have discussed, those have to start from the outset. The delivery agent or the beneficiary, the delivery partner, needs to be fully engaged. It involves making sure that the right priority is given to MEL and then to the value for money assessments as well.

Do you think that the new cut will have any impact on MEL?

Obviously, it has some risks. The challenge is that it becomes something that might be too easy to short circuit. But with a tighter budget, it is all the more important because it is such an important part of making sure there is value for money. There is a risk, it is true. The sense that we have of the way in which the FCDO is considering the cuts it still needs to make is that it is doing it on a thought-through basis. If you think it through properly, you will give due regard to the extra importance of MEL in securing value for money.

Finally, how does the UK compare to other major donor countries in terms of MEL?

We think it is strong, and for all the reasons we have outlined on the culture and institutional features of the FCDO, we think that the frameworks are comprehensive. We think that they help with delivery when they are part and parcel of complex programme delivery; programming tends to work when it has that degree of attention to thinking hard about impact, what it takes to create the value to deliver the impact, and what that offers in terms of efficiency and effectiveness, which are all part of a value for money approach.

Thank you. While you were talking, Mark, I was just thinking, this is quite an in-depth analysis that gets carried out; it is quite a lot to build into a programme. So does that effectively exclude some smaller local organisations from applying for FCDO schemes? We hear a lot about the levels of bureaucracy that they would have to wade through to put a bid in successfully. With respect, MSI is a big global organisation, so are there ways that you see the FCDO being able to help smaller organisations on the ground to do their monitoring, evaluation and learning?

It surely must be a risk, because it can be demanding to be seeking data and the population of frameworks that give assurance on impact, on getting the right MEL evaluations out and on value for money. The FCDO is generally aware of the issue, and we find that mostly the requirements are proportionate, but that is obviously from our point of view. We tend to try to use a degree of localisation, to have a presence in the country with our own offices—not just project offices—to build partnerships so that there is a stepping stone, if you will, for those who might not otherwise be able to be part of FCDO programmes.

Just bringing in the example of the current WISH programme, which is a consortium of several partners—some being local partners as well—it is obvious that not everyone has the same systems and rigour to be able to meet every single standard and demand required by the FCDO. That is where working in consortium really helps, because MSI, which has a little more resource and more network, can work together with the partners on the ground to build some capacity to meet the FCDO halfway. But I do want to be very clear, there needs to be a realisation that not all organisations are at the same level. So when you are discussing MEL plans, when you have a learning agenda and are monitoring evaluation, there needs to be some flexibility that allows local partners that do not have the same systems and rigours to report to the ability that they can. You should not expect everyone in the consortium to meet the highest standards. That flexibility is peeping its head up, but it is not well established. That is one of the key areas where the FCDO could do a little better in terms of really understanding the background of where the different partners are coming from and being more flexible.

“Peeping its head” does not give me much confidence, but thank you for your honesty.

There is a trade-off. I would always argue that we should go for a broad but pragmatic definition of value. The worry with too narrow a focus is that you end up with things that you can count or monetise easily, and therefore you might miss or undervalue a lot of complex, knotty problems that have quite intangible outcomes that you are trying to achieve.

I have not shunned my economist roots, but I have moved on from them. I have worked on an approach to value for money evaluation that is more of a systems approach, in part defining what we mean by value in a participatory way at the very start. So you would bring people in to say, “What is a pragmatic concept of value in this case, and how can we measure it as a second step?” That approach was pioneered with DFID, now the FCDO, and it was very receptive to it precisely because it has that broad applicability; it can be pragmatic and take a lighter-touch format where appropriate. If you are spending half a billion pounds on a regional trade integration programme then arguably you want to put in quite a lot of resource in seeing whether you are getting value from an economic, social and environmental point of view. Ultimately, the policymaker’s evaluation question is, “Was it worth the money?” If you stop short of the VFM question, then arguably you have not answered the big picture question. So I get the question, but I do not think it has an easy answer.

What we have tried to do in partnership with DFID on these value for money evaluations is to come up with more qualitative judgments of performance around value for money, while being really transparent about the basis for that judgment and the evidence we have used, so that if you have the time and the will, you can follow it up and trace it back. I think you highlight a very important point, which is that the numbers do catch the attention. But I would argue that the risk is there anyway, and it should not stop you from taking this more holistic, transparent approach.

Well, this is called evaluative reasoning. There is a whole body of research and thinking around this—less so in the UK, but in other parts of the world it is an academic practice. It is really about the art and science of making an evaluative judgment—is something working or is it not—and the basis for that judgment. You can be very objective, and you can create a kind of transparent subjectivity. You can get the people who matter in a room to agree what good, excellent, adequate, and poor performance on value for money looks like, and then you can be very transparent because you have set the goals and you have set the standards in advance, so you are not moving the goalposts after the event; you get your evidence and then you make a judgment. Arguably another group of people might have come up with a slightly different definition, but you have not moved the goalposts as you have made your judgment. Does that make sense?

I agree with that, yes.

I just wanted to add a couple of things very quickly. There is always a tension between the five E’s in value for money, and there are some concerns when we talk about, “Has it reached value for money?” We want everything, we want efficiency, we want effectiveness, we want equity, but you cannot have them all at the same level. We need to be very clear; what is the value that is most needed? Is it equity? Is reaching the poorest of the poorest the main goal? You want to be able to do very well in the other E’s, but you need to have one or two that are above the others. Unless you have that clarity, it becomes a game of, “How do I sell as much as possible to really show that all the different E’s are performing very well”, and in real life, it does not work like that.

Value for money is a complicated question; value to whom? Is it about equity? There is often a redistributive aspect, or an inequity that you are trying to address, so there are inherent tensions in what you are trying to do. I am not sure I have the answer as to how you can present very nuanced, complicated performance assessments in a genuinely easy to access way. The approach we have tried to develop over the last 10 to 15 years attempts to do that through a traffic light system, so that you can see at a glance where there is good performance and where there is room for improvement. Someone can dig deeper and find the evidence, and it is there in the background. But at a very high level, aggregating FCDO spend is a challenge. I am sorry I cannot answer that.

Mark already talked about the other international development, multilateral and bilateral donors, and the FCDO compares favourably with them. There is the legacy of an evaluation culture which compares well. Another perspective I bring is that, compared to other UK Departments, the FCDO actually has a lot of legacy strengths in MEL and in value for money. In fact, I am doing value for money training for the evaluation taskforce in the Cabinet Office using an approach that we have worked on over the years with the FCDO. That is an example of good practice from the FCDO being spread by the Cabinet Office across other parts of the UK Government. So it compares favourably. There is best practice that should not be forgotten about; that is not to say it is universal, but it should be built upon.

That is reassuring.

I am speaking as somebody who has received ODA funding. Thinking about the FCDO’s approach to value for money, how effective do you feel the FCDO has been in communicating its approach to value for money, particularly with regard to how you would have to monitor and evaluate it?

There is no question that the FCDO is a leader in the world when it comes to value for money, unless somebody can say otherwise. I do not think there is another Government organisation that has value for money as enshrined as the FCDO, and that has been very clear from every project that I have worked on with it; I have been very lucky to work not only on global projects, but on country programmes. It is very clear in terms of what it is seeking in value for money. What I have really appreciated from the FCDO is the push it has had on equity; I cannot emphasise enough that many talk about equity and reaching the poorest of the poorest, but the FCDO really puts its money where its mouth is. It really wants to see that you are reaching the poorest of the poorest and that you are doing it as cost-effectively as possible. It does that very well—it puts the fire up our backs to be able to really go and deliver on value for money, but at the same time it challenges us in terms of how we need to report. This is always going to be a tension, whether it is with MSI or another one. There is always more and more demand to demonstrate value for money, more and more demand for data. But that does not come in a vacuum. It requires investment, it requires resources, it requires people behind it to be able to bring this data to life so they can communicate the impact. So it is fantastic in one way because it is really keeping us straight and helping us deliver value for money, but at the same time, there needs to be a reality check from time to time, and open conversation with implementing partners. Are we going too far? Are we asking for too much in terms of really being able to demonstrate value for money? If we can have a little more conversation and flexibility for breathing space so we can make adjustments and follow the organisation at different paces, we can go even further.

Thank you for that. Your answer was very comprehensive and perfectly reflected my own experience; I have spent more of my life on your side of this relationship. You have segued perfectly into my next follow-up question, which is about inclusiveness. There is no doubt that a lot of people around the world will say that we have a reputation in this country for being very stringent in our monitoring and evaluation requirements; that is certainly what we expect people to demonstrate in terms of value for money. But how inclusive is that, particularly with regards to local actors being able to meet the requirements of the FCDO to access funding and do good with it?

As I mentioned earlier, it has made a lot of progress around this. The need and willingness to work with local actors is very clearly written in the project proposals, for example. The support that can be provided from the more established, bigger implementing partners can help build the capacity of local partners. However, as I mentioned earlier, there is still more conversation to be had about the realisation that a small organisation with 10 people working on the ground doing everything from HR to finance, might not have the resources to be able to report on 50 indicators, for example. So there is more work that can be done together with the FCDO on having that understanding that maybe there need to be different expectations depending on the partner you are working with.

I appreciate your response, but before we move on can I ask a slightly more subversive question? In your lived experience of seeing development projects pan out on the ground, do you feel that this huge framework we have built up around the evaluation of value for money is leading to us funding projects that deliver it, or do you feel that actually some people are able to game it because they know what data to produce and they know how to satisfy an office that only looks at the report at the end? In your lived experience, have you seen examples of very high value for money projects that probably would not be able to obtain the funding because they do not have the capability of demonstrating it in the same sophisticated way?

That is a very good question, but I do not think I will be able to answer it because I do not have the visibility of other implementing partners on the ground. I can only talk on behalf of MSI; I feel like we do our best to show value for money and learn from other partners on the ground, and work together with our third-party monitors, like OPM, that can help us validate the work that we are doing on the ground. But I cannot answer whether that is a barrier for other local organisations.

I saw Mark and Alex’s eyes twitch with this question. If you do not mind, Chair, I think we had better let them answer as well.

Just a very quick one; there is a risk, but if you use a framework that encompasses the complexity of what it takes to deliver a project and unpacks the value needed, you can set up the basis for doing a manageable value for money evaluation, focused on what everybody agrees are the objectives of the programme. You can then establish an appropriately proportionate process for getting assurance on the evaluation of impact and value for money when you use the framework in a flexible way.

There was an evolution from around 2010 or 2011, where this emphasis on VFM from what was then DFID came in and there probably was some gaming going on. There was a lot of focus on unit costs and the more economy-type indicators around value for money. But that was not very satisfactory for the likes of us, nor for DFID, and so there was an evolution. I am not saying that everywhere in the world, every FCDO or DFID programme went through that, but a lot did. You can see it in the range of work we do because often as an evaluator, you would use other organisations’ M&E data, so you would validate a lot of it.

Let me stop you there so we can bring the next question in; Tracy.

I am going to turn to Mark. How effective are the FCDO’s current MEL projects at capturing the unintended or unexpected outcomes of programming?

That depends on the quality of the MEL. It should be something that tracks what has happened and gauges it with the right degree of honesty; you will get unexpected consequences if you are working in a difficult or volatile environment, which is easy to find around the world these days. A good MEL programme will pick that up and will process and understand what it means for delivery; if it is running during the course of the programme itself, that strengthens delivery, and deals with some delivery risks within the programme. There should be an eye open for unexpected consequences when you are doing evaluation after the event as well; that is a function of the quality of the MEL processes that are built into the programme.

Do you think the FCDO fosters an openness to enable programme operators to be truthful about any potential negative outcomes in the programming?

Yes, on the whole it does. It is part of the evaluative culture; people recognise that evaluation is a critical part of making sure that you are getting what you thought you were looking for, and if you do not, then why it has not come through is an important part of the cycle of evaluation and learning so that you can strengthen the delivery. The risk is when quite a lot hinges on whether success is achieved, so getting the balance right on things like results-based financing is critical. It is mitigated not just by the evaluation culture and an encouragement of openness, but also by having independent MEL agents. The FCDO is quite good at commissioning independent evaluation and MEL as an adjunct to delivery programmes.

Mark, both the question and your answer were looking at the negative unintended; could I flip it to the positive? I was just thinking while you were talking that, for example, if MSI has a contraception programme in an area, one of the unintended consequences might be better nutrition for children locally because the family are able to put all their resources into one or two children, which leads to higher achievement at school, which then leads to better jobs. Is there a way that those maybe intended but maybe unintended consequences are tracked as well, or is it just literally that 20,000 women got contraception every week?

That is a really good question because, it should be possible to have an eye on the higher-level consequences of a programme. The delivery of contraception is an output to the project; did we do it, or did we not? The use of contraception and the consequences for the demographics of any particular group are outcome-level consequences. Being able to track these as well as the literal project outputs is a critical part of getting a sense as to what the big picture consequences of any programme would be, and we think that if you have a good-quality MEL framework, you will set it up from the outset to do that. If you have a programme that is delivering in that way with a multiple set of ambitious objectives, such as strengthening nutrition outcomes or strengthening learning outcomes in school, you will want to be able to track your intermediate steps in terms of project outputs in such a way that you can adapt the project so that you do not lose a line of sight on the outcome level—the ultimate impact-level objectives for a programme. So it should be done as part of a well-integrated, comprehensive MEL programme, and it is part and parcel of good programming.

I was just going to pick up on the point you were about to make, but on the point you made earlier, the problem is about the closures of programmes and the long-term reviewing of them.

You need long-term surveys; these are things that take a long time to do. So far, we have been lucky in having national demographic health surveys, which are done every five years in the countries where we operate, and we have been able to track this wider impact without doing long-term surveys, which are expensive. You can see there are some incredible results out there. In Burkina Faso, as the uptake of contraception increases, we have a 42% decrease in maternal mortality. In Madagascar, we have a 23% decrease in people living in severe poverty, and within the same time in Sierra Leone, as you see more women using contraception and meeting their needs, teenage pregnancy has reduced by 22%. So the data is there. As to whether we should fund a bigger long-term project, those are expensive, and they can get complicated. Surveys like the demographic health surveys—unfortunately now stopped because they used to be funded by USAID—gave us a really good understanding of what was going well and the impact we were having on the ground.

Alex, I know you want to come in. I am hearing everything you are saying, but surely it requires you to look at that big level data and then attribute it back down again. So is there a way that the data does get captured?

It all comes back to thinking about MEL as an ongoing process, rather than these snapshots in time. There is a trade-off; if you think of every single possible outcome a programme could have, especially an ambitious one, you are going to put impossible burdens on everyone involved. That is why there is an emphasis on MEL as an ongoing thing, where you can regularly stocktake and think, “Actually, part of our MEL system is qualitative.” It may be rapid response feedback from the implementers on the ground, who say, “Oh, by the way, we are hearing reports from the ladies that they are doing such and such.” Well, can we map that data? Let us not reinvent the wheel, let us not set up a brand-new bespoke survey. Let us see if we can get it from DHS or whatever. I am not saying that best practice is universal, but there is a lot of thinking that has been done around making MEL adaptive and responsive to it. There was a point earlier that I wanted to make; the more this can be just part of management and implementation, the less it is a burden because it is just part of running a programme effectively. You are tracking what you are doing and then if it is not working, you do it differently.

In terms of the way the FCDO assesses value for money throughout the life cycle of a programme, what would be one key observation from each of you?

Who is that directed to, David?

Everyone.

You can pick your favourite.

I was going to say Mark, purely because my friend’s mum, Judith, used to work for OPM.

That is reason enough. We will go down the line.

A remarkable number of people used to work for OPM; it is very inspiring. There is one thing that we put into our written evidence; we think there is scope for a comprehensive framework for doing value for money, which encompasses the very specific returns on investment type measures, but also encompasses complexity. It has flexibility and it can deliver in a way that is comparable as well as consistent, including diplomatic activities and including collections of programmes such as is done in Nigeria. So we think that would be one good thing.

For me, it is about being able to be very clear that we cannot achieve the five E’s. If you have limited resources and limited time, what are going to be the one or two E’s that, even if the others might not be performing at the same level, ensure you are still achieving your main goal? That is key. So is clarity: being able to have an open conversation on what it is we want to be able to understand. Having a learning agenda of 50 research questions in a project where you require a lot of information is really burdensome from the implementer’s point of view, but if you know, “These are my three main questions that I really want to be able to find out,” then—whatever my colleagues have said here—being able to set up the processes and have the resources to be able to do proper tracking and monitoring and sharing of that insight is what is going to drive the impact.

Yes; keep doing the good MEL and keep that focus on value for money. Related to that is what value for money means in that context, and being pragmatic around it. I just hope that the redirected spend from the FCDO is subject to the same level of VFM scrutiny.

Hear, hear. The blessing is that we get to scrutinise ODA wherever it is spent. Thank you very much, first panel. Could I ask the second panel to switch over? Witnesses: Sinead Magill and Dr Brendan Whitty.

Sinead, could I ask you to introduce yourself and your organisation?

I am the CEO of Palladium, which is one of the larger implementing partners to the FCDO. By way of background, I have spent 20 years working with and on behalf of either DFID or FCDO. Like the other panel, I have a bias towards econometrics and, having studied it, economic development.

What is an implementing partner?

The role we play is that the FCDO issues contracts and asks us to support it in the delivery of its projects or assignments.

I am from the University of St Andrews Business School, and I will be drawing on a study with academics from Cambridge, Nottingham, Queen Mary and Sussex. We have been looking at development contractors for about four years on an ESRC-funded grant. We come from different positionalities and have quite a lot of different academic backgrounds. I have also been a consultant, have been in-house briefly for a year with one of the prime contractors and worked in development for quite a long time. The study that we are working on has a really interesting database of all the public contracts, and we have been doing quite a lot of quantitative analysis and quite extensive interviews.

For transparency, as part of that process, presumably Palladium was one of your case studies?

We were not actually able to interview people from Palladium—

Really? Why?

We contacted Palladium, but unfortunately we were not in a position to talk to them.

We had a conversation with the researcher when the initial approach was made. When I looked over our records last night, we had volunteered to participate very proactively but sadly the email came through during a very bad week for us and it was missed, and we did not follow up. So, Brendan, I apologise sincerely to you, but also to the Committee, as it is normally the sort of thing that we would participate in very actively.

It is worthwhile saying that a number of other organisations also did not feel able to, and a number of organisations did. There was a real diversity of engagement with us.

We were very willing to, but we missed the email.

I look forward to this blossoming into a beautiful exchange of information as we go forward, because it would be very unfortunate if one of the biggest providers is not open and transparent about where taxpayers’ money is going. So thank you very much for being here with us today.

First, Brendan, do you think that spending via contractors is a necessary part of international development?

Yes. Contractors play an important role in the mix of development delivery. I guess the question for us is how much and what part of the mix they play. FCDO as a commissioning organisation is always going to work through other organisations. The pretty wide ecology of development contractors offers a lot of really useful skills: good management skills, good technical skills, and legally, managing compliance, but has a downside in that they are expensive.

That was my next question: do you think it is cost-effective? I was just looking at Mannion Daniels and Palladium as two major FCDO contractors and the dividends that they pay to shareholders and so on. I am wondering about your view on cost-effectiveness.

You can look at this through the five E’s. On “economical”, they are expensive. The fee rates are high. They are, as I said, very capable managerially. They have a lot of demands that FCDO, and DFID before it, put on them, some of which were brought up in the last session. You get quite a lot for your money in terms of the legal, commercial and management capabilities. FCDO, and DFID before it, have been quite successful in clamping down on profiteering. There are a lot of different techniques they use: capping fees, open-book accounting, profit take-backs and results-based contracts. Our assessment is the same as ICAI back in 2018: pretty good. From our point of view, the problem is that our research is showing that more commercial squeeze has been put on the sector over the last few years. We have seen a kind of distortion of the market, a real consolidation among some big primes, an insertion of a management layer between FCDO and others, the distancing of FCDO from the delivery and bifurcation in the market, which means a lot of the technical expertise has been pushed down and out from these primes. They have had to do that just to bear the costs, which has problematic implications for effectiveness, in our view. So there is a question about whether that model continues to work.

What are the circumstances where you think it would be more effective for the FCDO to engage private contractors rather than develop capability in-house?

One point is capability in-house and the other is, are there other multilateral channels through which they can work? Are there local organisations with other delivery ways in which you can achieve your goals, and what role do consultants have in that? What sort of supporting role? For example, I have evaluated a really successful project in Zambia. Kivu was essentially providing political lobbying support to think-tanks in Zambia. The main delivery was for the Zambian think-tanks—this was a consultancy I have no relationship with apart from this evaluation—and it was supporting them to become more effective lobbyists, and it really worked. So there is a more supportive role that consultants can usefully play.

The example you are giving is very much a third party as an on-the-ground actor, but where you have the big players taking more of the management functions of the FCDO, do you see any risk that that undermines in-house capacity?

Smaller programmes are probably a good way for FCDO to go given the decreasing budget. It could be the case that rather than designing big central programmes, for example the GEC, which involves hundred million centrally designed, it could be a good idea to remove some management layers and move to design at the national level, for example a bit closer to the field and delivery, which would allow FCDO to increase its sight on delivery and capabilities.

I will turn to Sinead. Does the FCDO have an effective strategy for how it works in and through private contractors?

There are a couple of things that are important to say. One is that I agree with the majority of what Brendan has said, but there is one bit that I want to perhaps nuance. The large contractors have retained quite a lot of technical in-house skill. We can argue about the weighting of that, but we have retained a lot of our technical in-house skill over the last couple of years. I have become waylaid from your question, apologies.

That is all right. I am really just asking you whether, from the experience of Palladium, you feel that the FCDO has an effective strategy for working through private sector contractors.

Okay, back on track. Yes, it does. It has a business case process it has to go through to decide the various modalities it can use, the multilaterals, the NGOs, accountable grants, or with a contract as a mechanism. The contract can comprise both the private sector or an NGO partner that chooses to compete for a contract. Where it uses the private sector, it should always be in a blend of the various options it has. It uses us well where it requires management capability, as Brendan has described, and in particular that is to address the increasing compliance requirements that are requested of us as a custodian of public funds. It is good where it wants to use a scalable capability which is something that can be wound up or pulled back depending on how impact is achieved where they need very high numbers of boots-on-the-ground specialists, particularly in more complex locations. The last is where you are required to be part of a larger ecosystem, particularly with access to perhaps other elements of the private sector or to access capital. Those are some places where it uses us well.

In your experience, comparing working with DFID before the merger and FCDA since, how has it impacted the relationship between you and the UK Government?

At a project level, we have not seen a vast difference. We are still engaging with the same human SROs that we were engaging with when they were with DFID. Like the previous panel said, they are still using the same architecture for accountability, particularly for ODA-funded programmes. So we are not seeing a vast difference. There has been a real shift towards operating with and through private sector development, not so much private sector as a modality but the focus on private sector development, as the paper that Brendan has written very clearly articulates. I think that started under DFID and continued into FCDO, but operationally we are not seeing a huge change at the moment.

Has it had an impact on the amount of business that comes your way?

The amount of business that we have had with FCDO has declined as the funding envelope has declined, for sure. Our turnover is 30% lower than it was back in DFID times, but that is a function of the overall spend volume that has declined.

Can I just ask you about the degree to which you feel that there is competition in this space in bidding for contracts because it seems that Palladium has a very large share of the market.

First, our share of the market, particularly when you focus in on contract value, is particularly swayed by one specific contract that we have—the HEROS contract—which has a ceiling value which we will never come close to meeting. It is a ceiling value through which Government can spend if there is the—

Are you allowed to say how high that is?

It is £430 million, but we will spend about £190 million over 10 years on that contract; that is my estimate. It could change depending on humanitarian need but that skews the numbers. We are a big player. When I look at competitiveness in this space, I look at two factors. One is market concentration, and the second is the number of people who are bidding on contracts on an ongoing basis. The number of people bidding on contracts has increased over the last three to four years. I do not know because I have not been able to find the stats, and it is not clear how many people we bid against, but anecdotally I would say we are bidding against more than five people in every single tender. The other point is market concentration. When I compare to USAID as was, or to DFAT as it is now, a much greater concentration is seen where four providers in the DFAT market take up 60% of the work. In USAID, there are probably six in the top 50. I would say it is a lower concentration of overall FCDO spend with the top providers than it has been in the other donor clients.

Which is more profitable, working for the UK or USAID?

USAID.

Is it?

Yes.

Are you comfortable with the amount of dividends that get paid to shareholders in this space?

I would probably answer the question more around the level of profit because that is more directly related to how we operationalise our programmes, and I am comfortable. For full transparency, our accounts will show that we have made a 7.5% profit on revenue last year. That tends to be about our average. When I look at FCDO’s assessment of what it thinks to be a resilient and robust supplier, 8% is where it would rate us as gold, so we are in amber. The profit margin of 8.5% that I have just reported is slightly elevated by some diversified work: 20% of the revenue that we have in the UK is not with FCDO. When I go into FCDO contracts specifically, the average profit margin is 5%. For a resilient and robust business, particularly in times of economic uncertainty, I stand by that as a respectable level of profit, which is much lower than most industries would require.

I do not know your business model. Presumably, you have core staff.

Yes.

Do you then contract out to local organisations as well or is it always to individuals?

It is a blend depending on the mechanism. We have our own core staff who are a large number of locally engaged staff not employed as consultants. They are people who have been with us sometimes for 20 years or less; we have a lot of long-standing staff in-country. We operate through consultants but the use of consultants has declined really quite significantly, particularly with IR35, where we are now using more fixed-term employees or employees ourselves and then we subcontract out to local partners. We have 260 local partners currently working with us.

Why have you made a shift away from consultants and into contracted staff?

Because of legislation in the UK around IR35.

I do not know if I have to declare an interest that I was once on the payroll of an organisation that was your subcontractor, and I have worked with Palladium, which is why I have some knowledge of what you are doing.

Brendan, how has FCDO’s engagement with private contractors changed in recent years, particularly since the merger?

There are a lot of contextual factors to the cuts and the reduction in the market overall, but we have seen a few key strands of change since the merger. We have seen a growing emphasis on the commercial in appraising bids over technical quality, which is something that has been repeatedly said to us. We have seen a well-publicised loss of capacity within FCDO, mirrored to some extent on the consultant side, and, as I said, a thinning out of some smaller organisations as well as consolidation among the primes, such as Palladium, but we are not able to speak to Palladium’s case specifically, so I am talking more generally here. We have also seen the loss of predictability in the pipeline for organisations. It is quite difficult for them to maintain a position, and they are taking different strategies to mitigate that, I suppose.

How much of the FCDO’s ODA budget is currently being delivered through the private contractors?

The bilateral was 20%. I do not actually have great sight on where it is right now, I confess.

If I may, when Nick Ford gave evidence here at the earlier inquiry in 2017, he reported at that point that it was 12%. I am not 100% sure it is a like-for-like, but the Minister two weeks ago reported it is now 5%. So I think it has declined as an overall proportion of spend.

Just for clarity, 12% is an accurate figure. I was talking about the bilateral spend rather than the full budget.

How transparent is the data available on the FCDO’s engagement with private contractors?

I am going to lean on a couple of my colleagues and their work: Olivia Taylor and Paul Gilbert at Sussex. They have worked quite extensively with IATI, International Aid Transparency Initiative, and found a very patchy recording of spend. Some organisations are very good at times but others are much patchier. One of the real difficulties is that there is not a lot of recording across the piece in the downstream supply chains. It has been difficult for my colleagues who have been trying to trace the money flow to follow through. Their position is that for this to happen better, a better connection is needed between the donor FCDO and the reporting of the prime contractors as well as more consistency down within the supply chain. It is very demanding; we have to acknowledge that this is a time-consuming and demanding process to go through. Also, FCDO has a lot of data because it has open-book contracting, so there is a lot of commercially sensitive data within FCDO which we do not have access to, of course.

If you do not mind, I want to come in there, because the IATI data is very interesting; it is an obligation for us to be up-to-date on our IATI filings. I went through just a sample of ours and a couple of other people’s, and I did not necessarily see what has been reported in terms of downstream capacity. I saw that we were giving the downstream capacity right down to the consultant who had five days’ work on a particular programme, but I would contend that it is quite difficult data that is arduous to put together. It is designed for somebody to input into, but as a receiver of it, unless you are coming from a point of knowledge, it is quite impenetrable to read. The data is there, just not in a particularly user-friendly way.

There is a report from Alex Tilley at Publish What You Fund that is trying to follow up on this, and I am sure my colleagues would be happy to give some written evidence following up on some of the gaps that we see.

Brendan, it does not make me happy to hear that the data is impenetrable. It does not seem to be a good way for transparency and scrutiny. In your opinion, is that coming from FCDO or from the organisations?

I would not describe it as impenetrable. Again, I would prefer to cede the floor here to my colleagues who have worked more intensively on this.

You are here, so you can either get them to write to us or you can give us your view.

As I understand it, the data that has been required is sensible; it is arduous but sensible. It is not impenetrable, but it is not being recorded and collected consistently. There are holes in the data.

I do not know, I am asking you.

There are gaps in it; there are holes in the data.

Do you think that is conscious, or not enough attention is given to it?

I do not think there is necessarily enough attention given to it. I am not talking about any single contractor here. We are willing to provide more evidence on that.

Interesting.

Is there a pattern in terms of the size of the donor?

No.

So there is no obvious reason why it is patchy?

That is correct.

Okay, thank you.

I suspect one of the reasons is that sometimes companies and organisations do bulk uploads.

What does that mean?

You are required under IATI to disclose every transaction that you have. Rather than doing it on a monthly basis, companies or organisations might do it on a quarterly basis, so you might have temporal gaps but it comes through eventually if an organisation is operating in compliance with its FCDO contract.

Sinead, we are down to brass tacks and business questions now. What proportion of your total work is contracted by the FCDO?

If we are talking about the entity in the UK, it is 80%. If we are talking about our global business, it is currently 22%. It was 16% before the USAID cuts.

Right. Related to that, is Palladium reliant on a continued relationship with the FCDO to remain operational?

No. At a strategy perspective, we have a goal to have no more than 10% through any one client. We are currently a little over that with FCDO as is. We have weathered lots of storms over the last year or so with FCDO reductions in its budgets and now the USAID reduction in its budgets, but we have had a very clear diversification strategy to maintain the resilience of our business. It might be smaller, but it will exist.

Given that 80% of your UK work is with FCDO, what would happen if that were to go?

We would still be able to function as an organisation.

Internationally, but not here.

No, we would retain our presence here. We are very committed to retaining and diversifying our presence here.

Thank you. Do you estimate that the reduction of ODA to 0.3% will have an impact on the work you are able to carry out?

Yes, undoubtedly. I do not know what shape or form that will take, or if it will impact live contracts or simply the pipeline, but it will undoubtedly have an impact on the business and the impact we deliver.

So you still do not have that clarity yet?

Not yet. I think we are getting feedback in July.

That is when we are told. When it could have such an impact on your business, I had rather hoped that you would have had a bit of a heads-up on that already.

No. They are making difficult decisions, and they will tell us when they are ready.

Leading on from that, does Palladium subcontract its work or has it contracted from the FCDO to other organisations?

Depending on the type of project or facility we have, we have some contracts that we run almost 100% in-house. We have other contracts where we are running large grants or facilities where 95% of the work that we are doing is subcontracted or granted to organisations, and that is deliberate in the remit of those specific programmes. So it varies considerably.

Leading on from that, how do you ensure that your subcontractors adhere to FCDO’s value for money and MEL requirements?

FCDO has been very deliberate, particularly coming out of the supplier review, around the flow-down obligations that we must impose upon our supply chain, which has caused some difficulties because they are difficult and expensive to maintain, so we flow down all the requirements. We use the term subcontractor, but in reality it feels more like a partnership. I hope that Mark agrees with me that when we are working with him on OPM, or when we are working with MSI on the WISH programme, we are working more as a collaborative, working towards one programmatic log frame with the inputs and MEL regime feeding into it. At a programme delivery level, it feels less like a subcontractor relationship, but legally it is, obviously.

Brendan, Sinead has spoken about her operational risks in the relationship. What risks does FCDO face from its use and reliance on contractors?

There are trade-offs. At one level, contractors mitigate your risks with, again, having really good compliance and legal processes. They help mitigate your reputational risk. If the alternatives are working through small organisations with often weaker administrative systems, there is a lot of financial and administrative risk that you can bear when working for the small ones. The flip side, though, is the delivery risks, which are that they are more expensive so you get less for your money, and they are transitory so the programme teams will last as long as the programmes last, and then they stop. We have heard some reports that learning is sometimes stifled, which is by no means consistent, but there is a lack of communication at times between competing organisations, which is a delivery risk. There is a bit of a trade-off between these management capabilities and the risks that they mitigate versus some of the delivery risks that you will have working through them exclusively.

Brian asked the previous panel about embedding that learning into the Governments of the countries or the local people where the project is delivered and going back into FCDO. Do you see that as something that is happening routinely? Do you think there is a gap? Do you think there is a way to better embed it?

Generally speaking, the monitoring, evaluation and learning processes that DFID previously and now FCDO put together are very impressive on the whole, and they are leading. In the cases that our interviewees have talked about, I have seen learning that has not been necessarily picked up on because of the competition between the contractors. It is not entirely clear how systematic that is. Those are the two points I would make.

Are there ways in which that essential institutional memory side of things with the Government partners are being monitored so that you know the learning is not just happening within your organisations, but within the Government’s concern and that it is kept up to date?

My understanding is that evaluations on the whole do not capture the capability changes in the Government. At times they do in other partners, but my understanding is that they do not systematically capture that beyond a specific programme, perhaps. So if you are part of a programme that is a capacity-building programme or a technical assistance programme, you would trace the capability and behaviour changes among your counterparts, but that would be when it would stop.

When it is all said and done, it is the Government who will remain and we will be a distant memory, which is why these things are so important to have embedded. I am just thinking that is maybe something that should be thought about in future contracts.

I agree.

Brendan, in your opinion, do private contractors conform to the same standards of transparency as the rest of the development community?

Yes, on the whole.

Are the current levels of salaries, profits and dividends in the sector appropriate for an international development context?

On the whole, they are. FCDO and DFID have done a fairly good job of trying to prevent any possible forms of profiteering. They have a good set of structures in place to do that. The contractors are often very dedicated and very capable organisations, and on the whole, there is not a lot of profiteering. It is more or less okay from what we have seen.

Are there any significant outliers or any times when there have been significant outliers?

I do not really want to get into it. You can track back across the history of recent UK aid and spot the scandals, but I don't want to put anybody on the hook.

Do you think that there is a moral duty for private development contractors to avoid profiteering?

Yes.

We have talked about this before. What level of profit is about right, then?

We have seen a commercial squeeze, and the implication of that commercial squeeze has been a loss of expertise. There is a level at which the margins have to be sufficient, first for firms not to be tempted to hide margins in little pockets, and secondly, just to be sustainable, strong organisations. I do not want to put a name on what margin might be suitable for that, but there has been a margin stated already.

But in your opinion at the moment, it is about right?

Yes. It has dropped a little too low even maybe for some and there is a little too much commercial pressure. I understand that firms are struggling at the moment because the cuts are coming and there is a risk that you will lose competitiveness. Certain organisations capture a lot of the market. The smaller organisations start to fail, go out of business, and that will be a real problem for the sector. We have been really worried about the loss of capability within FCDO. There is a parallel risk about the loss of capability in the consultancy ecology.

Sinead, is that something you worry about in your subcontractors?

I worry about it industry-wide. If I take you back to the example of the supplier risk assessment framework that FCDO uses where it has 8% and above as being green, the Cabinet Office would have 10% and above for its standard market, but then I use the example of our 5%. If we were wholly FCDO contracted, we would not meet the thresholds for a resilient business. It is a worry, and a lot is changing at the moment: costs are increasing, there are surprise events and the unpredictability of the pipeline has driven some cost into business. So it is a broad worry.

Finally, do you believe that the sector is resilient enough to withstand these shocks, particularly the shocks that we had at the beginning of the year?

Depending on their level of dependency, some will. The sector is very resilient, and the reason I am optimistic about the business is that while international donors are having to make much more difficult decisions to pull back on foreign assistance, development is a theme that is being mainstreamed in a whole range of other sectors, particularly around natural capital in the private sector. I see huge opportunity for working with philanthropists or commodity supply chain companies that need the type of supporting capability we have. If firms are able to find a way to diversify, they should be resilient, but I am under no illusion that Government do not owe us a business. Government have to make what government decisions Government do, and we have to compete fairly to achieve that or not and adjust our costs accordingly.

Brendan, in our last inquiry on international humanitarian law, we had a session with some frontline delivery partners in quite extreme conflict situations, humanitarian situations. They told us they were contracted to bigger organisations and felt a lot of pressure to reduce their administration costs, but more specifically to reduce the costs that they were putting in around security. Do you think that that squeeze is happening so that people are seen to be delivering best value?

I cannot speak to that case specifically. Just to be clear, your question is—

The question is that many small NGOs will do the work for free effectively because they care so much about it. The company that is contracting them obviously has shareholders’ profits and its business model to facilitate. So are you seeing those smaller delivery NGOs getting a disproportionate squeeze?

The squeeze gets passed on down; there is no doubt about that. I guess the question for us is whether the model whereby you work through a management agent and then have big funds and facilities which are run by the management agent and then dispersed slowly through multiple layers of management—often to the small organisations—is the model that you wish to proceed with as UK aid? Is it possible to work more directly with local organisations? One flip side to that—

And is it?

It is possible with a smaller budget. You would have to change the way that you think about procurement, outsourcing, partnerships, and the relationship with the state. It is a model that UK aid has adopted since 2010. It would require a change but that was because of the budget going up and the question is whether with a declining budget, it would be possible and constructive.

We were very surprised when the Committee went up to Scotland. We met with about a dozen NGOs and not one of them had a direct contractual relationship with the FCDO. With Baroness Chapman saying that she wanted to lean in more to in-house expertise and with the size of the budget that it is, you think that then becomes a possibility to have that direct relationship.

I think so. If I may make one rider, I have been talking about the compliance capabilities of the big contractors and the management capabilities. There is a risk working for local organisations. They are smaller. It is important not to romanticise too much either. They can be weaker, and they are often highly politicised, as all organisations are, and it is important to understand the landscape. So FCDO would have to be very clear on the landscape and capable of doing the due diligence and so forth.

We have talked about the monitoring, evaluation and learning. The way I think about monitoring, evaluation and learning is that it typically has three audiences. One audience is the collection of evidence to justify future programme spend. The randomised controlled trials are generally speaking a collection of evidence. One is for the programme team. As an evaluator, you work with a delivery partner that will hopefully use your data. They often require much faster, more nimble data. The other is the accountability up the line to FCDO. These three things all require slightly different postures as an evaluator and help to secure value for money in different ways. My experience has been that FCDO is pretty good at balancing this. From the period 2010 to 2018 or 2019, DFID and FCDO were really innovative and dynamic in producing a good corporate management context.

At the moment, there is a strand of thinking about hollowing out: the use of extra consultants hollows out the public sector, but I do not think that is what is happening here. I understand Dr Rushworth’s previous point better, which was getting to that. We have not seen that, but we have seen a parallel drop in expertise in FCDO and for a number of the contractors as they have been squeezed commercially. [Monica Harding took the Chair]

Just for the record, Sarah has now left the session, and I am now chairing it.

Sinead, back to you. How well does the FCDO and its partners heed lessons learned from the experiences of its contractors?

I am glad you asked that one. Lesson learning is built into every single contract that we implement, and we are required to produce a huge amount of data, stories, and anecdotal evidence on the impact that we deliver. This is done through monthly reporting, quarterly reporting, and the rest of it. We often have learning workshops on a sustained basis—we have one tomorrow—which our competitors and FCDO are invited to. There are two other points I want to make around the learning. First, on a contract, which is a little different to when you use an accountable grant, FCDO owns all our IP. Everything we produce: every piece of learning and evidence is owned by it. We have an obligation to pass it on and share it, and we have done many learning events with FCDO around the good, the bad and the ugly of what we have delivered. Secondly, the exchange that you had with the Chair around embedding FCDO advisers into contracts is something we have actually seen recently. It has been very useful and very effective where it increasingly has—I might get the term wrong—programme-funded positions where an FCDO staffer will effectively come and sit with us on our programme to get a real hands-on understanding of how the programme is implementing, what impact it is delivering and how it could transfer that learning to the next iteration of the programme or to similar programmes.

Related to that, do you see that with the Governments concerned as well?

Yes. Most of the work that we do has a very clear focus on passing the baton, as it was, to Government. One of my favourite programmes, that I think MSI are involved in as well, is our Lafiya programme in Nigeria where it has been going through several iterations, and at each iteration, it is about moving up the value chain of how Government are leaning in and increasingly doing their own technical assistance with some support from us.

I have two follow-ups. First, is knowledge sharing compatible with competitive tendering and confidentiality?

Yes, because there is very little that is confidential to us in how we deliver our business. You own the IP, and we cannot withhold that, and even our commercial rates are open-book so there is very little that is actually confidential in this business.

Lastly from me, where could learning opportunities be enhanced?

Because of scrutiny on the use of contractors in the market, there has been a reticence sometimes for FCDO advisers to engage proactively with us on learning. For example, when we would host a learning event and invite FCDO advisers, some would be reticent to come in case it would be seen as being favourable to one firm or another. That is not quite something that happens with the NGO community, and one of my wishes as a community is that more of those learning events happen and that FCDO feels more comfortable attending the learning events because there is some fantastic content that can be gleaned from them.

Going back to my previous theme about institutional memory and Governments, are you saying that there is no need for further engagement with Governments and that it is absolutely tickety-boo at the moment?

Governments being our Government?

No, Governments being the Governments you are working with.

There is always more that can be done, and I really welcome the new Africa strategy and particularly the move from a donor relationship to a more partnership-based strategy. We are seeing some incredible innovations around mutual accountability frameworks where we are much more hands-on in a locally led development way with partner Governments than we were five, six or seven years ago. I would want more of that in the sector for sure.

Thank you. Finally, if I could ask you both in turn to answer the same question. Overall, do you believe that the FCDO’s current use of private contractors offers value for money? What would be your key recommendations to the FCDO on the use of private contractors? Brendan, would you like to start?

It is an expensive model. The use of big funds and facilities increasingly outsourcing management layers to these contractors is expensive. Perhaps it was value for money when the budget was going up, but I suspect under the current budget context, it is not so much value for money anymore. The recommendations that we would have are to increasingly pivot towards building partnerships and using contractors to support partnerships, innovative work and monitoring, evaluation and learning processes and think about where their expertise can be drawn upon to support other channels, local organisations, and maybe to support the build-up of new channels. There is a question about whether the model that DFID and the FCDO have been using is sustainable.

Does that relate to your earlier comment about management layers?

Yes, exactly. The programmes are too large, and too much management responsibility has been delegated to the prime contractors. It would be better if it were taken back into the hands of FCDO to have smaller, more targeted programmes. We would still use contractors and their capabilities, but in a more targeted way.

Thank you. Sinead?

We are part of an ecosystem, and we serve a purpose. We should remain part of that ecosystem where it is very clearly defined that you are asking for a clearly defined goal with the expertise and the management capability, and where it is appropriate that we are paid by results, which is a fundamental part of the operating model. We generally cannot invoice unless we can evidence the results. However, I am not quite sure that the evidence stands on the expensive point when I look at fee rates relative to NGOs, but I will leave that one aside for the moment. The more substantive point is that we would welcome a more empowered, more equipped FCDO with more staff time allocated to programmes. That has always been our contention; it was the contention we offered in 2017.

Sorry, what do you mean by that?

The best programmes happen when we have the best partnerships with people in Government, so it is not effective to have their time reduced on our programmes. We would rather have a very engaged partner in Government. In a Department with a reduced spend and limits on the number of staff they are able to have, the conundrum is that the FCDO has to make a choice. It has to make a choice between building the capacity for development or the capacity to manage the compliance burden, which is a conundrum that I am not sure we have resolved here. My worry is if we do not take the management layer we provide, which is a thinner layer than perhaps you might suggest, then FCDO will have to do it, and if it does it, it might come at the cost of technical assistance. There is a value question that FCDO has to answer itself: where does it want to put its funding, management or technical support, which is my one worry around the compliance conundrum.

Thank you to both of you for coming in and to all our speakers today.