“Tied aid” refers to Official Development Assistance (ODA) that is offered on the condition that it be used to procure goods or services from the ODA provider, or a limited set of countries. Untying ODA means removing barriers to open competition, giving ODA recipients the freedom to access goods and services from virtually any country through international competitive bidding.
Abstract
“Tied aid” refers to Official Development Assistance (ODA) that is offered on the condition that it be used to procure goods or services from the ODA provider, or a limited set of countries.
Untying ODA means removing barriers to open competition, giving ODA recipients the freedom to access goods and services from virtually any country through international competitive bidding.
Quality and cost: Tying ODA can lower the quality of projects and increase their cost by as much as 15-30%.
Effectiveness: Where an ODA provider is using partner country systems, untying ODA can also increase ownership and strengthen country systems.
To be untied, Official Development Assistance (ODA) needs to be fully and freely available to finance procurement from all OECD countries and substantially for all developing countries. The OECD DAC Peer Review Analytical Framework (Section C.1) sets out the expectations of the Development Assistance Committee (DAC) on ODA allocations, including the DAC Recommendations on Untying and on Terms and Conditions of ODA.
The DAC Recommendation on Untying ODA commits Development Assistance Committee (DAC) members to ensure that their development co-operation is both de jure and de facto untied.
De jure untying means removing legal and regulatory barriers to open competition.
De facto untying goes further by removing all practical constraints that would make de jure untied assistance de facto tied. For example, publishing the call for bids in only the provider’s language or using overly restrictive technical specifications.
DAC members are also expected to publish procurement opportunities financed from untied ODA on a global bulletin board to facilitate competition and transparency.
1. Policies guide decision making. Development co-operation policies include a clear statement to provide ODA in line with international commitments on untying. They are owned and applied by all relevant ministries and agencies.
Germany’s development policy clearly states the government’s commitment to ODA untying.
2. Capabilities and processes for untying are in place. Staff have the capacities and training needed to report accurately and fully on untying. This includes compliance with ex ante and ex post notification requirements. Processes are in place to support this.
Australia, Belgium, France, Italy, Japan, the Netherlands, Spain, Switzerland and the United States score highly on transparency, by reporting both ex ante procurement opportunities and ex post contract awards.
3. Constraints to local supplier participation are addressed. Strategies go beyond formal untying and tackle informal constraints to the greatest extent possible:
Programmes are designed to encourage access by local suppliers and new entrants. For example: by using familiar local procurement systems, incentivising local content in bid evaluation criteria, reducing contract size and complexity where feasible, encouraging joint ventures and subcontracting, or considering the speed of procurement processes.
Strategies for untying include efforts to develop supplier markets in partner countries, including by helping local firms meet sustainability requirement and qualification standards.
Proactive, local advertisement of ODA-funded tenders is carried out. For example: local media or early market engagement events are consistently and systematically used prior to bidding processes.
4. The application of untying is tracked throughout the ODA supply chain. Information on the geographical distribution of sub-contracts is recorded and tracked.
Australia requires its prime commercial contractors to submit annual data on their procurement activities through a structured survey. This enables the government to monitor and incentivise local content, particularly the use of local workers and subcontractors, throughout the supply chain.
5. Prioritise developmental impact. Where tying is considered an important avenue for an ODA provider, (e.g., to facilitate business opportunities for companies at home), development impact can still be achieved by pursuing commercial opportunities for local businesses through subcontracts or joint ventures, including regionally in least developed countries (LDCs), and by ensuring that the goods or services on offer are cost effective through national competitive bidding.
Japan subcontracts to local companies while supporting technology and knowledge transfer.
How do we know if DAC Members are moving in the right direction?
100% of reported ODA covered by the DAC Recommendation on Untying is both de jure and de facto untied and all bilateral ODA, including that not covered by the Recommendation, is untied to the maximum extent.
Ex ante and ex post reporting to the OECD on untied ODA procurement is consistent and complete.
Local suppliers win bids, and supply chains in partner countries are strengthened.
The Localization of Aid-Funded Procurement, Joint SDG Fund.
DAC Recommendation on Untying Official Development Assistance, [OECD/LEGAL/5015].
2011 Busan Outcome Document, OECD Publishing, Paris.
Proposals to modernise the implementation and reporting framework of the DAC Recommendation on Untying ODA, DAC Working Party on Development Finance Statistics, OECD Development Co-operation Directorate.
Exploring methods to track aid subcontracts, DAC Working Party on Development Finance Statistics, OECD Development Co-operation Directorate.
DAC Evaluation Resource Centre (DEReC), OECD [website].
More Framework principles are available on Development Co-operation TIPs • Tools Insights Practices.
