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Private-Sector Thinking Meets Public-Sector Compliance: What INVEST Has Learned from Private-Sector Partners

INVEST curates and manages USAID’s Finance and INVEST Network, a network of private-sector firms. INVEST incorporates the lessons learned from working with these private-sector partners into its own processes, resulting in continuous improvement and increased efficiency in subcontracting and procurement. By sharing these lessons with USAID, INVEST hopes to create a more efficient and private-sector-friendly procurement process while remaining compliant with the U.S. Government’s contracting regulations.

(Photo: Cytonn Photography)

By Matthew Mitchell, INVEST Senior Partner Specialist

Dean Kamen had a lifelong fascination with transportation. He believed that the industry needed to fundamentally rethink the economics of moving people from Point A to Point B. “You don’t need a 4,000-pound vehicle to move a 150-pound person one mile,” he once said, commenting on the world’s most common form of transportation — the automobile.

Even though his most famous invention, the Segway, didn’t live up to its promise, this desire for efficiency and utility led Kamen to become a disruptor of many industries. A prolific inventor and entrepreneur, he holds more than 1,000 patents, and his innovations in engineering have led to improvements in insulin pumps, water purification systems, and electric wheelchairs.

In the private sector, entrepreneurs like Kamen are assets because they understand the value of efficiency and innovation. Government, too, needs efficiency and innovation; however, it’s no secret that when it comes to working with the federal government, a common perception among the private sector is that innovation and efficiency take a back seat to lengthy processes and bureaucracy. Nonetheless, when it comes to meeting global goals for sustainable development, international development agencies like USAID need private-sector partners to successfully achieve their agendas. If these organizations are going to work with the private sector, they need to innovate operationally, especially when it comes to procurement — the act of obtaining goods or services for a specific purpose.

Enter USAID INVEST, an initiative that mobilizes private investment for better and more sustainable development results. Because INVEST employs user-friendly procurement and subcontracting methods, it makes it easier for private-sector partners to engage with USAID, especially small firms or those new to government contracting. (USAID calls these firms “new and underutilized partners” or NUPs.)

INVEST manages and curates USAID’s Finance and INVEST Network, a network of private-sector partners. With access to this network, USAID can find the right firm for the job, regardless of that firm’s previous experience with government contracting. By tapping into these firms’ specialized expertise, USAID can create sustainable, market-based development solutions with long-lasting impact.

INVEST also uses the learning from its experience working with NUPs to inform its own processes, resulting in continuous improvement and increased efficiency in subcontracting and procurement. By incorporating these lessons learned into its processes and sharing them with USAID, INVEST hopes to create a more efficient and private-sector-friendly process while remaining compliant with the U.S. Government’s extensive contracting regulations.

Let’s Talk About Compliance: It’s Not Bureaucracy for Bureaucracy’s Sake

DAI, the implementing partner that manages INVEST, gets a lot of questions from subcontractors about why so much paperwork is necessary to work with the government: Why do you need all this information? Why are you asking us to certify that we are not funding terrorism? Why do we need a plan demonstrating how we will combat human trafficking?

These types of questions, a standard part of the due diligence process, are commonplace in USAID contracting. However, this process is very different from the non-USAID world of doing business.

As a founding member of INVEST and the former Subcontracts Manager and Small Business Liaison for DAI, INVEST Director of Operations Matt Farrell recognized that to make the initiative successful in its endeavor to subcontract with the best firm for the job, regardless of their prior experience with government contracting, the procurement team would need to put themselves in the shoes of these private-sector firms and build the procurement process from their perspective, asking: How can INVEST help firms understand compliance as a necessity? What kind of questions would firms have if they received a copy of DAI’s standard 70-page subcontract full of flow-down provisions from the Federal Acquisition Regulation?

“A lot of firms that INVEST is trying to attract haven’t worked with USAID before, have had a bad experience working with USAID, or don’t really feel like going through the effort of working with USAID,” says Farrell. “Much of INVEST’s mandate is to find firms that aren’t yet working with USAID and convince them that they should work with USAID, so we have to make that idea attractive. If we aren’t willing to adapt what we do for the private sector or at least meet them in the middle, we should not expect any different behavior or results from them.”

To meet the private sector in the middle, INVEST has implemented rapid procurement procedures, such as asking for a proposal in the form of a short slide deck, reminiscent of a “pitch deck,” rather than a 50-page document. It has also worked to streamline the subcontracting process, with the INVEST procurement team on hand to support firms during negotiations.

Transparency and clear communications about compliance play a paramount role in successfully bringing new firms into the mix. “It’s important to be as clear as possible throughout the subcontract negotiations,” says Farrell. “We explain to subcontractors that it’s not an attitude of ‘we assume you’ve been making mistakes,’ but instead an attitude of ensuring compliance with USAID regulations designed to protect taxpayer money.”

However, this process must be conducted in a timely manner; otherwise, it comes at a cost for companies. For instance, if a procurement takes too long or requires too much effort, the revenue a smaller firm would have recouped from working on a USAID activity is moot. Such negative experiences make firms less likely to work with USAID again, which means that USAID misses out on specialized expertise as only companies whose business models are aligned with the process and timeline of traditional government contracting will submit proposals.

Timing Matters: Understanding the Need for Speed

Historically, the procurement process of contracting with the U.S. Government has been characterized by byzantine complexity and long timelines. Large USAID procurements can be a lengthy process, sometimes taking six months to a year. That timeline does not align with the needs of most private-sector firms. To help overcome this barrier to USAID’s engagement with the private sector, INVEST averages a timeline of 10 weeks from RFP release to subcontract execution (“award”).

“The timeframe has always been about distilling all the requirements and compliance aspects to make it quickly accessible to firms because the firms are expecting a quicker turnaround,” explains Farrell. “Whether it’s making it accessible for firms to bid and put together proposals quickly or moving the contracting process along, so much of what we’ve changed has been about speed.”

INVEST Strategic Investment Advisor Eric Adams knows firsthand how imperative speed is when it comes to private-sector business operations. Before joining INVEST in 2019, Adams spent 30 years working around the globe, starting his own companies and taking equity investments in others. Numerous issues can arise for a firm dealing with a long procurement timeline, he says, such as changes in staffing availability, limited forecasting potential, and sunk costs replying to protracted procurements.

Moving procurements along quickly has obvious value for businesses, such as enabling them to make decisions about how to apportion their proposal resources. However, Adams believes it allows USAID to maximize the use of its resources, too. In general, if an organization cannot move quickly to capitalize on opportunities, resources are wasted or not used effectively.

“If you take too long to think through something, you’re going to have to face changes in the dynamics, the environment, the regulations, and more once you decide to act,” explains Adams. “The stakeholders can change, and you can lose momentum and miss the chance to act on an opportunity that you’ve researched and spent time on.”

Understanding and respecting the amount of time and staff required to put together a proposal is also an important element of working with private-sector firms, especially small ones. In the early days of INVEST, partner firms began requesting a publicly posted procurement forecast that would allow them to plan in advance for upcoming RFPs and build a pipeline of expected work. These firms are constantly searching for new revenue streams and typically have limited budgets to pursue new opportunities. In 2019, INVEST incorporated this feedback into its process, and officially launched a procurement forecast website that lists opportunities anticipated over the next three months.

Aiming to make the time spent putting together proposals valuable for all firms that participate, in December 2020, INVEST revamped another aspect of the procurement process — providing feedback for unsuccessful firms — based on comments for partner firms. Historically, INVEST erred on the side of caution in debrief letters, not wanting to nitpick firms about the reasons for their loss. However, many firms expressed a desire for a more straightforward explanation of why they didn’t win and actionable steps they could take to improve in future solicitations. In response, INVEST revised its scoresheets to breakout the strengths and weaknesses for each evaluation criterion rather than commenting on the overall quality of the proposal. This simple change resulted in much more constructive and substantive feedback for firms, making the bidding process time well spent even for firms that don’t win an award.

Listen Up: Incorporate Valuable Feedback

To learn more about how to make the procurement process more appealing to private-sector organizations, INVEST has asked private-sector firms for their feedback about the barriers that keep them from working with USAID.

Farrell says that much of the early feedback centered on the sheer amount of paperwork required just to get a foot in the door. As a result, INVEST decided to push as much of the documentation as possible to the back of the process. Rather than require organizations to submit a laundry list of inputs when responding to an RFP, INVEST keeps the barrier for entry low and asks for more information as a firm moves closer to an award.

For instance, if a firm’s proposal is shortlisted by INVEST, then the INVEST team typically requests a phone interview to gain more information. If the firm succeeds in the interview and is chosen for an award, then INVEST opens the spigot to the full set of contractual responsibilities and accompanying paperwork. With this strategy, the administrative responsibilities are reserved only for those who have secured a winning bid.

Because of similar feedback about the process of due diligence around cost proposals, INVEST also rethought its process for one of the most time-intensive portions of procurement for both INVEST and its partners.

On behalf of USAID, INVEST must ensure that partner firms are charging fair, market-based rates for their work, which requires a considerable amount of investigation into line-item costs. However, feedback from private-sector partners helped INVEST understand that putting together a full cost proposal creates a barrier to submitting a proposal. As a result, INVEST no longer requires bidders to submit a full cost narrative and detailed budget. Instead, INVEST requires a simplified deliverables table with corresponding daily rate build-up during the submission stage and only digs deep into the financials with those offerors who make it to the final stages of a procurement.

Beyond these changes, INVEST is still learning ways it can make the procurement process less intimidating for new firms. Recently, the team released a call for Expressions of Interest (EOIs) focused on clean energy projects in Vietnam, targeting energy developers working in the region. USAID and INVEST use EOIs as a means of discovering what ideas current actors in the field have for development solutions. Unlike proposals, they are typically only a couple of pages long and the evaluation criteria is less strict. After reviewing EOIs, USAID and INVEST issue RFPs to the most promising applicants, inviting them to turn their ideas into full proposals.

Many companies inquired about the Vietnam work, but when the EOIs came due, only three firms had applied. Confused, the procurement team reached out to one of the highly qualified firms that had not applied. They learned that the firm’s team thought the EOI solicitation was overwhelming — it was not clear what the requirements were so the team figured they didn’t have a good chance of succeeding.

From this exchange, INVEST realized that the call for EOIs didn’t make the ease of the application process explicit. They released a restructured document with straightforward language, a simplified table of requirements for submission and expected outcomes at the top, and an anticipated timeline for turnaround. They also held a virtual Q&A session for interested firms, which was also a suggestion of the firm interviewed. When the new round of EOIs came in, INVEST received 21submissions.

Doing Development the Private-Sector Way: Use a Contract, Not a Grant

Throughout its history, USAID has often spurred economic development in partner countries through grants.

Unfortunately, grants don’t always result in sustainable solutions. For instance, if USAID provides equipment to a village without training anyone to fix it, and it breaks, then what happens to the equipment? What if the equipment wasn’t the correct type needed by the villagers?

Adams refers to this type of solution as a “supply-driven agenda,” in which supply is being provided but it might not necessarily be in demand.

In general, the private sector understands a “demand-driven agenda,” and one of the pivotal ways private-sector partners can assist USAID in designing more sustainable approaches to development is by identifying market-driven solutions that align with development objectives.

“The private sector’s really good at business,” says Adams. “At USAID, we’re always talking about wanting to move towards investment and trade that creates positive impact. It seems like those are two areas where the private sector can really be helpful, so how do we tap into it? How do we tap into the distribution networks that they already have?”

For INVEST, the best method is using a subcontract agreement. INVEST was designed without a grants fund, so it always issues subcontracts rather than grants. As a result, INVEST works with private-sector partners using a language that they understand — the language of contracts, negotiations, deliverables, and payments.

During contract negotiations, firms participate in an orientation call in which INVEST clearly presents the contractual responsibilities and the parameters for the contract deliverables and payment terms.

“This upfront work and communication are so important for success,” Adams says. “The Chinese have this saying, ‘A good beginning is half done,’ which really applies here. We try to be concise, boil down what we’re hoping to achieve, and be clear about what each side is expecting from the other.”

Setting payment terms and negotiating what constitutes a deliverable is one of the richest areas of learning for INVEST. A deliverables table is the portion of the agreement that most directly captures what tasks will be completed by the subcontractor, the timeline for completion, and the payment amount associated with the completion of each. In this part of the process, competing perspectives often collide, so a lot of effort is spent understanding the motivations of each party.

Adams views the starting point for USAID and INVEST as a need to generate measurable development impact, and he stresses that partner companies need to appreciate the schedules and bandwidth of their USAID counterparts. They should communicate in a language that USAID understands, writing deliverables succinctly in USAID’s style and clearly laying out the progress made and the next steps.

Adams also believes that for INVEST and USAID to work successfully with private-sector firms, they need to think about payment and deliverables when developing the RFPs. For instance, when working with firms focused on raising capital or closing transactions, INVEST often uses a unique form of contracting called success fees in which partner firms typically earn a percentage of the total amount of money that they raise for a specific deal, which, when combined with a deliverables table, can set the right incentives.

“When we’re developing RFPs, we have to make them attractive to private-sector people,” Adams says. “They have to see that they’re going to have power to make decisions. USAID should set parameters — criteria for impact, sectors to work in, deal sizes to work in — but then the private sector needs to feel that within those parameters, they have the freedom to do what they do best and generate earnings from that success.”



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