Merging Services Could Damage Both USAID and State: The Opposite Effect

The U.S. Agency for International Development (USAID) and the U.S. Department of State are considering options for greater efficiency, effectiveness, and accountability. One option being discussed would be greater sharing—up to and including a complete merger—of human resources (HR), information technology (IT), procurement, and other administrative services. On the surface, these may seem like reasonable ways to streamline operations and maybe create cost savings; in practice, however, the merger of these “shared services” is much more complicated and could even have the opposite effect, especially if done without significant consultation and strategic planning. Any efforts to merge services deserve targeted audits and significant evidence-based justification before implementation.

The efforts to reorganize and consider merging services not already shared under the International Cooperative Administrative Support Services (ICASS) are a direct result of an executive order dated March 13 that called for a “comprehensive plan for reorganizing the executive branch.” The Trump administration is right to call for greater efficiency, effectiveness, and accountability in government. In July of this year, CSIS convened a task force—co-chaired by two U.S. senators, Todd Young (R-IN) and Jeanne Shaheen (D-NH)—with 30 bipartisan experts to provide the Trump administration with good ideas on how to achieve those goals in the context of U.S. foreign assistance. The resulting report had three main recommendations: (1) maintain USAID as an independent agency overseeing federal foreign assistance efforts, develop a clearly articulated development strategy, and designate the USAID administrator as coordinator of foreign assistance; (2) address duplication of effort and generate budget savings when consistent with maintaining functional coherence; and (3) modernize the personnel system, make the procurement system more efficient, and streamline reporting.

One thing that the CSIS task force did not recommend, however, was a merger of services. This is because the benefits are unclear at best and, ironically, moving to increase the reach of shared services could be more expensive and less efficient, especially as it relates to HR, IT, procurement, and other administrative systems that have not already been merged or shared.

In the context of today’s potential service mergers, it is useful to review past merging efforts: some functional (procurement, HR, IT, and administrative services) and some institutional. We discuss the latter first.

Cautionary Tales on Mergers and Culture

The merger of the U.S. Information Agency (USIA) into the State Department in 1999 is worth discussing first, especially because the results were less than ideal and brought forth significant cultural fissures that should be acknowledged. In its “Reorganization Plan and Report,” the Clinton administration hoped the USIA-State merger would “strengthen public diplomacy through its integration into the policy process.” The merger ended up having the opposite effect. It turns out that three things stood in the way of the envisioned outcome: (1) the distinct cultures and missions of USIA and the State Department were incompatible; (2) the atomization of public diplomacy resources across a series of geographic bureaus that diluted the impact of the funds; and (3) the reality that the larger organization, in this case the State Department, would prioritize traditional diplomacy over public diplomacy when forced to make choices in a resource-constrained environment.

Current discussions of mergers between State and USAID—whether a full institutional merger or the merger of service functions—would benefit from this historical perspective. The recent survey of USAID and State employees reveals significant differences in culture and objectives, much like was the case between State and USIA. On the one hand, USAID seeks to partner with countries to end extreme poverty and bolster “resilient, democratic societies, while advancing U.S. security and prosperity.” Within USAID’s culture, programmatic outcomes on the ground matter greatly, are often realized far from capitals, and are accomplished by working with governors, civil society, and the private sector. Though complementary, the State Department has different strategic objectives, seeking to “manage the United States’ relationships with other countries and international institutions through policymaking and diplomacy” and largely works on a state-to-state platform with a focus on working in country capitals and other major population centers.

Recognizing these differences but also the utility of better aligning missions as part of the “3 Ds” (defense, diplomacy, and development), the State Department and USAID jointly published the first Quadrennial Diplomacy and Development Review (QDDR) report in 2010. The QDDR report identified significant areas of complementarity but also pointed out that there were dueling administrative systems—especially HR, IT, and procurement—that caused confusion, inefficiency, and even waste. Though it then recommended consolidation of some functions (e.g., IT in the field), the implementation of merging such administrative services, including efforts undertaken even before the 2010 QDDR, has been far from easy. In some cases, merging functions might have had marginally positive effects on efficiency, effectiveness, and accountability. In other cases, merging may have even resulted in higher costs and less efficiency.

What’s Old Is New Again: Efforts to Merge Procurement, HR, IT, and Other Administrative Services

The idea to merge back-office support functions is nothing new. In fact, it is something with which USAID and State have been grappling for more than 20 years, especially after the fall of the Soviet Union when the U.S. foreign policy apparatus became much more operational.

Procurement

In the early 2000s, there was a discussion about a State and USAID merger of procurement systems, though doing so soon appeared easier said than done. State—when it does project execution via partners—traditionally carries out relatively simple grants to NGOs or to UN agencies whereas USAID typically works on large, multi-country, complex grants and contracts that have very specific metrics and objectives, often with the goal of tracking results for Congress. Today, USAID administers virtually all its foreign assistance activities through contracts and grants; transferring, merging, or otherwise negatively effecting USAID’s control over its procurement processes could have significant impacts on its ability to execute its mission.

Within the last 10 years, USAID developed the Global Acquisition and Assistance System (GLAAS) to execute its complex procurements and, importantly, track the “color” of funds and thus be able to connect them with specific appropriations. Every USAID project now goes through GLAAS and it has, by most accounts, improved the process overall within the agency. Significant investment was made to implement a system that works relatively as it was intended, so either State should implement GLAAS or their systems should be kept separately. If State does start using GLAAS in its current form, USAID should retain primary responsibility for the development program acquisition and assistance function and be prepared to execute relevant State procurement functions at posts where USAID is collocated. As is the case with the International Cooperative Administrative Support Services (ICASS) (see below), these issues should be sorted out at the embassy and mission level in the field.

Make no mistake, the procurement apparatus at USAID is far from perfect and there may be opportunities to share services, especially in the field. At a high level though, relatively few implementing partners implement the overwhelming majority of USAID projects. Collaborating with the private sector and creating consortiums of interested parties is challenging. Co-funding with other governments and multilateral and bilateral funders is difficult at best. However, USAID has a professional contracting workforce and substantial institutional expertise that will be able to adapt to smart procurement reforms within its walls. Reform is needed and welcome. Merging all procurement functions—especially if control moved to State—would be a mistake.

Human resources

Reforming the way government departments hire and retain quality talent has been on the agenda of every administration in recent memory. Every administration seems to agree that the private sector is much better at recruitment and it can be difficult to attract top-quality talent into the bureaucracy; however, most realize that the government is not the private sector and, as such, reforms must balance competing priorities, visions, and agendas. There is room for increased efficiency, effectiveness, and accountability through thoughtful HR reforms, especially at USAID where the current system is imperfect at best. These reforms—up to and including moving to a more shared HR system between USAID and State if doing so would address some of the known deficiencies in the system—should be guided by several principles.

First, there must be a realization that foreign assistance—and thus USAID and parts of the State Department—is shifting increasingly to fragile states. HR and personnel systems need to be more agile, adaptive, and efficient to accommodate these changes. Promotion guidelines and rewards for service in unaccompanied posts should also be clarified in such a way that encourages people to work on and in fragile states for longer periods of time.

Second, without proper resources, simply “moving boxes” or “adding layers of bureaucracy” is unlikely to work. Especially at USAID, HR support has been historically under-resourced and insufficient for meeting the demands of a changing workforce in a changing world. Lasting positive reforms require the right people in the right positions with proper authority and enough resources.

Third, the person leading HR at USAID and/or State must understand that both have workforces and missions that are primarily overseas. HR functions for overseas people and missions should be led by people that understand overseas missions personally and holistically. Ideally, the head of HR at USAID should be a member of the Senior Executive Service (SES) who has served in and intricately understands the foreign service. To institutionalize this, the USAID counselor—that is, the person ultimately responsible for strategy and resources—should be “dual-hatted” as director general of the USAID foreign service.

Fourth, reforms should be consistent between headquarters and the field. Moving to more shared HR systems in Haiti, for example, would likely generate unnecessary confusion, mixed messages, and frustration, unless similar changes are made in Washington.

Fifth, these issues are best resolved at and between USAID and State. Outsourcing the problem to private contractors or even another government agency could be costly and ultimately counterproductive. When considering HR reforms, USAID and State should be wary of models that propose a privatized approach to HR service management.

Finally, any reform to HR systems should clarify the role of local hires and provide services that meet the different needs of both State and USAID in the field. Though State has some senior local staff members, fewer of them are in decisionmaking capacities as compared with USAID. With direct hire Americans rotating in and out every two to four years at USAID and State, both should place a premium on the technical capacity and continuity provided by senior local hires. Fully merging HR systems in the field, even with significant accommodation for experience and responsibility, could also generate tensions, salary issues, and staff turnover, all of which has the potential to decrease long-term efficiency and effectiveness.

Information technology

There have been several attempts to merge information technology systems between USAID and the State Department. Few would argue that attempts at reform are unnecessary. On the contrary, frustration with IT services is a shared sentiment, especially as both USAID and State attempt to keep up with technological advancement while balancing security concerns. The devil is, as usual, in the details.

State and USAID use technology in different ways, partly out of differing business models (one centered around an embassy and the other often in rural and remote areas), partly because of a reluctance to change. A main area of tension is over access to classified information and systems. Virtually no USAID offices overseas are cleared for classified systems and very few such systems exist at USAID headquarters in Washington. Without access to such information, USAID leaders often find themselves out of the loop in interagency discussions that would benefit from development voices. Installation of these systems in USAID offices would require increased security that would necessitate additional resources and different IT staffing in the field (most IT services at USAID missions overseas are led and staffed by local staff). It also might make continued use of its more flexible Gmail- and cloud-based platforms more complicated, even though USAID has arguably become more efficient and effective through integration of these modern tools.

Despite USAID having a higher rating on the Federal IT Acquisition Reform Act (FITARA) scorecard, the prevailing wisdom of some discussing merging IT systems is that either the organizations stay separate or that USAID stops using its own and assumes State’s system. Access by AIDNet (USAID’s system) to State’s intranet was revoked several years ago after a security breach, even though AIDNet has a better security (and overall) rating and was not the source of the breach. Access has not been fully restored and now requires USAID to purchase separate and otherwise unnecessary OpenNet (State’s system) terminals. Once again, sharing services does not always lead to increased efficiency and effectiveness and could even have the opposite effect.

It is not clear that a merger of IT systems would have any benefit the effectiveness of either USAID or State and would have marginal, if any, long-term cost savings. A more likely scenario is that such a merger would increase tension between the two organizations, especially if USAID is forced to use an IT system that doesn’t meet its operational needs and is inferior to its current one. More coordinated systems and access to one another’s systems (including USAID access to the classified systems and intranet) might offer a better solution than merging the systems of two organizations that interact with and utilize technology in fundamentally different ways. Though it deserves further study, there seems little reason—other than cost—not to provide access to both secured and unsecured systems to key USAID and many reasons why IT services should not be fully merged.

Administrative services

The experience of USAID and State with the International Cooperative Administrative Support Services (ICASS) reveals useful lessons on the benefits and drawbacks of sharing services. ICASS is the method by which State, USAID, and other agencies operating overseas share administrative services. Prior to ICASS, State funded all its core administrative services and other agencies paid for prorated shares of the additional resources State had to add to accommodate their needs. One of the major changes introduced under ICASS was that every overseas agency should pay its fair share of the support services required to function in that country.

In 2004, the U.S. Government Accountability Office (GAO) released an audit concluding that, overall, the U.S. government was saving money by increasing shared services, though some agencies were potentially paying more than when they were independent. Upon further examination, it is not clear that GAO dug very deep into the way State was choosing to implement ICASS budgets, such as auditing daily ICASS staff activities to verify the accuracy of claimed percentages of time devoted to various ICASS services or non-ICASS activities. Neither did GAO examine the validity of the inflexible model that determines billing for partial use of services. Nonetheless, after the audit, the State Department urged other agencies to join them in housing, motor-pool, guard services, and other administrative services covered by ICASS.

A 2010 survey conducted by the American Foreign Service Association (AFSA) asked foreign service officers, contractors, and foreign service nationals to share their experiences with the implementation of ICASS. The results showed that there was great dissatisfaction and that cost savings were most likely not being realized. Overall, ICASS has had efficiency and effectiveness issues handling transportation services, office and residential building management, and property inventory and warehousing. The results of the 2010 survey are important, especially since ICASS was marketed as a voluntary system that would increase transparency and local control over services; the survey showed that ICASS was perceived to be having the opposite effect. Understanding that there is no detailed audit comparing pre- and post-ICASS costs, many at USAID felt that its administrative costs have increased while its control of service quality and responsiveness has decreased. On its own, the fact that many ICASS supervisory positions are filled by expatriate American staff leads to this impression of increased cost. Prior to ICASS, locally employed supervisors managed most of USAID’s support functions under the overall direction of an American executive officer or two, at significantly less expense to the U.S. taxpayer.

Despite these concerns, the idea that administrative services abroad should fall under one system is not inherently a bad one. Though the available evidence points in a different direction, ICASS may even offer the right foundation for increased efficiency, effectiveness, and accountability of administrative services. To understand the issues with the system and potential fixes, GAO should conduct another full audit, understanding and rectifying the limitations of its own methodology from the 2004 audit. Undertaking further consolidation of services should also be delegated to local decisionmakers rather than mandated from Washington, based on a thorough examination of programmatic and budgetary pros and cons.

Conclusion

Few people think that duplication and the creation of parallel systems in government that do the same things offer good value to U.S. taxpayers. However, given the fact that USAID and State have different cultures, objectives, and interactions with services, this fear of duplication may not be well-founded. Champions of increased efficiency, effectiveness, and accountability should consider that efforts to merge services might be creating more problems than they are solving. At the very least, these efforts deserve thoughtful and thorough review before taking actions that could have long-term consequences.

Nonetheless, it is important to note that such mergers fall primarily under the purview of the executive branch and, as such, would likely not require significant congressional involvement. Though these options may be more politically feasible, that does not mean they are the best or most desirable outcomes to achieve greater efficiency, effectiveness, and accountability.

The Trump administration should think twice before mandating further merger of services. At best, the benefits of merging are unclear, worthy of further study or, in some limited cases, marginally positive. At worst, they will have the opposite of intended effect, decreasing efficiency, effectiveness, and accountability.

Daniel F. Runde holds the Schreyer Chair in Global Analysis and is director of the Project on Prosperity and Development at the Center for Strategic and International Studies (CSIS) in Washington, D.C. Erol Yayboke is a fellow and deputy director of the CSIS Project on Prosperity and Development.

This report is produced by the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution focusing on international public policy issues. Its research is nonpartisan and nonproprietary. CSIS does not take specific policy positions. Accordingly, all views, positions, and conclusions expressed in this publication should be understood to be solely those of the author(s).

© 2017 by the Center for Strategic and International Studies. All rights reserved.

Image
Daniel F. Runde
Senior Vice President; William A. Schreyer Chair; Director, Project on Prosperity and Development
Image
Erol Yayboke
Director, Project on Fragility and Mobility and Senior Fellow, International Security Program