Insights

Jeff Barnes, NPI EXPAND Project Director

When NPI EXPAND orients local organizations to the USAID system, one of the key lessons revolves around the distinction between ceilings and obligations. When most donors agree to fund a local organization for a proposal, the total amount approved in the funding agreement can be taken as a firm commitment. Unless the local organization fails to perform or commits a fraud, the organization can expect to receive the original amount of approved funding.

This is not so in the USAID system. When a proposal or application is approved at a given funding level, USAID establishes that funding level as a ceiling—the maximum that USAID will provide in funding for that program. But an organization cannot assume that they will receive the ceiling amount. Only when USAID makes an obligation can the organization be confident that they will receive the amount obligated. Typically, USAID will modify the agreements multiple times with additional obligations until the funding level approaches or reaches the ceiling level. If an organization performs well, USAID may choose to raise the ceiling level and provide obligations up to the new ceiling level.

Of course, there are other situations in which a local organization performs well and according to plan, but USAID’s funding gets cut or global priorities shift, and USAID does not make the planned obligations. Fortunately, this happens relatively rarely, but even this possibility hinders long-term planning as local organizations can’t make commitments that go beyond the obligation they have in hand.

Although we encourage local organizations to have a long-term vision and to make appropriate investments to realize that vision, implementing programs that are funded on an annual basis makes long-term planning risky and difficult. With few exceptions, most local organizations have very little unrestricted funding and have to piece together a long-term plan for growth from short-term restricted funding. Donor funding rarely includes any contribution to indirect costs and even when it does, it is insufficient to bridge funding gaps. Building organizational capacity is hard enough when the restricted funding is for three-to-five-year funding commitments. But when the funding commitments are limited to obligations that cover only 10 to 12 months of activity, we shouldn’t be surprised that local organizations don’t move beyond a short-term perspective and achieve little organizational growth.

Further exacerbating these challenges is the tendency for funding priorities to shift as governments, donor representatives, and development trends change. USAID is known for its support for innovation and encouraging the adoption of new effective approaches. However, innovation sometimes comes at the expense of abandoning existing approaches without a clear justification or a strategy for transition. Local organizations struggle to adjust to these changes if they want to stay in the market for USAID funding. As one NPI EXPAND-supported local organization in Ethiopia said during a recent capacity strengthening workshop, “only a couple of years ago we were building our capacity in service delivery, but now there are no opportunities for funding of service delivery programs, so we are having to develop our skills in social accountability.”

Needless to say, in countries where finding talented staff with technical skills is a constant challenge, frequent changes in the market for donor support make that challenge even harder, leaving local organizations with programmatic “whiplash.” As technical priorities change, local organizations cannot easily develop the organizational expertise that only comes through years of experience. Of course, local organizations can hire experts when opportunities arise, but this is not the same as building true institutional expertise that goes beyond a single person who is hired to win a bid. Rapid changes in what donors are interested in funding create a disincentive for local organizations to invest their own time and resources in building technical capacity.

If USAID wants to promote localization, it needs to better understand the challenges local organizations have in growing beyond the boom-and-bust cycle of projects. Whenever possible, USAID should:

• Ensure that obligations can be made to cover longer periods of program implementation so that program design and planning is synced to funding that will be available.
• Place greater value on continuity in country programs.
• Consider past investments and how to consolidate achievements before transitioning to new strategies.
• Ensure that past efforts have been given enough time to succeed and the results have been fairly evaluated before they are abandoned.
• Include local partners in developing country strategy development so they can better understand and anticipate these strategic shifts and adjust their own organizational strategies.

Many of these issues stem from U.S. Government funding regulations and policies that very few of us working in the aid field can change. However, if we are more cognizant of the challenges these regulations create for local organizations and take steps to limit those challenges, we can further the localization agenda.