Revising the role of contract in development cooperation

Given the ongoing controversy over official development assistance (ODA) and the reduction to Australia’s commitment to aid funding, it is important that Australia’s ODA is effective and is perceived to be so. Among the diverse objectives identified by AusAID’s Office of Development Effectiveness Independent Review of Aid Effectiveness is the need to build local capacity. “Capacity building” is one of the Paris Declaration’s development assistance effectiveness principles, and several of the 2013 DAC Recommendations for AusAID refer to capacity building. Australia works with private contractors, governments of partner countries, civil society organizations and multilateral agencies. Partnering with multilateral organizations represents over 30% of Australia’s development assistance budget, and the DAC Report recommends further increases in partnering for sustainable capacity development. Because small, localized nongovernmental organizations (NGOs) can be flexible, sensitive to local needs, offer grassroots networks, potential specialization, and the ability to assist directly, a strong focus on local NGOs (LNGOs) is recommended to sustainably achieve the aim of capacity building. As is characteristic of the development assistance channel, LNGOs do not work in isolation; their work often involves partnering and cooperation. At a time of increasing multilateral aid and partnering, this study looks at issues of concern to LNGOs through the lens of contracting. Contract and the contracting process can provide critical, though sometimes overlooked, levers of control in the development assistance. The politics of contract law, however, assumes supportive infrastructures of both the government and the market. The utility of contract may take on different dimensions where the legal infrastructure for enforcement is limited and the cultural infrastructure for interpretation requires a pluralistic approach. By framing development assistance effectiveness as a contractual matter, this research adduces relevant threads of contract and organizational theory in its empirical analysis of contracting in development assistance. Semistructured interviews conducted with international and local NGOs and AusAID officials in Southeast Asia shed light on how LNGOs understand the contracting process, how they view contracts and agreements in partnering, what they perceive to be the important issues, and how contracts function. Local context matters nevertheless, this study suggests several common themes with interesting parallels to those in commercial contracting, including issues of control, information, allocation of risk and balance of power. From a theoretical perspective, controversy over the significance and meaning of contract has been part of the academic discourse for decades. This study contributes to better understanding of the role of contract in the development assistance context. Its implications extend to contract theory generally applicable in both commercial and noncommercial realms. From a practical perspective, this study suggests ways contract can better serve the aim of capacity building, and it informs the design of contracting processes better tailored to the actual objectives of contracting parties.