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Agency for International Development

Recommendations and Actions

AID04: Manage AID Employees and Consultants as a Unified Workforce

Background

The Agency for International Development (AID) has increasingly relied on personal service contractors (PSCs) to manage its assistance activities. Restricting staffing resources has contributed to deterioration of AID's ability to manage itself and its programs by shifting the duties of AID project officers away from hands-on project management into process management (e.g., preparing proposals and managing contracts).

The agency is being forced to shed, through attrition, much of its program implementation expertise, with a resultant lack of continuity in program administration. In a downward spiral, AID managers are increasingly preoccupied with contract management and lose touch with the reality of field work, further diminishing their effectiveness in overseeing the performance of contractors. Although the direct-hire workforce has declined, the increase in PSC levels has more than made up for the direct-hire decrease.

AID has about 1,700 Foreign Service employees, approximately 1,100 overseas and 600 in Washington; nearly 1,000 direct-hire Foreign Service Nationals overseas; and about 1,500 Civil Service employees in Washington. Besides its direct-hire employees, AID will employ about 4,500 personal service contractors (PSCs) in fiscal year 1993. About one percent of PSCs served in Washington in 1992 to support central programs and the rapid expansion of AID program activities into the former Soviet Union; the balance served abroad. Normally, authority to employ PSCs is granted only for contractors working overseas. About 10 percent of the PSCs are U.S. citizens.

The President's Commission on the Management of AID Programs (the Ferris Commission) noted AID's heavy reliance on contractors to carry out increasing amounts of project design and service delivery. The commission concluded that "a major factor which makes human resource management most difficult in AID is that external parties determine the annual operating expense funds and career personnel ceilings AID must adhere to without reference to the program to be carried out."(1) This refers to the separate operating expense appropriation from Congress and the full-time equivalent (FTE) ceilings imposed on agencies by the Office of Management and Budget (OMB).(2) Conflicts have existed between AID management's vision of the agency's overseas structure and the visions of Congress and OMB.

Declining levels of operating expense funds and FTEs have changed the role and makeup of AID's overseas workforce. In a constrained resource environment, the decision to turn to PSCs is a logical one for program managers. PSCs provide a flexible alternative to direct- hire employees, and are especially useful for quickly changing the workforce skill balance to react to evolving requirements. PSCs, doing much the same work that a direct-hire employee does, can be charged to program funds, rather than more tightly controlled operating expense funds. Direct-hire employees cannot have their salaries charged to program accounts. Consequently, among program managers, there is a movement away from the implementation of development activities to the management and monitoring of contracts.

According to the General Accounting Office (GAO), "Although overseas U.S. direct-hire employees spent 32 percent of their work years on project management, their responsibilities increasingly involved managing and monitoring contractors, rather than the technical aspects of project implementation. Accordingly, missions and overseas offices place great reliance on foreign national direct-hires and PSC to manage day-to-day project implementation."(3)

In fiscal year 1990, more than two-thirds of AID's overseas work years (totaling approximately 8,000 years) were expended by American and foreign national PSCs, who are not separately identified and reported to Congress. Foreign national PSCs made up 60 percent of the overseas workforce in 1990, followed by 15 percent for American direct hires, 12 percent for foreign national direct hires, and 13 percent for American PSCs.(4)

The reductions in direct-hire employee staffing have not been evenly distributed. According to the Ferris Commission report:

The continuing reductions in direct-hire levels required by [OMB] have hit the field missions the hardest. During the period FY '85-FY '89, U.S. direct-hire staff decreased by 2.6 percent while direct- hire staff overseas decreased by 14.5 percent. This occurred in the face of [Inspector General and General Accounting Office] criticisms that AID did not have sufficient project management in the field.(5)

AID determined those specific staffing reductions according to its own internal priorities.

The personnel system has not responded to the need for staff with training or experience in contract management.(6) GAO indicated that AID has not adjusted its culture, training, and personnel practices to the increased use of contractors to deliver services, noting that large numbers of AID employees consider contract management to be a low priority, despite the fact that the bulk of project officers' responsibilities increasingly revolve around contract development and management. GAO also noted problems with supervision of overseas contractors and data collection concerning the number and nature of personal service contracts.(7)

Currently, AID budgets salaries for direct-hire staff out of a central agency pool and assigns FTE levels to each operational unit. Budgeting salaries out of a central fund does not create incentives for managers to factor payroll costs into their planning or to consider potential savings when hiring. Giving line managers increased control over staffing resources is an important reinvention principle.(8) Managing the total AID workforce--direct hires as well as PSCs--through the budgets of line managers is the only way to effectively control the size of the workforce.

Relaxing FTE restrictions may not be the only action required to realign the AID workforce. A critical related issue is that Congress appropriates funds separately for operating expenses, the account from which direct-hire employees are paid. Reductions in AID's operating expense budget have recently kept the agency from using its full allocation of FTEs. Contractors can be paid out of program money because their work is generally tied directly to project implementation.

The proposal to grant line managers more direct control over staffing resources is written with the presumption that AID is already concentrating its overseas staffing resources by phasing out some programs and consolidating some services in regional offices. If these changes were not already underway, a further recommendation would involve using program money to fund direct-hire positions where legitimate direct program oversight responsibility exists.

The following actions should not be initiated until AID has produced a thorough budget and policy analysis and has put in place the reporting and monitoring systems to ensure accomplishment of its mission.

Actions

1. AID should vigorously explore opportunities to remove staffing restrictions and allocate operating expense salary resources to individual managers, rather than budgeting and managing funds centrally.

This should include (to the extent feasible given governmentwide classification constraints) the salary and benefits portions of the operating expenses. Both actions must be taken concurrently to fully implement the proposal. To the extent possible, pilot efforts should be initiated to enable line managers to manage staffing tied to resources rather than to work years. Managers should be rewarded for using staff more creatively to reduce costs.

2. AID should put systems in place to accurately monitor employee work years for both direct-hire employees and PSCs.

Staffing analysis should include the total AID workforce, not just direct-hire employees. AID should thoroughly understand the real number of work years required to carry out its programs and be prepared to report that information to OMB and Congress.

3. AID should undertake a full review of the impact of its policies and practices concerning use of PSCs.

Such a review should address the trade-offs between accountability and the need for staffing flexibility, and whether it is not more beneficial to define accountability as assessment of project and program impact rather than contract micromanagement.

Implications

Providing line managers more control over their total budget resources will create incentives for more efficient operation. Because of the administration's commitment to reduce the federal workforce, the combined totals of PSCs and direct-hire staff must be monitored carefully. Also, the multiple pay plans and retirement systems, as well as the high proportion of total operating expenses represented by salaries and benefits, require very close monitoring to avoid exceeding the amount budgeted.

Fiscal Impact

The fiscal implications cannot be determined. Experience has shown, however, that giving line managers control of personnel resources often yields opportunities to reprogram salary money into staff development or other administrative support areas. By considering both the direct-hire and PSC workforce, reductions should be made in the total workforce size. The precise fiscal impact of the recommendation, however, cannot be estimated.

Endnotes

1. The President's Commission on the Management of AID Programs (the Ferris Commission), Action Plan--Working Draft #1 (Washington, D.C., March 2, 1992), p. 12.

2. A full-time equivalent (FTE) is generally calculated as 2,080 hours, or one person/year of service. FTEs are used to manage the number of federal employees throughout the government. The FTE system applies only to direct-hire employees.

3. U.S. General Accounting Office, Foreign Assistance: A Profile of the Agency for International Development (Washington, D.C., General Accounting Office (GAO), April 1992), p. 5.

4. Ibid.

5. Ferris Commission, Action Plan, p. 5.

6. See U.S. General Accounting Office, Foreign Assistance: AID Can Improve Its Management and Oversight of Country Contracts, GAO/NSIAD- 91-108 (Washington, D.C.: GAO, May 29, 1991); U.S. General Accounting Office, Foreign Assistance: AID Can Improve Its Management of Overseas Contracting, NSIAD-91-31 (Washington, D.C.: GAO, October 1990); U.S. General Accounting Office, Foreign Economic Assistance: Better Controls Needed On Property Accountability and Contract Close Outs, GAO/NSIAD-90-67 (Washington, D.C.: GAO, January 22, 1990); and Joint OMB-AID SWAT Team, Improving Management at the Agency for International Development (Washington, D.C., 1992).

7. See U.S. General Accounting Office, Foreign Assistance: AID's Use of Personal Services Contracts Overseas, NSIAD-91-237 (Washington D.C.: GAO, September 13, 1991).

8. See the NPR Accompanying Report Streamlining Management Control (Washington, D.C., September 1993).

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