Who Gets the Contract? Analyzing of the Determinants of Vendor Selection in USAID Contracts

• In Event: Institutions and Procurement Policy

Abstract

The management of U.S. foreign aid spending has come under intense scrutiny, culminating in the Trump administration’s dismantling of USAID and debates about the future of foreign aid. Amid dwindling aid flows and the urgent need to optimize its delivery, contractors remain central to implementation, but little is known about the processes that govern their selection (McLean, 2017). At the same time, relational contracting based on trust is often viewed as a solution for mitigating principal-agent problems, underscoring the importance of understanding selection processes and the factors shaping these decisions. Nonprofits are often viewed as natural partners for public sector organizations due to presumed value and goal congruence. However, the growing marketization of the nonprofit sector has blurred distinctions in motivations between nonprofit and for-profit organizations (Cooley & Ron, 2002). This shift is evidenced by increasing competition between nonprofits (NPOs) and for-profits (FPOs) in public service contracting (Anguelov & Brunjes, 2023). This study analyses the drivers of NPO versus FPO selection in USAID contracts, with an emphasis on understanding how the USAID attempts to mitigate varying levels of country risk in its contracting decisions. Using logistic regression models with country, region and year fixed effects, we analyze USAID definitive prime contracts initiated between 2008-2024 in the place of performance, covering 31,991 contracts awarded to 2,907 organizations and implemented in 170 countries. We find that while fixed price contracts are more likely to be awarded to FPOs, complex contracts are more likely to be awarded to NPOs. We additionally find that having a pre-existing contractual relationship, which signals trust, appears to matter more FPO, than for NPO selection. We do not find strong supporting evidence that place-based variation with respect to regulatory conditions and the level of economic development in the location of performance affects the type of vendor selected.

Authors

• Nnenna Ogbonnaya-Orji, University of Washington
  Presenting Author

• Amy Beck Harris, University of Michigan Ann Arbor
  Non-Presenting Co-Author