Chair of the Committee, Malcolm Bruce MP, said:
"The effectiveness of UK aid must not be compromised by an attempt to reduce costs whatever the consequences.
It can't be cost effective for DFID to contract to outside agencies and consultants simply to cut its own operating costs.
We are concerned that restrictions on staff levels and operating costs may force the department to spend its budget less effectively."
While DFID's total budget is increasing, the Department will both restrict operating costs to 2% by 2014-15 and reduce its administrative costs by a third in real terms, from £128 million in 2010-11 to £94 million by 2014-15. The report warns, however, that capping operational costs and staff numbers may not reduce overall costs or improve effective delivery of development assistance.
The International Development Committee also raises concerns that cost pressures are driving DFID to use consultants to deliver its programmes, rather than in-house expertise. The Department spends £450 million on technical cooperation per year. Much of this is good work, yet it was unclear to the Select Committee exactly what this money was spent on, or how effective it was and the extent to which external providers were used. DFID needs to improve its assessment of which projects and services it should use consultants for; in particular, it should assess more carefully the use of consultants to manage the Department's own delivery programmes.
Malcolm Bruce MP said:
"We questioned why the Department was paying consultants large amounts o public money in fees for frontline development work when it was cutting its use of consultants advising on internal strategy.
Worryingly, the Department was unable to quantify how much it has paid on different types of technical co-operation as its information systems do not enable it to identify expenditure by purpose."
The report warns that in its efforts to reduce administrative spending DFID might be 'exporting' these costs to other organisations, including NGOs and multilateral aid organisations, with higher real administration costs. The Department should assess the best and most effective way to deliver development assistance, according to the MPs, as it may be able to do it more cheaply and effectively than external organisations.
Malcolm Bruce MP added:
"We need to ensure that the £5.1 billion of funding through multilaterals in 2010-11 is reaching the people who need it and is not being frittered away along the delivery chain in a series of unknown administration fees and charges."
The report recommends that the Department improves its tracking of and reporting on the total cost of administering its aid programme with the aim of quantifying how much aid actually ends up reaching recipients. In its future Annual Reports and Accounts and Business Plans, DFID must clearly indicate the main indicators and key results it is seeking to achieve. The MPs also want the Department to report comparable statistics for each country and clearly state where the relevant information is not available.