The FCDO's approach to value for money – Save the Children evidence submission

How does the FCDO currently define the term Value for Money? Are there any other aspects of Value for Money that the FCDO should be considering in its assessment?

In our experience, the FCDO’s definition of the term Value of Money (VfM) is meant in the strict economic or process sense through its programme operating framework[i]. For example:

Project/programme business cases – these showcase across the strategic case, programme design and management how they support value for money.

Annual reviews/output scores – These assess the project or portfolio performance from a value for money process perspective (is it performing to an appropriate level).

We would like to see a much greater emphasis placed on impact in relation to value for money assessments, both in the short and long term, focusing on outcomes directly or partially attributable. For example, lasting impact to children’s lives is something we consider in our own assessments of VfM. This is also an area that both ICAI and the OECD[ii] have recommended to the UK government previously and would prove a compliment to decision making on the management of departmental spending, including ODA.

In addition, it is important to note that the FCDO is not in full control of its spending, particularly in relation to ODA. From a VfM perspective, the Treasury also plays a key role in setting overall departmental budgets (e.g. cutting ODA to 0.5% GNI [iii]), as well as targets on specific types of spending (most notably financial transactions and capital spending more broadly). This has added an additional layer of economic evaluation to VfM, namely defining that a large proportion of FCDO’s ODA spending should reduce the fiscal impact[iv], compared to if it was day to day resource spending. Combined with this, with FCDO as “the saver of last resort” for the ODA budget, it is also important to consider the impacts of other departments who increase ODA budget demand in-year (within a fixed overall ODA ceiling) and their own definition and approach to VfM. For example, the Home Office, which has been criticised by the NAO for its approach to VfM, has consistently increased ODA budgetary demands in recent years.

To what extent did the merger of DFID and the FCO affect what the FCDO considers to be Value for Money?

There are a couple of elements that are important to highlight here:

Reduced number and increased scope of departmental plans/objectives – The merger of the two departments has meant that plans and priority outcomes are now combined. In essence, of the four priority outcomes set by FCDO in 2023-24, three are steered more towards the FCO’s former portfolio, and a greater overall direct emphasis on the UK’s national interest. This is in stark contrast to DFID’s previous departmental plan, which has a much greater development outcome and impact orientated approach. Therefore, there has been a shift in emphasis on what VfM is in relation to departmental spending and the provision of ODA. A clear example of this is the prioritisation of ODA spending, at a time when the department has seen year after year of budget reductions, with FCO’s former portfolio continuing to be less impacted. Administrative costs counted as ODA have continued to increase, despite a promise of greater efficiencies, with frontline diplomacy a key component of this.

Reduced emphasis on development results in respect to VfM - one of the central elements of DFID’s delivery plans was broad monitoring of its provision of ODA, which has been discontinued since the merger. Whilst the credibility and usefulness of this results tracking was a longstanding issue, it nonetheless ensured that maximising impact to people through the UK’s identifiable support was a core component of VfM analysis.

How effective is the FCDO at monitoring the delivery and outputs of its programming to ensure its achieving Value for Money? Is there a cohesive approach across the merged FCDO?

The FCDO has put structures in place to support the delivery and outputs of its programming. For example, the programme operating framework[v] sets out rules and standards for programmes and projects. In addition, there has been a greater emphasis on evaluation, exemplified by the strategy[vi] produced in 2022, and the EQUALS2 project. However, the continued challenges in respective aid prioritisation processes to properly assess the impact of budgetary changes and decision making  shows that fundamental issues remain in processes and methods for assessing and maximising VfM[vii]. We believe there are opportunities for significant improvement, both at the project and programme level, as well as more holistic change across the department, including:

Variability in business case’ VfM – There continues to be widespread variability in the formation of business cases, including how VfM is assessed, whether purely based on an economic case, or more broadly across processes and impacts. This is seemingly linked in part to to staff capabilities and availability of quality data and information. This is a challenge for Save the Children too in responding to funding opportunities from FCDO, especially given the limited time afforded for developing proposals. We would very much welcome continued collective learning from best practice and improved standards in this regard.  For example, whilst the EQUALS2 project[viii] might support internal capacity development within FCDO, it would be good to explore opportunities for more learning to be shared externally with partners too.

Portfolio quality index is in need of reform – This headline indicator, developed at DFID, continues to be the main assessment criteria for projects and programmes at FCDO. We would urge for this to be reviewed. Firstly, how the methodology or practices within implementation tend to mark projects as meeting or exceeding expectations, even if they have faced major challenges. Secondly, because the approach is too focused on outputs, not outcomes and impact (highlighted also by OECD and ICAI). Lastly, we would like to see improved quality transparency in data sharing, in machine readable formats, rather than only available within individual annual project review documents.

Lack of cohesive approach – alongside the variability in approach outlined above, there continues to be large elements of ODA and departmental spending where there is a lack of evaluation, most notably in respect to the FCO’s former portfolio. However, this issue is broader than just FCDO; the variability and lack of appropriate evaluation of ODA spending is a significant issue within other government departments too.

FCDO’s evaluation strategy refresh this year[ix] offers an opportunity to consider systemic change, and we urge for this to be based on consultations with key stakeholders.

How could the FCDO improve its oversight mechanisms to ensure Value for Money of its ODA budget?

Improve whole of government approach on ODA – Whilst we welcome recent efforts, including the formation of the star chamber and improvement in oversight of the ODA budget by HMT and FCDO, there continues to be issues with oversight at working level across government departments. The EQUALS2 project is an example of where the FCDO can share expertise on evaluation across departments, which is much needed. However, we would like to see options considered in respect to more cross-government systematic reviews of ODA spending, which was muted ahead of Autumn budget[x].

Increase oversight from recipients and key stakeholders – One of the areas lacking in FCDO project and programme evaluations is detailed feedback from ODA recipients and key stakeholders. We would like to see greater emphasis on oversight for recipients, and mechanisms to facilitate this.

Improved transparency for greater public oversight – Quality and transparent information is at the heart of accountability mechanisms and public oversight. Whilst we appreciate FCDO’s efforts in respect to devtracker and other published material, and recognise they are a world leader in this area, there are significant improvements that can be made to improve the quality (e.g. timeliness, accuracy, usefulness ) of information provided.

How effectively are the FCDO utilising financial instruments, including:

        Debt relief;

        Guarantees; and

        Special Drawing Rights?

Whilst not a replacement for the significant cut that has been made to ODA that reaches the world’s poorest countries, the UK government has increasingly utilised a range of instruments to bolster support. This is welcome, particularly at a time of rising sustainability issues in many developing countries of existing debt stocks, alongside rising costs and issues of accessibility for new finance. However, we believe there are other ways the UK can step up, and there several areas of concern.

In relation to primarily non-ODA forms of support for existing debt stocks, we have welcomed the UK’s role in arrears clearance for Somalia, which paved the way for debt relief under the HIPC initiative and is enabling access to significant new affordable finance. We would urge the government to look at supporting arrears clearance for other countries where appropriate, for example in Syria. However, although we welcome the UK’s commitment to supporting HIPC debt relief for Sudan, we remain concerned about the approx. £900 40 million[xi] of relief that could be counted as ODA, given it is a legacy debt from the 1980s and is primarily made of up accrued interest. We would urge the government to commit that when relief is able to be provided, this is either not counted as ODA or is additional.

In addition, we welcomed UK leadership in other areas, such as on the G20 debt service suspension support initiative (DSSI). Although this suffered from certain challenges, including lack of private sector involvement, the UK should be championing a similar approach to emergency relief in other contexts moving forward. Likewise, the UK has played a critical leadership role, both in creating the concept of climate resilient debt clauses within UKEF, as well as supporting broader application and use, for example within the World Bank. We urge continued leadership on this, so that they become an effective supportive component to existing or new debt stock, public or private.

More widely, the UK can play a unique role in supporting improved private creditor participation in the Common Framework as one of the two major legal jurisdictions for privately held sovereign debt. As recommended by the IDC, the UK should assess legislative options, including potentially replicating the Debt Relief (Developing Countries) Act 2010 introduced under the previous Labour government. The UK should also champion efforts to improve transparency and certainty around the Common Framework process to encourage countries to apply, including estimates for the scale of debt relief available before applying and implementing a debt standstill upon application, so long as a debtor is negotiating in good faith.

Also, in relation to new, affordable debt, the UK has played a key supportive role to the IMF in respect to use of its SDRs for both the Poverty Relief and Growth Trust (PRGT) and Resilience and Sustainability Trust (RST). Given the demand for this type of finance, we would urge the government to further support where needed, in continued concessional ways, even if it cannot now count it as ODA. Although gold sales could be an alternative option to be explored, which the UK is pushing for, it doesn’t need to be either/or. Whilst ensuring the sufficiency of resources through the IMF is critical, equally important is ensuring that financing is accessible to all and that conditionalities to not adversely impact the lives of the world’s poorest children. We urge the UK to play a much-needed leadership role in this regard too.

Guarantees is another area where UK support has significantly increased, most notably for middle income countries like India and Ukraine, primarily through multilateral development banks (MDBs). Whilst we understand this focus on middle income countries and MDBs has less risk attached and that calls on guarantees risk constraining the ODA budget, we would like to more support through innovative models and for less developed countries, despite increased risk.

The UK has also played a key, effective role in supporting capital increases of MDBs, such as the World Bank, whether general or hybrid in nature. We would urge the UK to show leadership in respect to the World Bank’s 2025 Shareholder Review, both in providing substantial increase in voice and agency for clients to make the institution more effectively respond to needs, as well as pushing for a further capital increase of IBRD. In addition to MDBs, the International Development White paper outlined the government’s intention to explore BII managing third-party capital, and we understand this is still being explored. Whilst this is a model that others employ (e.g. AFD and Proparco) and therefore is a possible compliment to BII’s existing operations, we would urge a review that explores not just the viability, but the effectiveness, impact and value add, particularly its ability to support more marginalised people and equitable outcomes.

Does the FCDO’s funding model impact the cost effectiveness of its aid budget?

In respect to the FCDO’s funding model there are a number of elements to consider on cost effectiveness:

Bilateral/Multilateral funding – We believe the FCDO’s balanced approach is appropriate and there are key comparative advantages to each. These have largely been shown to be good VfM within the FCDO’s own annual reviews or externally (e.g. ICAI). The UK’s influential role in many multilateral institutions enables it to challenge cost effectiveness issues that emerge, and indeed certain UK funding is tied to reforms (e.g. The Global Financing Facility).

In the FCDO’s bilateral funding, increasing emphasis has been placed on framework agreements, large contracts delivered by consortia (with an overall lead contractor), or through funding streams overseen by Fund Managers. This has clear benefits to the FCDO, such as reducing management resources and staff time while minimising and mitigating risks. A consequence, however, is the transfer of management costs to lead organisations, which can be high. These channels of delivery also favour large, established organisations with expertise and capacity in respect to procurement, contract management and compliance.  While mitigating risks borne by the FCDO, risk is often passed down the supply chain to the organisations least able to bear it. Whilst we appreciate there are clear internal factors that make these arrangements beneficial for the FCDO, we would encourage a VfM review of contracting in terms of external impact and results, and reasonable risk-share, particularly in relation to impacts on localisation objectives. We would be happy to share more of our experiences on this, both within the context of FCDO funding and other programmes. 

Resource/capital spending - As mentioned above, there has been a key shift in ODA funding towards capital expenditure, particularly financial transactions. This has clear benefits from a UK government accounting perspective, reducing the fiscal impact of ODA spending in the short term, and likely further in the longer term, should they switch to reporting ODA through BII using the instrument method, rather than the current institution method . However, in terms of cost effectiveness, we are concerned by the findings of ICAI’s reviews of BII and believe there is still need for significant reforms, both to the financing and operating models.  There is also a strong case[xii] for certain types of capital funding to be additional to 0.5% GNI.

Funding models framed within a strategic whole of government approach – Given the significant different forms of funding modalities for recipient countries, we are concerned there is a lack of overall strategic approach to support effective impact and VfM, both within FCDO, and more broadly across government. For example, although we welcomed the initial formulation of the Country and Regional Development Partnership Summaries[xiii], there is a need for them to be substantially improved, including a clearer articulation of strategic approach and intended outcomes. In addition, given the importance of other government departments, from an ODA and non-ODA perspective (e.g. tax and trade), there is a need for a whole of government strategic approach.

Overall ODA management – As mentioned in previous points above, the recent overall management of the ODA budget has had a significant impact on FCDO’s funding model. For example, in respect to a fixed ODA budget ceiling, FCDO as the saver of last resort where other government departments are continuing to significantly overspend, and treasury’s overall spending rules. This is a situation that is set to continue now and likely in the future and is a situation that remains of critical concern in respect to FCDO’s cost effectiveness in respect to impact and VfM.

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