The United States Agency for International Development (USAID) currently uses Cost-Plus-Fixed-Fee (CPFF) as its de facto default funding and contracting model. Unfortunately, this model prioritizes administrative compliance over performance, hindering USAID’s development goals and U.S. efforts to counter renewed Great Power competition with Russia, the People’s Republic of China (PRC), and other competitors. The U.S. foreign aid system is losing strategic influence as developing nations turn to faster and more flexible (albeit riskier) options offered by geopolitical competitors like the PRC.
To respond and maintain U.S. global leadership, USAID should transition to heavily favor a Fixed-Price model – tying payments to specific, measurable objectives rather than incurred costs – to enhance the United States’ ability to compete globally and deliver impact at scale. Moreover, USAID should require written justifications for not choosing a Fixed-Price model, shifting the burden of proof. (We will use “Fixed-Price” to refer to both Firm Fixed Price Contracts and Fixed Amount Award Grants, wherein payments are linked to results or deliverables.) MORE