Feds canceled Deloitte Palestinian contract on evidence of joint cover-up

Feds canceled Deloitte Palestinian contract on evidence of joint cover-up

By Sarah Westwood | March 26, 2015 | 2:53 pm

A $12.2 million contract to boost the Palestinian economy was scrapped more than a year before its scheduled completion after U.S. Agency for International Development officials covered up the poor performance of its contractor, Deloitte Consulting.

USAID officials “mischaracterized” the results of the project, which was intended to generate $75 million in revenue and savings for Palestinian companies in the West Bank and Gaza Strip, the development agency’s inspector general found.

The officials reported on Deloitte’s “satisfactory” performance in the early months of the contract, “although project staff generally agreed that the project was unsuccessful in the first year…Giving misleading information about Deloitte’s performance does a disservice to other contracting officers who use this evaluation,” the inspector general said.

The development agency awarded the contract to Deloitte in March 2013. The trade project was supposed to create $25 million in annual savings and revenue for the Palestinian economy, for a total of $75 million in sustained gains by the end of the three-year contract..

Deloitte was tasked under the contract with persuading Israel to soften its customs procedures so Palestinian goods could flow more freely in and out of the territories, among other “cost saving” activities.

The optimistically “flawed estimates” of how much the USAID-backed effort could save Palestinian companies were based in part on assumptions that Deloitte could successfully pressure the Israeli government into amending its customs policies.

Realizing that strategy had little chance of success, the contractor abandoned endeavors such as “improving the efficiency of crossing points between territory controlled by the Palestinian Authority and territory controlled by the Government of Israel” and “increasing trade with Gaza.”

“These revisions left [project staff] frustrated and feeling undermined,” the inspector general said.

Dissent among Deloitte’s staff ultimately led to a spate of firings and resignations as the project continued to fall further behind schedule.

“Relations soured when two key staff openly disagreed with project management,” the inspector general said. “Washington-based Deloitte officials terminated both of them in May 2014. However, their removal did not improve the work environment, and in June 2014 the chief of party resigned. Apparently unrelated to these staffing problems, but coinciding with them, the deputy chief of party also left the project.”

Although shortcomings in the project’s management made it clear by September 2014 that the project would likely never reach its target, Deloitte staff nevertheless took an employee retreat in Bethlehem that month. They returned with the intention of revising the project estimates.

While the inspector general never saw those revisions, the watchdog said “a cursory review of existing estimates cast doubt on the assumptions behind them.”

For example, Deloitte attributed $14 million in savings to its efforts to promote medjool dates, a lucrative agricultural export, even though farmers had upped their production of the fruits by 500 percent before USAID became involved in the market.

“The five-fold increase in production that farmers initiated before the project became involved would largely explain any revenue increase,” the inspector general said.

“Taking full credit” for the Palestinian farmers’ additional income “would go against the contract,” the inspector general said.

USAID’s internal watchdog was not alone in scrutinizing the struggling project in the fall of 2014.

The agency’s West Bank and Gaza mission called on the USAID Bureau for Economic Growth, Education and Environment to probe how Deloitte claimed to achieve the $75 million target when it bid on the contract.

After both the inspector general and the economic bureau highlighted problems with the way Deloitte presented its progress, the mission tapped an independent expert to review the contractor’s claim that it had saved Palestinian companies $21 million between March 2013 and September 2014.

The unnamed expert disputed Deloitte’s claim and noted “the survey results are not reliable.”

Given the waves of criticism from all three oversight groups and citing “convenience,” USAID terminated the entire contract March 1, 2015.

“The determination to ‘terminate for convenience’ was made after taking into consideration numerous factors, including the political climate generally, funding constraints and concerns about whether the project’s target results would be achieved,” a USAID spokesperson, who declined to be named, told the Washington Examiner.

The spokesperson said the type of contract termination used allows Deloitte to keep money already paid for “reasonable, allocable and allowable” project expenses.

Jonathan Schanzer, vice president for research at the Foundation for Defense of Democracies, said the contract’s early termination raises questions about what USAID hoped to accomplish through Deloitte.

“If it was only to achieve a political outcome, then I’m not surprised that it failed,” Schanzer said.

For example, one of Deloitte’s stated activities — increasing exports to Gaza — was always bound to be a non-starter with the Israeli government, Schanzer noted.

“Why would the U.S. government hire a company to essentially try to ease a blockade that…is about depriving a terrorist group of resources as it tries to run a government in the Gaza Strip?” Schanzer said, referring to Hamas, the Palestinian Islamic group that has controlled the territory since 2006.

He said such questions are necessary when considering how assistance projects fit into or conflict with U.S. foreign policy, especially in contexts where tensions run so high that traditional diplomacy fails.

“It seems like this was an attempt to gain additional leverage,” Schanzer said.

According to the Congressional Research Service, “Palestinians are among the world’s largest per capita recipients of international foreign aid.”

Go here to read the full USAID inspector general report.

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