Millennium Challenge Corporation: Compacts in Cape Verde and Honduras Achieved Reduced Targets

MCC agreed with the recommendations in the GAO report, and in response has worked with the governments receiving more recent compacts to plan and craft the compacts with the aim of reducing long- term maintenance needs as well as providing technical assistance to strengthen planning, design, project management, funding, and execution capacity of the partner countries during compact development, implementation, and post-compact stages. MCC's 2014 guidelines now require road planning, design, and construction procedures to ensure prudent investment decisions are made to reduce long-term maintenance needs on critical roadway elements such as pavement, drainage and bridge structures.

The Millennium Challenge Corporation (MCC) agreed with our recommendation to ensure that updated ERR analyses are well-documented and supported and that key revised indicators and targets are reflected in updated economic rate of return (ERR) analysis. In response to our recommendation, MCC updated its "Guidelines for Country Team and Peer Review of Cost-Benefit Analysis" to require that new ERR models developed after the initial ERR but before Compact closeout be subject to peer review. This new step suggests that greater quality assurance would be applied to the link between revised indicators and targets and the updated ERR analysis. MCC provided information on the compact with Senegal as an example of how this policy was implemented: (1) For the Senegal Roads Rehabilitation Project, concern over high cost estimates and inaccurate original baseline data on road roughness for the RN2 (road in the North) led MCC to re-measure the road roughness and recalculate ERRs based on the new information. (2) For the Senegal Irrigation and Water Resource Management Project, monitoring data that was inconsistent with the baselines and targets that were set in the original Indicator Tracking Table (ITT), which caused MCC to critically examine the relationship between the baselines and targets, how the indicators were being reported, and what assumptions were made when baselines and targets were originally set. MCC also included language in its May 2012 Policy for Monitoring and Evaluation of Compacts and Threshold Programs to ensure that revised MCC targets are analyzed to assess whether they maintain the integrity of the original ERR. If the new ERR is below the hurdle rate, the modified targets must be approved.

MCC agreed with the recommendations in the GAO report, and in response to our recommendation, has strengthened its guidance around ERRs. More specifically, in January 2012, MCC revised and implemented Guidelines for Country Team and Peer Review of Cost-Benefit Analysis, which established the process for Country Team and Peer review of cost-benefit analyses and the resulting estimates of ERR. Furthermore, these guidelines state that all cost-benefit analysis models are updated at closeout (within 90 days of the end of the closure period). These steps support closing GAO's recommendation as implemented.