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Honduras Achieved Reduced Targets' which was released on July 25, 2011.
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United States Government Accountability Office:
GAO:
Report to Congressional Committees:
July 2011:
Millennium Challenge Corporation:
Compacts in Cape Verde and Honduras Achieved Reduced Targets:
GAO-11-728:
GAO Highlights:
Highlights of GAO-11-728, a report to congressional committees.
Why GAO Did This Study:
The Millennium Challenge Corporation (MCC) was established in 2004 to
help developing countries reduce poverty and stimulate economic growth
through multiyear compact agreements. As of June 2011, MCC had signed
compacts with 23 countries totaling approximately $8.2 billion in
assistance. MCC asks countries to develop compacts with a focus on
results and effective monitoring and evaluation. MCC sets targets,
which may be revised, to measure the compact results. In late 2010,
the Cape Verde and Honduras compacts reached the end of the 5-year
implementation period. This report, prepared in response to a
congressional mandate to review compact results, examines the extent
to which MCC has (1) achieved performance targets and sustainability
for projects in Cape Verde and Honduras and (2) assessed progress
toward the goal of income growth and poverty reduction. GAO analyzed
MCC documents and interviewed MCC officials and stakeholders in
Washington, D.C., Cape Verde, and Honduras.
What GAO Found:
In its first two completed compacts, Cape Verde and Honduras, MCC met
some key original targets and many final targets, but the
sustainability of some activities is uncertain. In Cape Verde, MCC
altered the scope of its three projects, meeting some key original
targets and many final targets by the compact’s end. For example, an
activity to upgrade and expand a major port in Cape Verde, which
represented almost 50 percent of the $110.1 million compact at
signature, faced inaccurate early planning assumptions and increased
costs. As a result, MCC split the port activity into two phases,
funding the completion of the first phase—which covered about one-
third of total expected costs for the port activity. In Honduras, MCC
met a key original target and most final targets by the end of the
$205 million compact. For example, MCC constructed approximately half
of the planned highway and all rescoped secondary roads. In addition,
several compact activities in Cape Verde and Honduras face challenges
to long-term sustainability. Although MCC took steps to provide for
sustainability, the governments of both Cape Verde and Honduras may
have difficulty maintaining the infrastructure projects in the long
term due to lack of funding, among other challenges. For example, MCC
included privatization of port operations and road maintenance funding
as conditions of the Cape Verde compact. However, the government has
had difficulty meeting these requirements, calling into question the
long-term sustainability of some projects. In Honduras, both uncertain
government funding for road maintenance and design decisions on
construction projects may jeopardize the sustainability of MCC-funded
roads.
MCC impact evaluations for the Cape Verde and Honduras compacts are
ongoing but delayed, and updated economic rate of return (ERR)
analyses of the largest compact projects have not been well documented
or linked to revised targets. MCC has taken steps to modify impact
evaluation designs in response to implementation challenges and
delays. For example, challenges in implementing the original
evaluation design for the farmer training and development activity in
Honduras led MCC to enhance the methodology by adding a supplemental
design. Furthermore, updated ERR analyses of projects representing
over 50 percent of compact funds have not been well documented or
supported. For example, MCC updated its ERR analysis for the Honduras
transportation project, but documentation for the underlying
quantitative analysis supporting the updated ERR is not available.
Additionally, ERR analyses updated in response to rescoping compact
activities were not consistently linked to revised targets and
indicators. For example, MCC updated the ERR analysis for the
watershed management and agricultural support project in Cape Verde,
but the analysis does not reflect the values and numerical ranges of
key revised targets. In addition, although original ERRs are estimated
for a 20-year period, MCC has not developed guidance for updating ERRs
following compact completion. Re-estimated end-of-compact ERRs will
likely be lower than predicted at compact signature.
What GAO Recommends:
GAO recommends that MCC (1) work with countries to make decisions that
reduce long-term maintenance needs, (2) ensure updated economic
analyses are documented and consistent with monitoring targets, and
(3) develop guidance for updating economic analyses following compact
completion. MCC agreed with the intent of all three recommendations.
View GAO-11-728 or key components. For more information, contact David
Gootnick at (202) 512-3149 or gootnickd@gao.gov.
[End of section]
Contents:
Letter:
Background:
Performance Targets and Sustainability Issues:
Impact Evaluations and ERR Issues:
Conclusions:
Recommendations for Executive Action:
Agency Comments and Our Evaluation:
Appendix I: Scope and Methodology:
Appendix II: Cape Verde Compact Results:
Appendix III: Honduras Compact Results:
Appendix IV: Comments from the Millennium Challenge Corporation:
Appendix V: GAO Contacts and Staff Acknowledgments:
Related GAO Products:
Tables:
Table 1: Cape Verde Compact Structure and Funding, at Signature:
Table 2: Honduras Compact Structure and Funding, at Signature:
Table 3: Key Performance Results for the Cape Verde Compact Activities:
Table 4: Key Performance Results for the Honduras Compact Activities:
Table 5: Structure of Cape Verde Compact, at Signature:
Table 6: Key Performance Results for Port Activity, Cape Verde:
Table 7: Key Performance Results for Roads and Bridges Activity, Cape
Verde:
Table 8: Key Performance Results for Water Management and Soil
Conservation Activity, Cape Verde:
Table 9: Key Performance Results for Agribusiness Development Services
Activity, Cape Verde:
Table 10: Key Performance Results for Access to Credit Activity, Cape
Verde:
Table 11: Key Performance Results for Partnership to Mobilize
Investment Activity, Cape Verde:
Table 12: Key Performance Results for Financial Sector Reform
Activity, Cape Verde:
Table 13: Structure of Honduras Compact, at Signature:
Table 14: Key Performance Results for CA-5 Highway Activity, Honduras:
Table 15: Key Performance Results for Secondary Roads Activity,
Honduras:
Table 16: Key Performance Results for Weight Control Activity,
Honduras:
Table 17: Targeted and Achieved International Roughness Index (IRI)
for CA-5 and Secondary Roads, Honduras:
Table 18: Key Performance Results for Farmer Training and Development
Activity, Honduras:
Table 19: Key Performance Results for Farm-to-Market Roads Activity,
Honduras:
Table 20: Key Performance Results for Farmer Access to Credit
Activity, Honduras:
Table 21: Key Performance Results for Agricultural Public Goods Grants
Facility Activity, Honduras:
Figures:
Figure 1: Cape Verde Compact Funding at Signature and Compact End:
Figure 2: Honduras Compact Funding at Signature and Compact End:
Figure 3: Timeline of Monitoring and Evaluation Plans for Cape Verde
and Honduras Compacts:
Figure 4: Phases 1 and 2 of Port Activity, Cape Verde Infrastructure
Project:
Figure 5: CA-5, Secondary Road, and Farm-to-Market Road Locations,
Honduras:
Figure 6: Damaged Areas and Government of Cape Verde-Funded Repair
Activities along Road 2:
Figure 7: Landslide on CA-5 Section 3 in Honduras:
Figure 8: Planned and Rehabilitated Roads on Santiago Island, Cape
Verde Infrastructure Project:
Figure 9: Bridges Constructed on Santo Antão Island, Cape Verde
Infrastructure Project:
Figure 10: Irrigated Participant Farm, Cape Verde Watershed Management
and Agricultural Support Project:
Figure 11: CA-5 Section 4 before and after Reconstruction, Honduras
Transportation Project:
Figure 12: Relocated Businesses (in front) and Homes (in rear),
Honduras Transportation Project:
Figure 13: Secondary Roads before and after Reconstruction, Honduras
Transportation Project:
Figure 14: Testing Equipment in Contractor's Laboratory for CA-5
Section 2, Honduras Transportation Project:
Figure 15: Revegetation along Reconstructed CA-5 Highway and Secondary
Road, Honduras Transportation Project:
Figure 16: Flushed Asphalt on Secondary Roads, Honduras Transportation
Project:
Figure 17: Landslide in CA-5 Section 2, Honduras Transportation
Project:
Figure 18: Erosion of Steep Slope along Secondary Road, Honduras
Transportation Project:
Figure 19: Locations on Completed CA-5 without Traffic Safety Devices,
Honduras Transportation Project:
Figure 20: Irrigation on Farmer Training and Development Activity
Participant Farm, Honduras Rural Development Project:
Figure 21: Farm-to-Market Roads before and after Reconstruction,
Honduras Rural Development Project:
Abbreviations:
CABEI: Central American Bank for Economic Integration:
CEO: chief executive officer:
ERR: economic rate of return:
IRI: International Roughness Index:
ISO: International Organization for Standardization:
MCA: Millennium Challenge Account:
MCC: Millennium Challenge Corporation:
MFI: microfinance institution:
[End of section]
United States Government Accountability Office:
Washington, DC 20548:
July 25, 2011:
The Honorable Patrick Leahy:
Chairman:
The Honorable Lindsey Graham:
Ranking Member:
Subcommittee on the Department of State, Foreign Operations, and
Related Programs:
Committee on Appropriations:
United States Senate:
The Honorable Kay Granger:
Chairwoman:
The Honorable Nita Lowey:
Ranking Member:
Subcommittee on State, Foreign Operations, and Related Programs:
Committee on Appropriations:
House of Representatives:
The Millennium Challenge Corporation (MCC) was established in 2004 to
provide aid to developing countries that have demonstrated a
commitment to ruling justly, encouraging economic freedom, and
investing in people. MCC provides assistance to eligible countries
through multiyear compact agreements to fund specific programs
targeted at reducing poverty and stimulating economic growth. MCC
compacts may not be longer than 5 years.[Footnote 1] As of June 2011,
MCC had signed compacts with 23 countries, committing a total of
approximately $8.2 billion.[Footnote 2] The President has requested
approximately $1.1 billion in additional funds for MCC for fiscal year
2012.
Cape Verde and Honduras were among the first countries selected by MCC
for a compact. In the fiscal year 2008 Consolidated Appropriations
Act, Congress directed GAO to review the results achieved by MCC
compacts.[Footnote 3] In late 2010, the compacts for Cape Verde and
Honduras were the first to reach the end of the 5-year implementation
period.[Footnote 4] This report examines the extent to which MCC has
(1) achieved performance targets and longer-term sustainability for
projects in the Cape Verde and Honduras compacts and (2) assessed
progress toward the two compacts' goals of income growth and poverty
reduction.
To assess the results achieved by MCC's compacts in Cape Verde and
Honduras, we analyzed U.S. agency documents, interviewed MCC officials
and stakeholders, and observed project results in both countries. We
reviewed MCC guidance and policy documents, as well as the compacts
and monitoring and evaluation plans for each country, to identify
criteria for our assessment. We interviewed MCC officials in
Washington, D.C., as well as MCC and Millennium Challenge Account
(MCA) officials in Cape Verde and Honduras, regarding the results of
each compact activity, including the quality and sustainability of the
projects. We also visited compact projects in both countries and met
with contractors, construction supervisors, grantees, and
beneficiaries.
We focused our review more heavily on activities that represent a
higher proportion of compact funds in both countries. In assessing and
reporting MCC's results, we compared actual results achieved at the
end of the compact for select performance indicators to both the
original and, in some cases, revised targets associated with each
indicator. We considered the original target to be that which was
first documented for each performance indicator, and the final target
to be the target last documented in MCC monitoring documents. Given
that MCC tracked several performance indicators for each compact
project, we reported on key indicators that most closely represented
the goal of each compact activity and also considered which indicators
MCC reports in its public communications. Additionally, we reviewed
the monitoring information collected by MCC and MCA and interviewed
officials and contractors about the quality of the data. In reviewing
the extent to which MCC has assessed progress toward the compacts'
goals, we reviewed planned evaluation designs and interviewed
officials from MCC and MCA, as well as impact evaluators. MCC enters
into a legal relationship with partner country governments, which vest
responsibility for day-to-day management of compact project
implementation to the MCA, including monitoring and evaluation
activities such as setting and revising targets, but such MCA actions
require MCC's direct oversight and approval. Therefore, throughout
this report, we attribute all decisions related to project rescoping
and compact targets to MCC. (See appendix I for further details of our
objectives, scope, and methodology.)
We conducted this performance audit from September 2010 to July 2011
in accordance with generally accepted government auditing standards.
Those standards require that we plan and perform the audit to obtain
sufficient, appropriate evidence to provide a reasonable basis for our
findings and conclusions based on our audit objectives. We believe the
evidence obtained provides a reasonable basis for our findings and
conclusions based on our audit objectives.
Background:
Management of MCC Programs:
MCC, a government corporation, is managed by a chief executive officer
(CEO), whom the President appoints with the advice and consent of the
Senate, and is overseen by a Board of Directors. The Secretary of
State serves as board chair, and the Secretary of the Treasury serves
as vice-chair.[Footnote 5] MCC's model is based on a set of core
principles deemed essential for effective development assistance,
including good governance, country ownership, focus on results, and
transparency. According to MCC, country ownership of an MCC compact
occurs when a country's national government controls the
prioritization process during compact development, is responsible for
implementation, and is accountable to its domestic stakeholders for
both decision making and results.
In keeping with the MCC principle of country ownership, MCC enters
into a legal relationship with partner country governments. During the
5-year compact implementation period the partner government vests
responsibility for day-to-day management, including monitoring and
evaluation of the progress of compact projects, to accountable
entities in recipient countries (the entities' name is usually formed
from "MCA" plus the country's name--for example, MCA-Cape Verde). MCC
provides the frameworks and guidance for compact implementation,
monitoring, and evaluation that MCAs are to use in implementing
compact projects.
To promote transparency, MCC makes information available on its Web
site throughout the life of a compact, such as project budgets and
descriptions, projected outcomes, and quarterly updates on financial
and program progress. This transparency enables stakeholders to review
the information that contributed to MCC investment decisions, track
program progress against targets, and, once programs reach completion,
see clearly which programs did or did not achieve their goals.
MCC Compacts in Cape Verde and Honduras:
The Cape Verde and Honduras compacts were among the first countries
that MCC selected as eligible for assistance and the first to reach
the end of the 5-year implementation period. The two compacts varied
in the type and size of projects funded, but each devoted more than
half of compact funds to infrastructure projects such as roads and
ports. Each compact also included a smaller agricultural development
project such as farmer training or construction of agricultural
infrastructure.
Cape Verde Compact:
MCC and the government of Cape Verde signed a 5-year compact in July
2005, which entered into force in October 2005 and ended in October
2010. The compact, for which MCC committed $110.1 million in funding
at compact signature, consisted of three projects. Figure 1 shows Cape
Verde compact funding by project at signature and compact end.
Figure 1: Cape Verde Compact Funding at Signature and Compact End:
[Refer to PDF for image: 2 pie-charts]
Cape Verde compact allocations, at signature:
Infrastructure Project ($78.8 million): 71%;
Program Administration and Control, and Monitoring and Evaluation
($13.3 million): 12%;
Watershed Management and Agricultural Support Project ($10.8 million):
10%;
Private Sector Development Project ($7.2 million): 7%.
Cape Verde compact funding as of June 2011:
Infrastructure Project ($82.6 million): 75%;
Program Administration and Control, and Monitoring and Evaluation
($12.5 million): 11%;
Watershed Management and Agricultural Support Project ($11.6 million):
11%;
Private Sector Development Project ($1.8 million): 2%;
Other Compact Funds[A] ($1.5 million): 1%.
Source: GAO analysis of Millennium Challenge Corporation data.
[A] According to MCC, approximately $1.5 million of compact funds were
not disbursed, and following final payments and audits the remaining
compact funds will be deobligated.
[End of figure]
Table 1 shows the Cape Verde projects' planned activities and funding
allocations at compact signature.
Table 1: Cape Verde Compact Structure and Funding, at Signature:
Planned projects and activities: Infrastructure project;
Funding allocation: $78.8 million.
Planned projects and activities: Port activity;
Funding allocation: $53.7 million.
Planned projects and activities: Roads and bridges activity;
Funding allocation: $25.0 million.
Planned projects and activities: Watershed management and agricultural
support project;
Funding allocation: $10.8 million.
Planned projects and activities: Water management and soil
conservation activity;
Funding allocation: $6.8 million.
Planned projects and activities: Agribusiness development services
activity;
Funding allocation: $3.6 million.
Planned projects and activities: Access to credit activity;
Funding allocation: $0.5 million.
Planned projects and activities: Private sector development project;
Funding allocation: $7.2 million.
Planned projects and activities: Partnership to mobilize investment
activity;
Funding allocation: $5.0 million.
Planned projects and activities: Financial sector reform activity;
Funding allocation: $2.2 million.
Planned projects and activities: Program administration and monitoring
and evaluation;
Funding allocation: $13.3 million.
Planned projects and activities: Program administration;
Funding allocation: $8.4 million.
Planned projects and activities: Monitoring and evaluation;
Funding allocation: $4.9 million.
Planned projects and activities: Compact total;
Funding allocation: $110.1 million.
Source: GAO analysis of Millennium Challenge Corporation data.
Note: The sum of activity funding may not equal total project funding
due to rounding.
[End of table]
Honduras compact:
MCC and the government of Honduras signed a 5-year compact in June
2005, which entered into force in September 2005 and ended in
September 2010. The compact, for which MCC committed $215 million in
funding at compact signature, consisted of two projects. Figure 2
shows Honduras compact funding by project at signature and compact end.
Figure 2: Honduras Compact Funding at Signature and Compact End:
[Refer to PDF for image: 2 pie-charts]
Honduras compact allocations, at signature:
Transportation Project ($125.7 million): 59%;
Rural Development Project ($68.3 million): 33%;
Program Administration and Control, and Monitoring and Evaluation
($17.1 million): 8%.
Honduras compact funding as of June 2011:
Transportation Project ($120.6 million): 58%;
Rural Development Project ($72.2 million): 34%;
Program Administration and Control, and Monitoring and Evaluation
($15.1 million): 7%;
Other Compact Funds[A] ($1.1 million): 1%.
Source: GAO analysis of Millennium Challenge Corporation data.
[A] According to MCC, approximately $1.1 million of compact funds were
not disbursed, and following final payments and audits the remaining
compact funds will be deobligated.
[End of figure]
Table 2 shows the Honduras projects' planned activities and funding
allocations at compact signature.
Table 2: Honduras Compact Structure and Funding, at Signature:
Planned projects and activities: Transportation project;
Funding allocation: $125.7 million.
Planned projects and activities: Highway CA-5 activity;
Funding allocation: $96.4 million.
Planned projects and activities: Secondary road activity;
Funding allocation: $21.3 million.
Planned projects and activities: Weight control system activity;
Funding allocation: $4.7 million.
Planned projects and activities: Transportation project manager;
Funding allocation: $3.3 million.
Planned projects and activities: Rural development project;
Funding allocation: $72.2 million.
Planned projects and activities: Farmer training and development
activity;
Funding allocation: $27.4 million.
Planned projects and activities: Farm-to-market roads activity;
Funding allocation: $21.5 million.
Planned projects and activities: Farmer access to credit activity;
Funding allocation: $13.8 million.
Planned projects and activities: Agricultural public goods grant
facility activity;
Funding allocation: $8.0 million.
Planned projects and activities: Rural development project manager;
Funding allocation: $1.5 million.
Planned projects and activities: Program administration and monitoring
and evaluation;
Funding allocation: $17.1 million.
Planned projects and activities: Program administration;
Funding allocation: $12.1 million.
Planned projects and activities: Monitoring and evaluation;
Funding allocation: $5.0 million.
Planned projects and activities: Compact total;
Funding allocation: $215.0 million.
Source: GAO analysis of Millennium Challenge Corporation data.
Note: The sum of activity funding may not equal total project funding
due to rounding.
[End of table]
MCC Compact Development:
Each fiscal year, MCC identifies countries that are candidates for
assistance. MCC uses per capita income data to identify two pools of
candidate countries: low-income and lower-middle-income countries.
[Footnote 6] MCC's Board of Directors then uses quantitative
indicators to assess a candidate country's policy performance to
determine eligibility.[Footnote 7] If the policy performance of a
country declines during implementation of a compact, the board can
suspend or terminate the compact.
After MCC selects a country as eligible, the country begins a four-
phase process that can lead to a compact's entry into force: (1) the
eligible country develops and submits a compact proposal; (2) MCC
conducts a due diligence review of the proposed projects; (3) MCC and
the country negotiate and sign the compact after MCC board approval;
(4) MCC and the country complete preparations, including developing
disbursement plans, for the compact to enter into force. After the
compact enters into force, compact implementation begins, and funds
are obligated and disbursed. Following MCC's internal reorganization
in October 2007, MCC revamped its compact development process to
include greater initial engagement with eligible countries and
assistance to countries in conducting needed studies and establishing
management structures.[Footnote 8]
Sustainability:
MCC compacts are to be designed so that projects are sustainable over
20 years. During the compact development process, MCC is to assess the
mechanisms in place to enhance sustainability, including the policies
and practices that will enable MCC investments to continue to provide
benefits. For instance, as part of compact proposals submitted to MCC,
partner countries are required to identify risks to project
sustainability and describe measures needed to ensure that project
benefits can be sustained beyond the period of MCC financing. Partner
countries are to consider a number of issues affecting sustainability,
including environmental sustainability; institutional capacity for
operations and maintenance; and for proposed infrastructure projects,
recent funding, performance, and expected expenses for operations and
maintenance. Furthermore, during compact implementation, MCC tracks
progress against key policy reforms and institutional improvements
that were included in the compact to enhance project impact and
sustainability.
MCC Monitoring and Evaluation Framework and Economic Rate of Return
Analysis:
For each compact, countries are required to create a monitoring and
evaluation plan, which is one aspect of MCC's efforts to assess a
compact's results. MCC developed guidelines in 2006 to assist eligible
countries in the preparation of the monitoring and evaluation plan and
issued an updated policy in 2009. According to MCC's 2009 monitoring
and evaluation policy, the policy applies to new or revised monitoring
and evaluation plans developed after issuance of the policy in May
2009.
Monitoring:
According to MCC's 2006 guidelines for monitoring and evaluation
plans, performance monitoring helps track progress toward compact
goals and objectives, as well as serves as a management tool. In
addition, according to MCC's 2009 monitoring and evaluation policy,
the plan's monitoring component outlines the performance indicators by
which compact results will be measured.[Footnote 9] The plan's
monitoring component also establishes a performance target for each
indicator and the expected time the target will be achieved.[Footnote
10] For example, the number of kilometers completed may be an
indicator for road construction projects and a numeric target is set
to be completed by compact end.
Revisions to Compact Projects, Indicators, and Targets:
In response to MCC's experiences with early compacts, MCC has learned
that plans may change during compact implementation and that it may be
necessary to modify programs after the execution of a compact
agreement. Recognizing that MCC has a responsibility to ensure that
program modifications are promptly and transparently assessed based on
adequate due diligence and consultation, in August 2010, MCC adopted a
policy to establish a single process for evaluating and approving such
modifications. The agency updated this policy in March 2011.
A rescoped compact project or activity refers to any change in the
scope or substance of a compact program, including the modification,
addition or elimination of a project, activity or subactivity that may
entail potential alterations to the intended beneficiary group. In
response to such changes, MCC allows for modifications to associated
indicators and targets. According to MCC policy issued in 2009,
indicators in the monitoring and evaluation plan can be modified by
(1) adding a new indicator, (2) removing an existing indicator, or (3)
changing a descriptive quality of an existing indicator. The policy
also outlines several reasons for adding or changing indicators. For
instance, an indicator may be removed because a change to the project
renders the indicator irrelevant or the cost of collecting data for an
indicator outweighs its usefulness. End-of-compact targets associated
with these indicators can also be changed, including increasing or
decreasing targets. MCC's 2009 policy also outlines specific
circumstances under which targets may be changed, including changes in
scope of the activity or exogenous factors such as natural disasters
or political turmoil. Ultimately, the justification for deleting or
modifying an indicator or target must be adequately documented in
revised monitoring and evaluation plans.
Figure 3 shows a timeline of the MCC monitoring and evaluation plans
for the Cape Verde and Honduras compacts. For both countries, only
final monitoring and evaluation plans, issued in October and December
2010 for Cape Verde and Honduras, respectively, were subject to MCC's
2009 monitoring and evaluation policy.
Figure 3: Timeline of Monitoring and Evaluation Plans for Cape Verde
and Honduras Compacts:
[Refer to PDF for image: illustrated timeline]
Cape Verde compact:
October 2005:
Compact entry-into-force.
April 2006:
First monitoring and evaluation plan.
May 2006-May 2009:
MCC Guidelines on Monitoring and Evaluation Plans.
December 2008:
Second monitoring and evaluation plan.
May 2009-Current:
MCC Policy on Monitoring and Evaluation of Compacts.
October 2010:
Compact end;
Third monitoring and evaluation plan.
Honduras compact:
September 2005:
Compact entry-into-force.
May 2006-May 2009:
MCC Guidelines on Monitoring and Evaluation Plans.
September 2006:
First monitoring and evaluation plan.
November 2008:
Second monitoring and evaluation plan.
May 2009-Current:
MCC Policy on Monitoring and Evaluation of Compacts.
September 2010:
Compact end.
December 2010:
Third monitoring and evaluation plan.
Source: GAO.
[End of figure]
Impact Evaluation:
MCC hires independent researchers to evaluate the impact of compact
projects, and the monitoring and evaluation plan outlines aspects of
planned impact evaluations, including questions, methodologies, and
data collection.[Footnote 11] These analyses compare projects' final
results with an estimate of what would have happened without the
project, measuring changes in individual, household, or community
income and well-being that result from a particular project.[Footnote
12]
MCC Economic Analyses:
During its due diligence review of each compact proposal,[Footnote 13]
MCC analyzes proposed projects' estimated impact on the country's
economic growth and poverty reduction. Specifically, MCC calculates a
projected economic rate of return (ERR)--that is, the expected annual
average return to the country's firms, individuals, or sectors for
each dollar that MCC spends on the project. In calculating project
ERRs, MCC uses information such as MCC's expected annual expenditures
for the project and the projected annual benefits to the country. In
calculating expected project benefits, MCC projects the sustainability
of investments over a relatively long term, typically 20 years, and
includes assumptions about the probability that necessary maintenance
will be completed. MCC establishes a minimum acceptable ERR, referred
to as a hurdle rate, that compact projects should achieve to be
eligible for funding. It uses this, as well as other information
gathered during the due diligence process, to inform its internal
decisions to fund proposed projects and compacts.[Footnote 14]
According to MCC's 2006 guidelines for monitoring and evaluation
plans, the economic analysis links to the development of indicators
and targets for monitoring compact results.[Footnote 15] Furthermore,
according to MCC's 2009 policy on monitoring and evaluation of
compacts, monitoring and evaluation plans should be directly linked to
economic analyses. The variables from the ERR analysis of benefit
streams should be used as performance indicators and targets in the
monitoring and evaluation plan. MCC's 2009 policy also states that
when MCC is considering changes to targets that are linked to the ERR
analysis, modified targets should be analyzed to assess whether they
maintain the integrity of the original ERR. If the new ERR is below
the minimum acceptable ERR for the compact, the target change will
require additional MCC approval.[Footnote 16]
MCC's Project Management and Quality Assurance Framework for
Infrastructure Projects:
MCC's implementation process for infrastructure contracts and projects
requires that the MCAs have individual project directors--for example,
a roads director--who oversee the activities of outside implementing
entities, project management consultants, design engineers,
independent construction supervisors, and project construction
contractors.[Footnote 17] In general, MCAs deliver infrastructure
projects through a design-bid-build approach in which a design
engineer[Footnote 18] develops technical plans and specifications that
are used by a construction contractor, hired under a separate MCA
procurement action, to build the works.
Independent construction supervisors contracted by the MCA conduct
oversight of day-to-day construction and the activities of the project
construction contractors to ensure compliance with contract
requirements. Independent construction supervisors play an important
role in ensuring construction quality[Footnote 19] by performing such
tasks as approving construction materials, overseeing testing,
[Footnote 20] and inspecting completed work. In addition to MCA's
independent construction supervisor, MCC employs its own independent
engineering consultants to monitor progress of the construction works
as managed by the MCA and to assess its quality.
Performance Targets and Sustainability Issues:
MCC met some key original targets and many of its final targets for
the Cape Verde and Honduras compacts. Additionally, MCC took steps to
provide for the sustainability of the projects, but the governments of
both Cape Verde and Honduras may have difficulty maintaining the
infrastructure projects in the long term due to the lack of funding,
among other challenges.
Cape Verde: MCC Altered the Scope of Its Three Projects, Meeting Some
Key Original Targets and Many Final Targets:
MCC rescoped each of the three projects under the Cape Verde compact,
reducing some key targets. MCC met or exceeded some key original
targets and met many final targets by the compact's end. Table 3 shows
the performance results for key indicators for the Cape Verde compact
projects. For more detail on the Cape Verde compact results, see
appendix II.
Table 3: Key Performance Results for the Cape Verde Compact Activities:
Activity: Port;
Amount disbursed: $54.9 million;
Indicator: Phase 1 port works--percent complete[A];
Original target: 100% by year 3;
Final target: 100% by year 5;
Final result: 100% by year 5[B];
Percentage of original target met: Not determined;
Percentage of final target met: 100%.
Activity: Port;
Indicator: Phase 2 port works--percent complete[C];
Original target: 100%;
Final target: Activity eliminated.
Activity: Roads and bridges[D];
Amount disbursed: $27.7 million;
Indicator: Kilometers of road rehabilitated (km);
Original target: 63;
Final target: 39.3;
Final result: 40.6[E];
Percentage of original target met: 64%;
Percentage of final target met: 103%.
Activity: Water management and soil conservation;
Amount disbursed: $6.0 million;
Indicator: Reservoirs constructed;
Original target: 28;
Final target: 28;
Final result: 28;
Percentage of original target met: 100%;
Percentage of final target met: 100%.
Activity: Water management and soil conservation;
Indicator: Volume of available water (m3)[F];
Original target: 875,355;
Final target: 465,800;
Final result: 352,978;
Percentage of original target met: 40%;
Percentage of final target met: 76%.
Activity: Agribusiness development services;
Amount disbursed: $5.0 million;
Indicator: Hectares under improved or new irrigation[G];
Original target: 121;
Final target: 111;
Final result: 13.4;
Percentage of original target met: 11%;
Percentage of final target met: 12%.
Activity: Access to credit;
Amount disbursed: $0.6 million;
Indicator: Value of agricultural and rural loans;
Original target: $600,000;
Final target: $600,000;
Final result: $617,000;
Percentage of original target met: 103%;
Percentage of final target met: 103%.
Activity: Partnership to mobilize investment;
Amount disbursed: $0.4 million;
Indicator: Value added in priority sectors above current trends;
Original target: none set;
Final target: Activity eliminated[H].
Activity: Financial sector reform;
Amount disbursed: $1.4 million;
Indicator: Microfinance institutions operationally self-sufficient;
Original target: 4 of 8;
Final target: 4 of 5;
Final result: 5 of 5;
Percentage of original target met: 125%;
Percentage of final target met: 125%.
Source: GAO analysis of Millennium Challenge Corporation data:
Notes: We considered the original target to be that which was first
documented for each performance indicator, in either the 2006, 2008,
or 2010 monitoring and evaluation plan, and the final target to be
that which was documented in the 2010 monitoring and evaluation plan.
In addition, the final results in this table reflect the results
achieved by compact completion, although some activities continued
after the compact completion and continue to achieve results.
[A] MCC originally had three separate indicators for sections of the
port activity that it combined into one indicator for phase 1 port
works.
[B] At the end of the compact, a small amount of phase 1 work remained
undone, with its completion contingent upon the completion of other
work that is part of a contract funded by another source.
[C] MCC originally had two separate indicators--one showing related
work to be 100 percent complete by year 3 and the other showing
related work to be 100 percent complete by year 5--for sections of the
port activity that it combined into one indicator for phase 2 port
works. This indicator was eliminated when the port project was
rescoped and phase 2 works were funded by another source.
[D] MCC did not have an associated indicator for tracking the number
of bridges built.
[E] The length of rehabilitated roads consists of 39.6 kilometers
along three road segments on Santiago Island and a 1-kilometer road
associated with bridge construction on Santo Antão Island. Four
bridges were constructed on Santo Antão Island as initially planned.
[F] MCC revised and reduced the target for the volume of water
available to 627,500 cubic meters to reflect a new indicator
definition in its 2008 monitoring and evaluation plan. In its 2010
monitoring and evaluation plan, the agency again revised and reduced
the final target to reflect a calculation error related to spring-fed
reservoirs.
[G] MCC reduced the target to 111 hectares to reflect project changes
in its 2008 monitoring and evaluation plan. MCC renamed the original
indicator "area irrigated with drip irrigation" to reflect a modified
definition in its 2010 monitoring and evaluation plan.
[H] All components of this activity were eliminated, except the
establishment of a private credit bureau, which did not have an
associated indicator.
[End of table]
Cape Verde Infrastructure Project: MCC Rescoped Port Construction and
Road Rehabilitation Activities, Meeting Final Targets:
Port of Praia. MCC disbursed $54.9 million to fund reconstruction of a
wharf, a new container yard, and a new access road. MCC and MCA-Cape
Verde reduced the activity's original scope as a result of inaccurate
early planning concerning design details and construction materials
that led to cost increases and implementation delays.[Footnote 21]
They split the activity into two phases, with MCC funding the first
and the Cape Verde government funding the second. The first phase of
construction represents about one-third of the total expected cost of
both phases of port construction, and nearly 100 percent of the works
for phase 1 were completed by compact end.[Footnote 22] MCA-Cape Verde
established a management structure consistent with MCC's requirements
to ensure work met quality standards and functions as intended. The
Cape Verde government is funding construction of the second phase--
expansion of another wharf and construction of a new
breakwater.[Footnote 23] Figure 4 shows the locations and photographs
of the two phases of the port activity.
Figure 4: Phases 1 and 2 of Port Activity, Cape Verde Infrastructure
Project:
[Refer to PDF for image: illustrated map with 6 photographs]
Depicted on the map of Cape Verde:
Phase 1 (MCC funded):
New upper access road;
Cargo village construction;
Wharf 2 reconstruction;
New lower access road.
Phase 2 (Cape Verde government funded):
Wharf 1 reconstruction;
New breakwater.
Buildings originally planned to be built as part of phase 1 work that
were eliminated from the MCC-funded construction contract due to
funding limitations. The Cape Verde government subsequently funded
construction of the buildings under a contract that is separate from
contracts for phase 1 and phase 2 works. Buildings include offices for
customs and port operations staff, warehouses, entrance gates, and a
workshop.
Photographs:
Cargo village:
During construction;
After construction.
Lower access road:
During construction;
After construction.
Wharf 2:
Before construction;
After construction.
Sources: MCA-Cape Verde (photographs and map details); Map Resources
(base map); and GAO (synthesis of information).
[End of figure]
Roads and bridges. MCC disbursed $27.7 million to fund the
rehabilitation of three roads and construction of four bridges. MCC's
original targets included the rehabilitation of five roads totaling 63
kilometers and four bridges. However, MCA-Cape Verde found that the
World Bank-funded designs were of poor quality and decided to revise
them to a higher standard, which led to increased costs. As a result
of the increased costs, MCC and MCA-Cape Verde reduced the scope of
the activity, and MCC exceeded the final target of 39.3 kilometers of
road rehabilitated. MCA-Cape Verde established a management structure
consistent with MCC's requirements to ensure work met quality
standards and functions as intended.
Cape Verde Watershed Management and Agricultural Support Project: MCC
Rescoped Certain Activities and Met Some Key Original and Final
Targets:
Water management and soil conservation. MCC disbursed $6 million to
build water management infrastructure in three watersheds. MCC met its
original key target of constructing 28 reservoirs, and 40 percent of
its key original target and 76 percent of its final target for the
volume of water available. When environmental concerns were identified
during implementation, MCC rescoped the activity from a combination of
wells and reservoirs to reservoirs only.[Footnote 24] According to MCC
officials and stakeholders, rescoping and implementation delays
reduced the amount of water available by compact end.
Agribusiness development services. MCC disbursed $5 million for the
agribusiness development services activity. Midway through the compact
implementation period, MCA-Cape Verde determined that the Cape Verde
agricultural ministry lacked the capacity to train farmers. It hired a
contractor to train ministry staff, delaying implementation of the
activity. By the compact's end, MCC achieved about 13 hectares under
improved or new irrigation, or 11 percent of the original target of
121 hectares and 12 percent of the final target of 111 hectares.
Access to credit. MCC disbursed $600,000 to make a credit line
available to microfinance institutions (MFI) for agricultural loans in
the three watersheds. The MFIs provided $617,000 in loans, or 103
percent, of the key original and final target of $600,000.
Cape Verde Private Sector Development Project: MCC Eliminated Most
Funding and Targets, but Exceeded the Remaining Original and Final
Target:
Partnership to mobilize investment. MCC disbursed about $400,000 to
fund the creation of a credit bureau during the compact closeout
period in January 2011. However, MCC had initially allocated $5
million for this activity but eliminated some funding and associated
indicators when MCC, the World Bank, and the government of Cape Verde
were unable to agree on the sectors that should receive investment.
Financial sector reform. MCC disbursed $1.4 million to fund technical
assistance to MFIs and support financial sector policy reforms, and
exceeded its key original and final target.
Honduras: MCC Rescoped Some Activities under the Honduras Compact,
Meeting Few Key Original Targets and Most Final Targets:
MCC rescoped some activities under the Honduras compact, reducing
certain key targets. MCC met a key original target for the Honduras
compact, and met or exceeded most of its final targets by the
compact's end. Table 4 shows the performance results for key
indicators for the Honduras compact projects. For more detail on the
Honduras compact results, see appendix III.
Table 4: Key Performance Results for the Honduras Compact Activities:
Activity: CA-5 highway;
Amount disbursed: $90.3 million;
Indicator: Kilometers of highway upgraded (km);
Original target: 109;
Final target: 109;
Final result: 49.5;
Percentage of original target met: 45%;
Percentage of final target met: 45%.
Activity: Secondary roads;
Amount disbursed: $27.7 million;
Indicator: Kilometers of secondary road upgraded (km);
Original target: 91;
Final target: 65.5;
Final result: 65.5;
Percentage of original target met: 72%;
Percentage of final target met: 100%.
Activity: Weight control system;
Amount disbursed: $0.09 million;
Indicator: Number of weight stations built;
Original target: 8;
Final target: Activity eliminated.
Activity: Farmer training and development;
Amount disbursed: $26.6 million;
Indicator: Program farmers harvesting high-value horticulture crops;
Original target: 7,340[A];
Final target: 6,000;
Final result: 6,029;
Percentage of original target met: 82%;
Percentage of final target met: 100%.
Activity: Farm-to-market roads;
Amount disbursed: $20.1 million;
Indicator: Kilometers of farm-to-market road upgraded (km);
Original target: 1,500;
Final target: 499;
Final result: 495;
Percentage of original target met: 33%;
Percentage of final target met: 99%.
Activity: Farmer access to credit;
Amount disbursed: $12.8 million;
Indicator: Value of loans disbursed to the horticulture industry
(millions of U.S. dollars);
Original target: 28.8[B];
Final target: 6;
Final result: 10.7[C];
Percentage of original target met: 37%;
Percentage of final target met: 178%.
Activity: Access to public goods grant facility;
Amount disbursed: $8.8 million;
Indicator: Number of farmers connected to irrigation system;
Original target: 392;
Final target: 392;
Final result: 967;
Percentage of original target met: 247%;
Percentage of final target met: 247%.
Source: GAO analysis of Millennium Challenge Corporation data.
Notes: We considered the original target to be that which was first
documented for each performance indicator, in either the 2006, 2008,
or 2010 monitoring and evaluation plan, and the final target to be
that which was documented in the 2010 monitoring and evaluation plan.
In addition, the final results in this table reflect the results
achieved by compact completion, although some activities continue
after the compact completion and continue to achieve results.
[A] This indicator was originally set with a higher target of 8,255
that was meant to be achieved 1 year after compact completion. As a
result, this target represents the target that was originally
scheduled to be accomplished by compact end (year 5).
[B] This target ($28.8 million) was originally set for a similar
indicator measuring the value of loans to program farmers, which was
ultimately replaced by a number of indicators, including this
indicator, and a lower target of $6 million.
[C] The value of this indicator ($10.7 million) includes the value of
loans repaid and relent ($5.2 million) from the agricultural credit
trust fund. This value ($10.7 million) does not include an additional
$6.4 million in loans leveraged by financial institutions. According
to MCC, adding the $6.4 million of funds leveraged by financial
institutions to the $10.7 million of funds lent from the trust fund
would result in double-counting of some funds. In addition, no target
was established for the value of funds leveraged by financial
institutions.
[End of table]
Honduras Transportation Project: MCC Upgraded Almost Half of Planned
Highway Sections and All of Rescoped Secondary Roads:
CA-5 highway. MCC disbursed approximately $90.3 million to reconstruct
four sections of a major highway in Honduras. MCC completed two
sections of highway, totaling about 50 kilometers, or 45 percent of
the original compact target. The disbursement also partially funded
the reconstruction of a third section, which MCA-Honduras did not
complete by the end of the compact, and the relocation and design
costs for reconstruction of a fourth section of the CA-5 highway
activity.[Footnote 25] MCA-Honduras established a management structure
consistent with MCC's requirements to ensure work met quality
standards and functioned as intended. MCA-Honduras officials
identified three factors that affected their ability to achieve
targets for this activity and resulted in a new estimated cost of $219
million for all four sections of highway:
* Contract bid amounts. Increases in project costs above initial
estimates as a result of unit price increases for items such as
asphalt, as well as additions to project scope and design, such as
added travel lanes, were a principal cause of cost increases,
according to MCC officials.
* Land acquisition costs. Due diligence studies conducted prior to
construction did not include the cost of the full-market value of
acquiring land and relocating households and businesses adjacent to
roads. The original allocation increased from $3.1 million to about
$20.2 million.
* Contract modifications. Contract modifications raised construction
contract costs by about 6 percent primarily as a result of
insufficient road designs that required work beyond that included in
the contract plans.
Remaining work on a third and a fourth sections is being funded with a
loan of about $130 million from the Central American Bank for Economic
Integration (CABEI) and is expected to be completed by the middle of
2012.[Footnote 26] Figure 5 shows the locations of the CA-5 highway
activities.
Figure 5: CA-5, Secondary Road, and Farm-to-Market Road Locations,
Honduras:
[Refer to PDF for image: illustrated map]
Depicted on the map:
Farm-to-market roads funded by MCC (495 km);
Secondary roads funded by MCC (65.5 km);
Sections of CA-5 jointly funded by MCC and CABEI (109 km);
Other road sections (labels indicate funding source):
* Central American Bank for Economic Integration & Nordic Development
Fund;
* Inter-American Development Bank
* Central American Bank for Economic Integration;
* World Bank;
* Millennium Challenge Corporation and Central American Bank for
Economic Integration:
- South segment: Section 1[A]; Section 2[B];
- North segment: Section 3[C]; Section 4{d}.
Sources: GAO synthesis of MCA furnished project maps; Map Resources
(base map).
Notes: Construction funding includes contract and construction
supervision costs.
[A] Construction of section 1 is 100 percent funded by the Central
American Bank for Economic Integration (CABEI).
[B] Construction of section 2 is 31 percent funded by MCC and 69
percent funded by CABEI.
[C] Construction of sections 3 and 4 is 94 percent funded by MCC and 6
percent funded by CABEI.
[End of figure]
Secondary roads. MCC disbursed $27.7 million to upgrade key secondary
roads. MCC met its revised target for the construction of 65.5
kilometers of secondary roads, 72 percent of the original target of 91
kilometers. According to MCA-Honduras officials, the scope was reduced
because updated estimated costs to upgrade the planned roads, after
the first contract was bid, exceeded original estimates by 80 percent.
MCA-Honduras established a management structure consistent with MCC's
requirements to ensure work met quality standards and functioned as
intended.
Weight control system. MCC disbursed almost $90,000 for a vehicle
weight control activity but eliminated the activity when the Honduras
compact was partially terminated due to Honduras' political situation.
[Footnote 27]
Honduras Rural Development Project: MCC Rescoped Some Project
Activities, Meeting Certain Original Targets and All Key Final Targets:
Farmer training and development. MCC disbursed approximately $26.6
million through the farmer training and development activity. MCC
funded the training of 6,029 farmers to harvest high-value
horticultural crops, meeting its final target of 6,000, or 82 percent
of the original target of 7,340.[Footnote 28] According to MCC, this
target was reduced to provide additional technical assistance to those
trained to increase the sustainability of the assistance provided. A
number of farmers stated that, as a result of the training, they began
growing different types of crops and using new techniques, which led
to larger volumes and higher quality, and, thus, increased income.
Farm-to-market roads. MCC disbursed approximately $20.1 million to
upgrade farm-to-market roads. By the end of the Honduras compact, MCC
had funded the reconstruction of 495 kilometers of farm-to-market
roads--33 percent of the original target of about 1,500 kilometers and
99 percent of the final target of 499 kilometers. The farm-to-market
roads activity was rescoped because the Honduran quality,
environmental, and social standards on which the cost estimates were
based did not meet compact requirements, which increased the cost from
$14,300 to $42,000 per kilometer.[Footnote 29] In addition, according
to MCC officials, the change in target to reconstruct fewer kilometers
was based on MCC's decision to improve the durability and life of the
roads by adding drainage structures to reduce water damage, which
increased the per-kilometer cost.
Farmer access to credit. MCC disbursed $12.8 million for the farmer
access to credit activity. The activity consisted of three components
designed to increase the supply of credit to rural borrowers--a $6
million agricultural credit trust fund designed to provide loans to
financial institutions for rural lending, technical assistance to
strengthen financial and nonfinancial institutions, as well as
expansion of the national property registry.[Footnote 30] Initial lack
of interest in the trust fund among traditional banking institutions
and a delay in demand for credit among farmers led MCA to refocus the
activity on smaller sources of credit and to expand beneficiaries to
nonprogram farmers, agribusinesses, and other producers and vendors in
the horticultural industry.[Footnote 31] By compact completion, the
trust fund had disbursed $10.7 million in loans--37 percent of the
original target for the value of loans disbursed and 178 percent of
the revised target.[Footnote 32]
Agricultural public goods grant facility. MCC disbursed $8.8 million
to fund 15 small competitive grants to enhance and accelerate the
development of market-based commercial agriculture. MCC exceeded a key
original and final target for this activity. Specifically, grants for
irrigation projects connected 967 farmers to the community irrigation
system--almost 250 percent of the target of 392 farmers.
MCC Took Steps to Enhance Project Sustainability, but Cape Verde and
Honduras Face Long-Term Challenges in Maintaining Infrastructure
Projects:
MCC took steps to provide for the sustainability of compact projects,
but certain activities in Cape Verde and Honduras face challenges to
long-term sustainability. MCC's efforts included establishing specific
conditions for compact funding disbursements. However, the governments
of both Cape Verde and Honduras may have difficulty maintaining
infrastructure projects in the long term due to the lack of funding,
among other challenges. In addition, decisions to limit certain design
features present challenges to maintaining rehabilitated roads. For
noninfrastructure projects, steps taken by MCC enhanced the
sustainability of some activities, but sustainability challenges
remain for other activities.
Cape Verde:
Infrastructure project. MCC took steps to enhance the sustainability
of its infrastructure project investments by establishing specific
conditions for compact funding disbursements. However, as can be seen
in the following examples, in some cases the Cape Verde government has
not been able to meet or has partially met these conditions, calling
into question the long-term sustainability of the infrastructure
project activities.
* MCC included privatization of port operations as a condition of the
compact. The Cape Verde government agreed and developed a law enabling
the port authority to enter into contracts with private operators.
However, because the port is incomplete, the solicitation of such
contracts has been delayed. The second phase of construction is
expected to continue until March 2013. As a result, MCC no longer has
leverage over the government to ensure this condition is met.
* MCC set a condition of the compact that the government of Cape Verde
would establish and adequately fund a road maintenance account. In
2003, the government established a road institute that has since
developed its capacity to raise revenue for maintenance work.[Footnote
33] However, government officials reported that the funds currently
meet less than 50 percent of road maintenance requirements.
In the case of the MCC-funded roads and bridges activity, decisions
made to control costs and limit the environmental impacts of
construction--such as reducing the amount of earthwork to remove steep
roadside slopes and installing or repairing fewer drainage structures--
contributed to road maintenance requirements. The additional
requirements may stress the Cape Verde government's ability to perform
maintenance. Figure 6 depicts areas of erosion damage along one of the
MCC-funded rehabilitated roads, and Cape Verde government-funded
repairs, that we observed during our visit.
Figure 6: Damaged Areas and Government of Cape Verde-Funded Repair
Activities along Road 2:
[Refer to PDF for image: 3 photographs]
Source: GAO.
[End of figure]
Watershed management and agricultural support project. MCC took steps
to enhance the sustainability of activities completed under the
watershed management and agricultural support project. Although these
steps increased sustainability of certain activities, other activities
face challenges.
* In January 2009, the government of Cape Verde established a water-
fee structure for the three watersheds to fund infrastructure
maintenance to meet an MCC condition for funding disbursements. MCA-
Cape Verde also worked with community water management organizations,
now responsible for maintenance, to develop water management plans.
However, as of December 2010, water fees had not yet been collected in
one of the three watersheds.
* The MCA-Cape Verde contractor took steps to promote the
sustainability of the agribusiness development services activity,
including helping to establish and train farmers associations and
developing training materials for the Cape Verde agricultural ministry-
-which plans to continue training farmers. However, the contractor
reported that ministry field staff do not have time to train farmers,
given their workloads. According to the contractor, ministry staff
have multiple responsibilities, including involvement in multiple
donors' agriculture-related projects.
* MCA-Cape Verde determined that all MFIs performed well under the
access to credit activity, and MCC converted the loans to grants at
the end of the compact, which will sustain agricultural loan efforts
for at least 2 years.[Footnote 34]
Private sector development project. MCC required the Cape Verde
Chambers of Commerce, the implementers of a new credit bureau, to
secure a private sector partner and private sector investments to help
support the bureau before MCC provided funding to the chambers.
Private ownership may provide an incentive to enhance the
sustainability of the credit bureau.
Honduras:
Transportation project. To enhance the sustainability of its
transportation project investments, MCC conditioned compact funding
disbursements on the government meeting increased road maintenance
funding levels and included a vehicle weight control activity in the
project. However, the funding levels that the government achieved may
not be sufficient to fund all road maintenance needs. In addition, the
weight control activity was terminated. Both issues call into question
the long-term sustainability of the infrastructure project activities.
* According to the compact, the key issue for sustainability of the
transportation project is routine, periodic, and emergency road
maintenance, such as sealing cracks, repainting the pavement markings,
cleaning ditches and drainage structures, repairing potholes,
resurfacing, and clearing landslides. As a condition of compact
funding, MCC and the Honduran government agreed to increase funding
levels for maintenance, which the government met, increasing funding
from $37 million in 2005 to $64 million in 2010.[Footnote 35] However,
this funding is to maintain all Honduran roads, not specifically
compact-funded roads and does not ensure road maintenance after 2010.
According to MCC officials, they expect that the Honduran government
will maintain the MCC-funded sections of CA-5 and some of the key
secondary roads but are concerned that it may not be at the level
required to maximize the roads' lifespan. Contractors and construction
supervisors also expressed concerns that the roads will be adequately
maintained. According to transportation ministry officials and
documents, the government's maintenance allocation for 2010 represents
less than half of the road maintenance allocation required by Honduran
law and is about 30 percent of the amount officials estimate is needed
to maintain the roads.
* The extent to which the Honduran government implements the vehicle
weight control activity, which MCC eliminated in 2009 in response to
the political situation, also affects sustainability.[Footnote 36]
According to government officials, a large number of truckers exceed
legal weight limits.[Footnote 37] Without enforcement of weight limits
on the CA-5 and other MCC-funded roads, the roads will deteriorate
faster and require additional maintenance.
In addition, decisions to limit certain design features may present
challenges to maintaining the reconstructed roads. We observed quality
deficiencies--erosion, roughness, and landslides--that will likely
increase the amount and cost of maintenance needed over time (see
figure 7). Failure to perform needed maintenance will result in road
deterioration decreasing the road-user cost benefits expected from the
improved roads. Most of these deficiencies could have been mitigated
during project design and construction. For example, the project
designer could have included the International Roughness Index (IRI)
measures in the contract documents as a performance specification,
requiring the contractor to meet IRI targets set by MCC and MCA-
Honduras--which would decrease long-term maintenance and road-user
costs.[Footnote 38] Additionally, landslides and their associated
maintenance costs could have been minimized if more detailed
geotechnical analysis evaluating slope stability had been conducted
during design. Such analysis would have enabled designers to include
landslide stabilization and prevention measures in the construction
plans. A more detailed geotechnical study regarding slope stability
was completed for portions of CA-5 section 2 after a landslide
occurred.
Figure 7: Landslide on CA-5 Section 3 in Honduras:
[Refer to PDF for image: photograph]
Source: GAO.
Note: This landslide blocks the roadside drainage, resulting in long-
term pavement damage, and needs to be removed as a part of road
maintenance to eliminate a roadside safety hazard. MCC stated that
existing natural conditions and extreme weather caused this slide.
[End of figure]
Rural development project. MCC took steps to increase the
sustainability of activities under the rural development project. The
sustainability of some activities was enhanced by these steps, but for
other activities challenges remain.
* The contractor for the farmer training activity involved the private
sector in program activities, including buyers, wholesalers, and input
and equipment service providers to increase sustainability. The farmer
training activity also helped farmers form associations to increase
the sustainability of techniques and production practices. However,
according to the contractor and Honduran farmers, some program
farmers, who began receiving assistance late in the compact, are
expected to face difficulty sustaining new techniques without the
support of technicians.[Footnote 39]
* In many cases, responsibility for maintenance of upgraded farm-to-
market roads resides with the municipalities where the roads are
located. However, according to MCA-Honduras officials, the
municipalities lack equipment, expertise, and funding for road
maintenance.
* MCA-Honduras took steps to increase the sustainability of the farmer
access to credit activity in Honduras by enabling the agricultural
credit fund to continue for 5 years beyond the end of the compact. In
addition, according to the activity contractor, the financial products
developed with the technical assistance are self-sustaining and self-
financing.
* Local organizations supported the implementation of the agricultural
public goods grants, which will help improve the activity's
sustainability, according to MCA-Honduras officials. For example,
local communities with new irrigation works were trained in the
maintenance of such systems and put in place fee structures to fund
maintenance costs.
Impact Evaluations and ERR Issues:
Impact evaluations and ERR analyses assist MCC in estimating the
impact of compact projects on long-term economic growth. MCC funds
independent impact evaluations, which contribute to understanding
whether an investment achieved its intended impact. According to MCC
officials, these evaluations have been delayed because of delays in
project implementation and a change in approach to the timing of the
evaluations. MCC's ERR provides a means of estimating the proposed
projects' impact on a country's economic growth relative to costs over
a relatively long time period, typically 20 years. However, updated
ERRs were not always well-documented or linked to revised targets. In
addition, MCC has not issued guidance for re-estimating ERRs at
compact completion or in subsequent years.
MCC Impact Evaluations Are Ongoing, and MCC Has Taken Steps to Revise
Designs in Response to Implementation Challenges and Delays:
Cape Verde. MCC plans to conduct impact evaluations, but project
implementation delays have slowed progress.[Footnote 40]
* Port activity. MCC has delayed contracting for an impact evaluator
for the infrastructure project's port activity until the completion of
phase 2 of port construction in 2013.[Footnote 41] According to the
2010 Cape Verde monitoring and evaluation plan, it is unclear whether
the originally planned impact evaluation is feasible, and MCC may
revise the evaluation design if necessary.[Footnote 42]
* Roads and bridges activity. MCC has not yet engaged an impact
evaluator for the infrastructure project's roads and bridges activity.
According to the 2010 Cape Verde monitoring and evaluation plan, if
the collected baseline data do not support the planned evaluation
design, MCC would accept a revised evaluation design.[Footnote 43]
* Watershed management and agricultural support project. MCC engaged
an impact evaluator in the last year of implementation of the
watershed management and agricultural support project, and slower than
expected project implementation has delayed final data collection for
the impact evaluation.[Footnote 44] According to the independent
evaluator hired to assess the project, designing the evaluation after
compact implementation may limit the quality of the results by, for
instance, hindering the collection of quality baseline data. Baseline
data were collected before project implementation, but the impact
evaluator has cited concerns about the quality of this data. According
to MCC officials, MCC plans to address these concerns about the
quality of baseline data through additional data collection.
* Private sector development project. The private sector development
project, which was significantly rescoped, will not be assessed using
a quantitative evaluation since the technical assistance provided did
not lend itself to a quantitative evaluation; however, a qualitative
evaluation has been completed.[Footnote 45]
Honduras. Project delays and challenges in implementing originally
planned impact evaluation designs have slowed progress of some impact
evaluations. MCC initially anticipated completing impact evaluations
for the Honduras compact projects by the end of the compact. However,
according to MCC officials, MCC modified its approach to impact
evaluations so that evaluations are completed after the end of the
compact.[Footnote 46]
* Transportation project. The impact evaluation for the transportation
project began before project implementation, but delays in road
construction led to delays in collecting necessary data and completing
the evaluation. According to the impact evaluator, other than some
delays in final data collection, the transportation impact evaluation
was planned with a robust design and has been implemented as planned.
* Farmer training and development activity. Challenges encountered in
implementing the original evaluation design led to potential
limitations in the results. As a result, MCC added a supplemental
design to enhance the methodology. Specifically, the impact evaluator
had identified a certain group of farmers to participate in the
program and serve as a sample for the evaluation. However, the
activity contractor chose not to train a large portion of the selected
group, reducing the sample size for the evaluation and potentially
limiting the results. According to MCC, the challenge in implementing
the original evaluation design arose because the contractor was
focused on achieving targets set in the contract, instead of
implementing the activity in parallel with the evaluation methodology,
which was not outlined in the contract. MCC noted that this experience
highlighted the importance of incorporating impact evaluation designs
into implementation plans and contracts and the need to anticipate and
manage potential tradeoffs.
* Farmer access to credit activity. According to the impact evaluator,
the assessment of the farmer access to credit activity was complicated
by changes that took place during implementation, such as the
expansion of the activity beyond an exclusive focus on program
farmers, as well as the delay in program implementation. By the time
changes were made to the activity, no baseline data had been
collected. Subsequently, MCA-Honduras hired a third-party contractor
to collect qualitative data. However, when the impact evaluator's
contract ended at the end of the compact, these data had not been
analyzed and an evaluation report had not been completed as originally
intended.
* Agricultural public goods grants facility activity. The impact
evaluator conducted an economic rate of return calculation by
comparing the costs and benefits that resulted from the agricultural
public goods grants facility activity. For example, the report
compared the expected costs and benefits as a result of certain grant
activities with the estimated costs and benefits had the grant
activity not been implemented. The evaluator produced a final report
on the impact of a selection of the 15 public goods grants.[Footnote
47]
ERR Analyses during Compact Implementation Were Not Always Well-
Documented or Linked to Key Revised Targets:
MCC updated its ERR analyses for the Cape Verde and Honduras compacts
when project activities changed significantly during implementation.
However, the updated ERR analyses were not always well-documented or
supported. In addition, the analyses were not consistently updated
when projects or activities were rescoped or when key targets were
revised, as stated in MCC guidance and policy documents.
Updated ERR Analyses Were Not Always Well-Documented or Supported:
Updated ERR analyses were not well-documented or supported for
projects constituting almost 50 percent of compact funds in Cape Verde
and more than 65 percent of compact funds in Honduras.
* For Cape Verde, MCC increased its ERR for the port improvement
activity from 23 percent to 29 percent as the investment cost tripled.
[Footnote 48] In re-estimating the ERR, MCC relied on a new model
prepared by a French engineering consulting firm. The model
incorporated efficiency gains leading to benefits to consumers and
firms, such as reduced wait times and other cost savings.[Footnote 49]
The analysis assumes that these benefits also have an economywide
effect. However, MCC does not have documentation for the modeling of
the economywide effect. As a result, it is unclear how the analysis
incorporates the project's effect on the overall economy. If the
economywide effect is not taken into account, the activity ERR drops
from 28.6 percent to 9.3 percent, which is below MCC's hurdle rate of
10 percent cited in the MCC Cape Verde restructuring memo. However,
according to an MCC official, the prevailing hurdle rate was 4.8
percent, and thus the investment remained well above the minimum
standard established for Cape Verde.[Footnote 50] Furthermore, the
extent to which consumers will benefit from the project is also not
clear.
* For Honduras, the original economic analysis for the transportation
project established an ERR of 24 percent. Updates of the monitoring
and evaluation plan in 2008 and 2010 cite an ERR of 12 percent.
However, documentation for the underlying quantitative analysis
supporting the updated ERR is not available.
Updated ERR Analyses Were Not Always Linked to Key Revised Targets:
Updated ERR analyses do not always reflect changes in key targets
revised after decisions about project rescoping have been made.
* For Cape Verde, when each of the three projects was rescoped, MCC
updated all relevant ERR analysis.[Footnote 51] However, the updated
ERR analysis does not reflect the values or numerical ranges of key
updated targets in the monitoring and evaluation plan. For example,
the revised targets for the watershed management and agricultural
support project include a revised volume of available water of 627,500
cubic meters, but in the updated ERR analysis, total water capacity is
17,000 cubic meters. In addition, the revised targets for the project
include a farmer productivity target of 9.4 to 14.3 tons of crops per
hectare, which overlaps only slightly with the range for farmer
productivity of 13 to 20 tons of crops per hectare in the updated ERR
analysis.
* For Honduras, where both compact projects were rescoped, MCC did not
update the projected ERRs for the transportation and rural development
projects to reflect all changes. For example, for the transportation
project, MCC eliminated the weight control activity but did not update
the project level ERR in the revised monitoring and evaluation plan to
reflect this rescoping. In addition, the projected ERR for the farm-to-
market roads activity was updated in the revised monitoring and
evaluation plans, but this update was not incorporated in revising the
rural development project level ERR. Moreover, MCC revised key
targets, but the ERR analyses do not reflect those revisions. For
example, the original ERR analysis for the farmer training and
development activity of the rural development project is based on
14,400 hectares of high-value crops at the end of the compact.
[Footnote 52] The 2008 and 2010 monitoring and evaluation plans
establish revised targets of 11,830 and 8,400 hectares, respectively,
at compact completion but do not revise the ERR.[Footnote 53]
MCC officials stated that when key indicators and targets were
modified, MCC assessed the effects of these changes on ERRs using the
existing models but did not formally document those assessments. MCC
officials also attributed the lack of consistent linkage between ERR
analyses and key revised targets to the fact that economist staffing
shortages limited their ability to update the economic analysis every
time key indicators and targets were modified.
MCC Has Not Issued Guidance for Re-estimating ERRs Following Compact
Completion but, If Estimated, ERRs Are Likely to Be Lower Than
Predicted:
MCC has not developed guidance for re-estimating project ERRs at
compact completion or in subsequent years. Although MCC does not have
guidance that requires re-estimation of ERRs, it plans to update ERRs
for its investments in Cape Verde and Honduras. Since the initial ERR
analysis is an estimate of the expected total increase in incomes over
a typical 20-year period attributable to a proposed MCC-funded project
relative to the total costs, ERR analysis at compact completion can
provide updated estimates based on actual project costs. Further, for
projects or activities that have been rescoped, revised estimates of
benefits can be included in the ERR analysis. In addition, when data
on actual benefits accrued to project beneficiaries are collected by
impact evaluations, these data can also be used to re-estimate the
ERRs. According to MCC officials, MCC requires independent evaluators
to calculate ERRs at compact completion, but guidance is currently not
available to guide this analysis. In the case of the sole Honduras ERR
calculated at compact completion to date by an independent evaluator,
in the absence of guidance, the evaluator prepared the ERR analysis in
such a way that it cannot be compared to the initial ERR estimate.
[Footnote 54] Furthermore, even though the original ERRs are estimated
over a 20-year period, according to MCC officials, MCC has not yet
determined whether it will re-estimate the returns as additional
benefit data from impact evaluations or other sources become
available. Without an accurate estimate of the compacts' projected
benefits, the extent to which the compacts further MCC's goal of
poverty reduction, economic growth, and transformative development
cannot be accurately evaluated.
Reductions in project scope and other factors are likely to reduce re-
estimated ERRs. In one instance where MCC has revised the ERR at
compact completion--the farmer training and development activity in
Honduras--the revised ERR was lower than originally predicted, at 14.6
percent versus 21 percent. For any further re-estimates of Cape Verde
and Honduras ERRs, several factors would likely contribute to lower
estimates of returns on investments than originally predicted--as seen
in the following examples.
Factors during compact implementation:
* Reductions in projects' or activities' original scopes while MCC
investments remained largely unchanged would lower expected benefits.
For example, for the Honduras transportation project, MCC reduced the
scope of the secondary roads construction activities to align actual
costs with project allocations and terminated the weight control
activity. Similarly, in Cape Verde, MCC funded about one-third of the
port improvement activity.
* Measured results that lagged behind project or activity targets
would lead to lower benefits than originally projected. For example,
the original ERR analysis of the rural development project in Cape
Verde assumed that the project would lead to 111 hectares under drip
irrigation; however, by compact completion, about 13 hectares were
under drip irrigation.
Factors subsequent to compact completion:
* Cost overruns for MCC-funded projects not finished by compact
completion would lead to lower ERRs. Costs for the Cape Verde port
improvement activity, which was not finished by compact completion,
are currently estimated at about $148 million.[Footnote 55] These
costs exceed both the estimated investment costs of about $106 million
for the activity in the updated ERR analysis and the cost contingency
of 20 percent included in the updated analysis, totaling approximately
$127 million.
* Factors affecting long-term sustainability, such as maintenance of
the physical infrastructure and future training to prevent
depreciation of acquired skills and human capital, can affect
estimated benefits. For example, according to MCA-Honduras officials,
the sustainability of many of the farm-to-market roads constructed for
the Honduras rural development project is in question because the
municipal governments responsible for maintaining the roads lack
equipment and expertise. If less than optimal maintenance is achieved,
estimated benefits will be reduced, which would lead to lower ERRs.
Conclusions:
MCC made significant investments in support of sustainable economic
growth in Cape Verde and Honduras and will benefit from lessons
learned during implementation of these compacts, which were among the
first to enter into force. As we previously reported, insufficient
planning, escalation of construction costs, and insufficient MCC
review have led to project delays, scope reductions, and cost
increases.[Footnote 56] MCC directed the majority of funding in the
Cape Verde and Honduras compacts to infrastructure projects, and for
the economic benefits of these investments to be realized, the
projects must be properly sustained over the planned 20-year benefit
period. To promote sustainability, MCC took steps to require partner
countries to plan to efficiently operate and maintain the
infrastructure, including privatization of port operations in Cape
Verde and the provision of road maintenance funding in Cape Verde and
Honduras. The partner countries made progress meeting MCC's
requirements in these areas, but they continue to face funding and
other challenges that are key to sustainability. At the same time, MCC
lost its ability to influence country decisions regarding
sustainability once the compacts ended. In addition, MCC and MCA made
design decisions that did not include measures to minimize landslides
and erosion and did not include international roughness criteria among
the contract specifications, which will result in higher long-term
maintenance costs. In light of road maintenance funding deficits in
both countries, these decisions put the sustainability of MCC-funded
roads at risk.
MCC's ERR projections serve as the foundation and economic
justification for MCC's investments. MCC guidance and policy
statements indicate that key indicators and targets used for
monitoring and MCC's ERR analyses should be directly linked. However,
indicators and targets changed significantly over the 5-year
implementation period, sufficient to alter the foundation of the
initial ERR projection. In some instances, the lack of documentation
on updated ERR analyses makes it difficult to know whether the revised
ERR results are accurate and reliable. In other cases, MCC updated its
ERRs during compact implementation, but the ERR analyses were not
clearly linked to the revised targets in the monitoring and evaluation
plans. Although MCC updated ERR projections in response to changes in
implementation, it currently does not have guidance for re-estimating
ERRs at compact completion or during the 20-year period when compact
benefits are realized. Looking forward, if MCC plans to update ERRs at
or following compact completion as a means of assessing project
benefits relative to actual costs, it will be critical to use a
consistent methodology that reflects final compact results and costs.
Without an accurate representation of the compacts' projected
benefits, MCC, Congress, and other key stakeholders and beneficiaries
cannot accurately evaluate the extent to which the compacts further
MCC's goals of poverty reduction and economic growth.
Recommendations for Executive Action:
We recommend the MCC Chief Executive Officer take the following three
actions:
To maximize the sustainability of MCC-funded infrastructure projects
and to reduce the amount of maintenance required after compact
completion, work with partner countries to make project planning,
design, and construction decisions that reduce long-term maintenance
needs and costs.
To enhance the accuracy of MCC's ERR projections,
* ensure, during compact implementation, that updated ERR analyses are
well-documented and supported and that key revised indicators and
targets are reflected in updated ERR analyses; and:
* develop guidance for re-estimating ERRs at compact completion and
during the long-term period when compact benefits are realized to
ensure that updated estimates reflect the most recent and reliable
information available for MCC's compact investments and outcomes.
Agency Comments and Our Evaluation:
In written comments on a draft of this report, MCC agreed with the
intent of our recommendations and committed to developing specific
actions to implement them. With respect to the first recommendation on
the sustainability of MCC-funded infrastructure projects, MCC
acknowledged the importance of maintenance and sustainability of its
investments. MCC stated that, when designing projects, it works with
partner countries to ensure that institutions and systems are in place
to provide for the projects' long-term sustainability. In addition,
MCC said that it looks to strike a proper balance between its initial
capital investments and ongoing operations and maintenance costs.
While MCC said that it pays considerable attention to minimizing
operations and maintenance costs, MCC also stated that some
maintenance-related measures raised in our report--such as slope
protection along reconstructed roads--may not be justified in all
cases. MCC further commented that financing maintenance is a challenge
in both developed and developing countries. MCC agreed with both
aspects of our second recommendation to enhance the accuracy of MCC's
ERR projections. MCC agreed that, when project design and scope
changes are proposed during compact implementation, updated ERR
analyses should be adequately documented and the consistency between
the updated ERR analyses and targets should be maintained. With
respect to the third recommendation to develop guidance for
reestimating ERRs following compact completion, MCC acknowledged the
importance of measuring ERRs over the life of its projects and stated
that it is committed to developing guidance to continue monitoring the
results of compacts and measuring long-term impacts of MCC investments.
MCC also highlighted other positive contributions of the Cape Verde
and Honduras compacts beyond the results achieved for key indicators
and targets. Specifically, MCC stated that policy reforms in Cape
Verde and new legislation in Honduras are expected to have positive
lasting impacts in these countries. In addition, MCC noted that in
response to implementation challenges, MCC was able to leverage its
resources and obtain additional financing to support the completion of
compact activities. Finally, MCC emphasized that country-led
implementation of its compacts fosters good governance and effective
administration of development assistance.
We have reprinted MCC's comments in appendix IV. We also incorporated
technical comments from MCC in our report where appropriate.
We are sending copies of this report to the Millennium Challenge
Corporation and interested Congressional Committees. In addition, the
report will be available at no charge on the GAO Web site at
[hyperlink, http://www.gao.gov].
If you or your staffs have any questions about this report, please
contact me at (202) 512-3149 or gootnickd@gao.gov. Contact points for
our Offices of Congressional Relations and Public Affairs may be found
on the last page of this report. GAO staff who made major
contributions to this report are listed in appendix V.
Signed by:
David Gootnick:
Director, International Affairs and Trade:
[End of section]
Appendix I: Scope and Methodology:
The fiscal year 2008 Consolidated Appropriations Act, Public Law 110-
161, mandated that GAO review the results of Millennium Challenge
Corporation's (MCC) compacts. For the purpose of this engagement, we
reviewed MCC compact results in Cape Verde and Honduras, the first
compacts to complete the 5-year term at the initiation of our review.
We examined the extent to which MCC (1) achieved performance targets
and longer-term sustainability for projects in the Cape Verde and
Honduras compacts and (2) assessed progress toward the compacts' goals
of income growth and poverty reduction. We focused our review more
heavily on infrastructure activities, which represented a higher
portion of compact funds in both countries. We specifically focused on
the port activity and roads and bridges activity in Cape Verde, and
the CA-5 highway and secondary roads activities in Honduras.
To assess the extent to which MCC achieved expected performance
targets and longer-term sustainability for compacts in Cape Verde and
Honduras, we analyzed MCC documents, interviewed MCC officials and
stakeholders, and observed project results in both countries. We
reviewed the compact agreement for Cape Verde and Honduras, as well as
MCC guidance on measuring and reporting compact results, including the
agency's Framework for Results, Policy for Monitoring and Evaluation
of Compact and Threshold Programs, Guidance on Quarterly MCA
Disbursement Request and Reporting Package, Common Indicators
Directive, and guidelines for monitoring and evaluation plans. We
interviewed MCC officials in Washington, D.C., regarding their
processes for overseeing compact activities. We traveled to Santiago
and Santo Antão islands in Cape Verde in December 2010 and
Tegucigalpa, Honduras, in November 2010. We interviewed MCC and
Millennium Challenge Account (MCA) officials in both countries
regarding the results of each compact activity, including the quality
and sustainability of the projects. We visited infrastructure projects
in both countries, including visits to the port and to roads and
bridges in Cape Verde, and to the CA-5 highway, and secondary and farm-
to-market roads in Honduras. We met with project construction
contractors, independent construction supervisors, and MCA project
management consultants. We interviewed contractors and grantees of
noninfrastructure activities and held meetings with beneficiaries of
certain projects. For Cape Verde, we interviewed the contractor and
two grantees for the access to credit activity, the contractor for the
credit bureau activity under the private sector development project,
and the contractor and eight beneficiaries of the watershed management
and agricultural support project, including the farmer training
activity. For Honduras, we interviewed the contractor and more than 30
beneficiaries of the farmer training and development activity,
contractors and several financial institutions participating in the
farmer access to credit activity, and three grantees in the
agricultural public goods grants activity. In addition, we interviewed
officials from the governments of Cape Verde and Honduras about
compact implementation, results, and sustainability, including Cape
Verde's Ministry of Environment, Rural Development and Marine
Resources, Port Authority, and Ministry of Infrastructure, Transport
and Telecommunications, and Honduras' Ministry of Transportation,
Ministry of the Presidency, Ministry of Agriculture, and Ministry of
Finance. We also reviewed final reports submitted to MCA by
contractors and grantees on compact activities.
We reviewed three versions of the monitoring and evaluation plans for
each country to identify the performance indicators and associated
targets to be achieved by compact end. MCC used these performance
indicators and targets to track progress and assess results of compact
activities; thus, we used these indicators and targets as criteria for
assessing MCC results achieved. To track progress toward compact
goals, MCA is required to compile and submit a performance indicator
tracking table on a quarterly basis as part of its quarterly
disbursement request package sent to MCC.[Footnote 57] This tracking
table displays performance targets and progress on all performance
indicators included in a country's monitoring and evaluation plan. A
complete indicator tracking table provides detailed information that
shows cumulative past performance, recently completed performance, and
the remaining annual targets for each performance indicator. We
collected and analyzed all available indicator tracking tables for
both countries to account for the actual results achieved against each
performance target throughout the compact. We met with MCA staff in
Cape Verde and Honduras about the steps they took to ensure that data
used to track program results were valid, reliable, and timely,
including conducting periodic data checks and hiring independent
evaluators to review the reliability of data. We determined that these
data were sufficiently reliable for the purposes of our review.
In assessing and reporting MCC's results, we compared actual results
achieved at the end of the compact for each performance indicator to
the original and, in some cases, the revised targets associated with
each indicator. Given that there were three versions of the monitoring
and evaluation plan for each country, we considered the original
target to be the one listed the first time a performance indicator was
introduced and the final target the one listed in the final 2010
monitoring and evaluation plan. In addition, in some cases, MCC
revised the name or characterization of a performance indicator while
the definition and type of measurement remained constant. In these
cases, we chose to report the original target as that associated with
the original or parent indicator, and the final target as that
associated with the revised indicator. Given that MCC tracked several
performance indicators for each compact project, we chose to report on
a selection of key indicators that most closely represented the goal
of each compact activity. For example, we reported the volume of
available water for the water management and soil conservation
activity in Cape Verde but did not report the value of irrigation
construction contracts signed. In addition, we considered which
performance indicators MCC selected to report on in its public
communications about compact results. We did not report results for
indicators that MCC eliminated and stopped tracking during the life of
the compact, but we reported on such eliminated indicators in
discussions of canceled or rescoped activities.
To examine the extent to which infrastructure projects met performance
targets, met quality standards, and were sustainable, we interviewed
MCA officials, project construction contractors, independent
construction supervisors, project management consultants, the Cape
Verde port design engineer, and officials with the Honduran ministries
of transportation and finance. We also reviewed documents prepared by
MCA officials, project construction contractors, independent
construction supervisors, project management consultants, MCC
independent engineers, and government officials, including monthly
reports, special studies, testing reports, and daily inspections.
Lastly, we conducted site inspections of projects that accounted for a
majority of the MCC-provided infrastructure funding in Cape Verde and
Honduras to verify the extent to which projects had been completed and
to observe whether there were any visual deficiencies in construction.
These interviews, document reviews, and site visits were used to
determine if the MCAs had implemented MCC's quality assurance
framework, if there was supporting documentation to verify that
quality testing had been undertaken, if any quality deficiencies were
encountered during construction, if any quality deficiencies remain,
and whether the infrastructure projects would be sustainable. We were
not able to view actual work in progress or visit testing facilities
for most infrastructure contracts because the work had already been
completed.
To examine the extent to which MCC assessed progress toward the
compacts' goals of income growth and poverty reduction, we reviewed
MCC's monitoring and evaluation guidance, Guidelines for Economic and
Beneficiary Analysis, three versions of the monitoring and evaluation
plans for each country, monitoring information MCC and MCA collected,
data quality reviews, final reports prepared by contractors and
grantees, documents related to impact evaluation contracts, impact
evaluation design reports, final impact evaluations, and original and
revised economic rate of return (ERR) analyses. We also interviewed
MCC officials in Washington, D.C., regarding their processes for
overseeing compact activities, developing monitoring plans, and
carrying out assessments of progress toward the compacts' goals.
During site visits, we interviewed MCC and MCA officials in Santiago
and Santo Antão islands in Cape Verde and Tegucigalpa, Honduras, about
monitoring procedures and data quality activities for compact
projects. We also interviewed officials from the national statistical
agencies in Cape Verde and Honduras, contractors, partner government
agencies, and project contractors involved in data collection
activities, as well as contractors implementing impact evaluations and
other analysis.
To assess MCC's results framework, we analyzed the connection between
the ERR estimates and related statements in the economic impact
section of the monitoring and evaluation plans, the values of the
variables that should translate into indicator targets in those plans,
and the underlying economic analyses provided in support of the
expected economic impact statements made in those plans. In addition,
we studied the evaluation components of the plans and compared them
with the evaluations' actual proposed designs and implementation to
assess the extent to which the evaluations accurately reflected the
designs envisioned in the plans, the likelihood that MCC would be able
to gather reliable information on actual benefits attributable to the
compact, and the ability of MCC to update the ERRs as that information
becomes available. We reviewed MCC's evolving guidance for ERR and
monitoring and evaluation analyses. We also examined spreadsheets MCC
provided in support of their updated calculations. To further discuss
MCC's approaches and to clarify aspects of the economic impact
analysis, we interviewed MCC economists, impact evaluators, and other
officials regarding MCC's monitoring and evaluation framework and
estimated economic impact.
MCC enters into a legal relationship with partner country governments,
which vest responsibility for day-to-day management of compact project
implementation to the MCA, including monitoring and evaluation
activities such as setting and revising targets, but such MCA actions
require MCC's direct oversight and approval. Therefore, throughout
this report, we attribute all decisions related to project rescoping
and compact targets to MCC.
Finally, some of the reports and documents referenced above were
written in Portuguese or Spanish. We translated these documents
internally and created English summaries to enable our analysis.
We conducted this performance audit from September 2010 to July 2011
in accordance with generally accepted government auditing standards.
Those standards require that we plan and perform the audit to obtain
sufficient, appropriate evidence to provide a reasonable basis for our
findings and conclusions based on our audit objectives. We believe the
evidence obtained provides a reasonable basis for our findings and
conclusions based on our audit objectives.
[End of section]
Appendix II: Cape Verde Compact Results:
Cape Verde Compact Background:
Located off the coast of West Africa, Cape Verde is a group of 10
islands, with a population of about 500,000. Cape Verde was classified
as a lower-middle income country with a per capita income of $3,010
for fiscal year 2011.[Footnote 58] U.S. development assistance
accounts for about 9 percent of total assistance to Cape Verde over
the last 10 years, making the United States its third-largest donor.
MCC and the government of Cape Verde signed a 5-year compact in July
2005, which entered into force in October 2005 and ended in October
2010. The compact, for which MCC provided $110.1 million in funding at
compact signature, consisted of three projects.
* The infrastructure project was aimed at increasing integration of
internal markets and reducing transportation costs. Activities include
upgrading and expanding a major port and rehabilitating five roads and
constructing four bridges. Expected beneficiaries of this project
include consumers, importers and exporters, shippers, and residents.
* The watershed management and agricultural support project was aimed
at increasing agricultural productivity in three targeted watershed
areas on three islands. Activities include the development of water
management infrastructure and activities to increase the productive
capacity of farmers. Expected beneficiaries of this project include
individual farmers, farm households, and government and private sector
participants.
* The private sector development project was aimed at spurring private
sector development on all islands. Activities include investments in
the private sector and technical assistance to microfinance
institutions. Expected beneficiaries include individuals and
companies, urban and rural poor, and existing microfinance
institutions.
In addition, the compact included funding for program administration
and monitoring and evaluation activities to support administration and
implementation of the compact, program management, and reporting.
[Footnote 59]
Table 5 shows the Cape Verde projects' planned activities, objectives,
and beneficiaries as of compact signature.
Table 5: Structure of Cape Verde Compact, at Signature:
Project: Infrastructure;
Planned activities: (funding allocation):
* Port ($53.7 million): The upgrade and expansion of the Port of Praia;
* Roads and bridges ($25 million): The rehabilitation of 5 roads and
construction of 4 bridges;
Objective: Increase integration of internal markets and reduce
transportation costs;
Expected beneficiaries: (1) Consumers, importers and exporters,
shippers and residents of the island of Santiago, due to port
efficiency gains and improved quality of transportation services; (2)
Rural and urban populations on two islands, due to road and bridge
interventions.
Project: Watershed management and agricultural support;
Planned activities: (funding allocation):
* Water management and soil conservation ($6.8 million): The
development of water management infrastructure, including walls,
terraces, dikes, and reservoirs;
* Agribusiness development services ($3.6 million): The promotion of
drip irrigation technology and increased productive capacity and
marketing of agricultural products among farmers and small
agribusinesses;
* Access to credit ($0.5 million): The provision of access to credit
for drip irrigation, working capital, and agribusiness investments;
Objective: Increase agricultural productivity in three targeted
watershed areas on three islands;
Expected beneficiaries: (1) Individual farmers and farm households in
the three target watersheds and actors along the supply chain, due to
increased access to water, training and extension opportunities, and
the extension of credit; (2) Government and private sector
participants, due to capacity-building training and technical
assistance.
Project: Private sector development;
Planned activities: (funding allocation):
* Partnership to mobilize investment ($5 million): collaboration with
the government and World Bank to identify, prioritize, design, and
implement interventions to increase investment in priority sectors of
the economy;
* Financial sector reform ($2.2 million): The provision of technical
assistance to support the development of microfinance institutions
(MFI) and government efforts to expand access to the primary market
for government securities;
Objective: Spur private sector development on all islands;
Expected beneficiaries: (1) Individuals and companies, who will
benefit from an improved investment climate, increased availability of
jobs, and enhanced entrepreneurial opportunities; (2) Urban and rural
poor, who will gain access to a broader menu of financial services;
(3) Existing MFIs and nongovernmental organizations, due to technical
assistance for institutional transformation; (4) All investors and
borrowers, including the government, due to a more open financial
system and being better equipped to develop new financial products.
Project: Program administration and monitoring and evaluation;
Planned activities: (funding allocation):
* Program administration ($8.4 million): Undertake institutional
capacity-building activities to upgrade the government of Cape Verde's
electronic procurement and financial management systems;
* Monitoring and evaluation ($4.9 million): The measurement and
evaluation of progress toward the achievement of the compact goal and
objectives.
Source: GAO analysis of Millennium Challenge Corporation data.
[End of table]
Cape Verde Infrastructure Project:
Port Activity:
Port: Objective:
MCC allocated $53.7 million to fund infrastructure improvements at the
Port of Praia--Cape Verde's largest port, accounting for approximately
50 percent of the total volume of port traffic--to support the
country's goal of expanding the facility to promote continued economic
development. The activity was planned to address constraints such as a
lack of space for wharf-side cargo handling and lack of a breakwater
to protect against waves that can impair stevedoring operations. The
activity was planned with five components:
1. construction of a new cargo village--container storage yard--on a
plateau above the wharves;
2. reconstruction of a wharf (wharf 2), including demolition of
existing sheds and re-paving;
3. construction of a new access road to connect the wharves to the
cargo village (lower access road) and public road system (upper access
road);
4. expansion of a wharf (wharf 1) to extend its length and build a new
storage yard on reclaimed land; and:
5. construction of a new breakwater.
Port: Results:
MCC disbursed $54.9 million for the port activity. MCC met a key final
target and eliminated some indicators for this activity (see table 6
for key performance results for the port activity). After determining
during the activity's planning and design that it would not be able to
fund all planned port improvements, MCC and MCA-Cape Verde reduced the
activity's scope by splitting it into two phases, with MCC funding the
first phase (components 1, 2, and 3) and the Cape Verde government
funding the second phase (components 4 and 5).
Table 6: Key Performance Results for Port Activity, Cape Verde:
Phase 1:
Original target (percentage): 100 by year 3;
Final target (percentage): 100 by year 5[A];
Final result (percentage): 100 by year 5[B];
Percentage of original target met: Not determined[C];
Percentage of final target met: 100.
Performance indicator: Cargo village--percent complete.
Original target (percentage): 100 by year 3;
Final target (percentage): 100 by year 5[A];
Final result (percentage): 100 by year 5[B];
Percentage of original target met: Not determined[C];
Percentage of final target met: 100.
Performance indicator: Wharf 2 improvements--percent complete;
Original target (percentage): 100 by year 3;
Final target (percentage): 100 by year 5[A];
Final result (percentage): 100 by year 5[B];
Percentage of original target met: Not determined[C];
Percentage of final target met: 100.
Performance indicator: Access road--percent complete;
Original target (percentage): 100 by year 3;
Final target (percentage): 100 by year 5[A];
Final result (percentage): 100 by year 5[B];
Percentage of original target met: Not determined[C];
Percentage of final target met: 100.
Phase 2:
Performance indicator: Breakwater--percent complete.
Original target (percentage): 100 by year 3;
Activity eliminated[D].
Performance indicator: Wharf 1 extension and new container yard--
percent complete;
Original target (percentage): 100 by year 5;
Activity eliminated[D].
Source: GAO analysis of Millennium Challenge Corporation data.
Notes: We considered the original target to be that which was first
documented for each performance indicator, in either the 2006, 2008,
or 2010 monitoring and evaluation plan, and the final target to be
that which was documented in the 2010 monitoring and evaluation plan.
In addition, the final results in this table reflect the results
achieved by compact completion, although some activities continue
after the compact completion and continue to achieve results.
[A] MCC established a new indicator based on a combination of the
original indicators for individual project components. The new
indicator tracked the cumulative percentage of work complete as
measured by disbursements. The change in target for this indicator was
documented in the 2008 monitoring and evaluation plan.
[B] MCA-Cape Verde administered a $45.3 million construction contract
for completion of port works (phase 1). Construction of buildings at
the cargo village was removed from the scope of the contract at the
time of award due to funding limitations. The Cape Verde government
subsequently funded the construction of these buildings under a
separate contract that MCC reported as costing approximately $16
million. At the end of the compact, approximately $530,000 of work
related to the cargo village buildings that was part of MCA-Cape
Verde's contract remained undone and will be performed upon completion
of the buildings.
[C] Completion of all project components occurred after year 3 of the
compact. We did not attempt to estimate the amount of work complete at
the end of year 3.
[D] The Cape Verde government awarded a contract in September 2010 for
completion of port activity elements (phase 2) that were removed from
MCA-Cape Verde's scope of work due to funding limitations. MCC
reported that the Cape Verde government awarded its contract in the
amount of approximately $87 million. Contract completion is expected
in March 2013.
[End of table]
MCA-Cape Verde completed most of phase 1 in October 2010, and the Cape
Verde government expects to complete phase 2 by March 2013.
* Phase 1. MCA-Cape Verde funded phase 1 of the port activity at $45.3
million.[Footnote 60] MCA-Cape Verde deleted the construction of some
buildings from the contract scope to keep costs within funding limits,
and the Cape Verde government subsequently funded construction of the
buildings at approximately $16 million through a loan from a
Portuguese bank.[Footnote 61]
* Phase 2. The Cape Verde government funded phase 2 of the activity
(components 4 and 5) at approximately $87 million through a loan from
the Portuguese government.[Footnote 62] Work is to be completed over a
30-month period ending in March 2013 in accordance with the design
initially funded by MCC.
Port: Challenges:
Inaccurate early planning of the port activity led to cost increases
and implementation delays.
* Cost increases. Costs increased as a result of inaccurate early
planning assumptions concerning design details and construction
materials. For example, the cargo village and access road were built
in different locations than initially planned, and according to MCC,
relocating these components resulted in significant cost increases. In
addition, initial plans specified the use of a detached breakwater to
protect the wharves, but subsequent analysis and model testing showed
the need for an attached breakwater, which was more expensive to
construct. Also, initial plans were based on an incorrect assumption
that quarry materials would be available at minimal cost from
government-owned quarries. However, by the time implementation began,
the government no longer controlled the quarries, and materials had to
be procured from private sources, increasing the activity's cost.
[Footnote 63]
* Implementation delays. Rescoping the port activity contributed to
implementation delays that resulted in MCA-Cape Verde using more than
half of the 5-year compact implementation period for planning, design,
and contract procurement actions before awarding a construction
contract.[Footnote 64] As a result, implementation of the phase 1
components did not begin until year 3, when MCC had originally
intended to have completed these components, and completion of phase 2
components is not expected until March 2013, approximately 29 months
after compact end.[Footnote 65]
Port: Quality:
To provide management control and ensure quality for the port
activity, MCA-Cape Verde established an organization consistent with
MCC's management structure for infrastructure projects. The management
organization for the Cape Verde port activity consisted of a project
manager for MCA-Cape Verde; project managers for the activity's
implementing entity, the Cape Verde transportation ministry;[Footnote
66] an MCA-contracted independent construction supervisor; an MCA-
contracted design engineer; and an MCC-contracted independent
engineering consultant.
Work completed for the port activity was performed according to
contractual requirements, generally met quality standards, and should
enable the infrastructure to function for the duration of its design
life,[Footnote 67] according to the construction supervisor's progress
reports and members of the management organization. However, a defect
in construction of the shore protection structure built for the lower
access road posed a threat to the road's stability, which MCC took
steps to remedy. According to the design engineer, in May 2009 the
construction contractor expressed concerns about building an
underwater trench included in the design for the shore protection
structure,[Footnote 68] claiming that the seafloor was uneven and
consisted of materials that were not shown on design documents.
However, at the construction supervisor's direction, the contractor
attempted to install the structure as specified in the design and
completed work in July 2010. Subsequently, the design engineer
determined that the underwater trench was not properly constructed and
did not provide an adequate foundation for the shore protection
structure.[Footnote 69] To address this issue, MCC contracted the U.S.
Army Corps of Engineers to inspect the as-built condition of the
trench and develop alternatives for correcting the construction
defects. In its initial assessment, the U.S. Army Corps of Engineers
estimated that the cost of remedying the construction defects would
range from approximately $1 million to $2.8 million.[Footnote 70]
Costs for repairs to the underwater trench will be shared by the
construction contractor and the Cape Verde government, according to an
agreement between the two parties and MCA-Cape Verde in January 2011.
[Footnote 71]
Port: Sustainability:
MCC determined that privatizing operations at the Port of Praia was
critical to the sustainability of the port activity and included
privatization of the port operations as a condition for disbursement
of compact funding. MCC reasoned that privatization was needed to
enable the port to handle current and projected traffic in a manner
that would lead to improved financial performance. Although the
government of Cape Verde agreed to this condition and developed a law
to enable the port authority to enter into contracts with private
operators, the port authority has been delayed in soliciting contracts
for port operations services because construction of the port is
incomplete, with phase 2 work expected to continue until March 2013.
MCC reports that the port authority has taken initial steps in
developing model contracts for port operations, but it no longer has
leverage over the port authority to ensure that this condition is met.
Roads and Bridges Construction Activity:
Roads and Bridges: Objective:
MCC allocated $25 million to fund the rehabilitation of five roads on
Santiago Island and construction of four bridges on Santo Antão
Island. The activity was intended to support Cape Verde's goal of
improving mobility on the two islands by closing road network gaps to
ensure more reliable access both to intra-island markets and services
and provide transportation linkages on the targeted islands.
Roads and Bridges: Results:
MCC disbursed $27.7 million for the Cape Verde roads and bridges
activity by compact completion. MCC met revised targets for the roads
rehabilitation, after reducing the scope of the planned roads, and met
its targets for the bridges construction (see table 7 for key
performance results for the roads and bridges activity).
Table 7: Key Performance Results of Roads and Bridges Activity, Cape
Verde:
Performance indicator: Kilometers of road rehabilitated;
Original target: 63[A];
Final target: 39.3[B];
Final result: 40.6[C];
Percentage of original target met: 64%;
Percentage of final target met: 103%.
Performance indicator: Percentage of roads and bridges work
completed[D];
Original target: 100 by year 3;
Final target: 100 by year 5[B];
Final result: 100 by year 5;
Percentage of original target met: Not determined[E];
Percentage of final target met: 100%.
Source: GAO analysis of Millennium Challenge Corporation data.
Notes: We considered the original target to be that which was first
documented for each performance indicator, in either the 2006, 2008,
or 2010 monitoring and evaluation plan, and the final target to be
that which was documented in the 2010 monitoring and evaluation plan.
[A] The scope of road rehabilitation initially identified in the
construction contract was five roads totaling 62.2 kilometers. The 63
kilometers shown here is the value listed in the 2006 monitoring and
evaluation plan.
[B] The change in target for this indicator was documented in the 2008
monitoring and evaluation plan.
[C] Amount of rehabilitated roads consists of 39.6 kilometers along
three road segments on Santiago Island and a 1 kilometer road
associated with bridge construction on Santo Antão Island. Four
bridges were constructed on Santo Antão Island as initially planned,
although MCC did not have an associated indicator for tracking the
number of bridges built.
[D] This indicator tracks completion as measured by cumulative
progress payments to construction contractors divided by the total
cost of the construction contracts.
[E] Completion of all roads and bridges occurred after the end of year
3 of the compact. We did not attempt to estimate the amount of work
that was completed at the end of year 3.
[End of table]
MCC reduced the scope of road rehabilitations but maintained the scope
of bridge construction work after redesigns of original plans led to
increased costs.[Footnote 72]
* Roads. MCA-Cape Verde awarded a $12.6 million contract to
rehabilitate five roads, totaling 62.2 kilometers, in April 2006.
Subsequent redesign of the road plans, to more accurately reflect the
extent of work required,[Footnote 73] increased the cost of the
contract to $18.5 million and extended the contract completion date
from 30 months to 44 months after the May 2006 work start date.
[Footnote 74] To keep the work within funding limits, MCC and MCA-
Cape Verde reduced the scope of planned rehabilitation to three roads
totaling 39.6 kilometers. Work was completed for the first road (Road
1) in June 2009; for the second (Road 4) in July 2009; and for the
third (Road 2) in January 2010.[Footnote 75]
* Bridges. MCA-Cape Verde awarded a $3.4 million contract in November
2006 to build the four bridges. Subsequent redesigns of the planned
construction, intended to make the bridges more durable, increased the
contract value to $5.8 million[Footnote 76] and extended the
completion date from 12 months to 34 months after the December 2006
work start date. Bridge work was completed in October 2009.
Figure 8 shows the locations of the planned roads, with photographs of
the rehabilitated roads, on Santiago Island.
Figure 8: Planned and Rehabilitated Roads on Santiago Island, Cape
Verde Infrastructure Project:
[Refer to PDF for image: illustrated map and 3 photographs]
Depicted on the map:
Road sections funded by MCC;
Road sections previously but no longer funded by MCC;
Other road sections.
Photographs:
Road 1;
Road 2;
Road 4.
Sources: GAO synthesis of MCA furnished project maps; GAO
(photographs); and Map Resources (base map).
Note: Roads 1, 4, and 2 were completed in June 2009, July 2009, and
January 2010, respectively. Roads 3 and 5 were deleted from MCC's
contract and are being constructed by the Cape Verde government with a
loan from the government of Portugal.
[End of figure]
Figure 9 shows the four bridges that were constructed on Santo Antão
Island.
Figure 9: Bridges Constructed on Santo Antão Island, Cape Verde
Infrastructure Project:
[Refer to PDF for image: illustrated map and 2 photographs]
Depicted on the map:
Locations of 2 photographed bridges:
Ribeira Grande;
Paul.
Sources: GAO synthesis of MCA furnished project maps; Map Resources
(base map); and GAO (photographs).
[End of figure]
Roads and Bridges: Challenges:
On beginning work for the Cape Verde roads and bridges activity, MCA-
Cape Verde found that the designs did not accurately represent the
extent of work required. For example, inadequate topographic
information in the road designs resulted in designs that did not
accurately reflect the amount of earthwork involved in improving the
roads. Revisions to the designs allowed for improvements to make the
structures more durable: additional drainage culverts, concrete lining
of ditches, rip-rap[Footnote 77] placement to protect roads from
erosion and landslides, and increased bridge heights to provide more
clearance for water.
Roads and Bridges: Quality:
To provide management control and ensure quality for the Cape Verde
roads and bridges activity, MCA-Cape Verde established an
organizational structure consistent with MCC's management structure
for infrastructure projects. The management organization for the Cape
Verde roads and bridges activity consisted of a project manager for
MCA-Cape Verde; a project manager for the activity's implementing
entity, the Cape Verde transportation ministry; two MCA-contracted
independent construction supervisors, one for roads and one for
bridges; and an MCC-contracted independent engineering consultant, who
provided oversight on both the roads and bridges construction
contracts.
In general, work on the roads and bridges activities met quality
requirements. However, the new infrastructure is subject to damage
from sometimes harsh environmental conditions, and the Cape Verde
government faces challenges in funding needed maintenance and ensuring
the infrastructure's sustainability.
Quality of roads. Work completed for the roads activity was performed
according to contractual requirements, generally met quality
standards, and should enable the infrastructure to function for the
duration of its design life,[Footnote 78] according to the
construction supervisor's progress reports and members of the
activity's management organization. However, the mountainous terrain
through which the roads were built presents hazards such as landslides
and erosion from storm water runoff. According to the construction
supervisor, the low volume of traffic for which the roads were built
influenced decisions to limit some design features, such as removing
steep roadside slopes and installing or repairing drainage structures
and retaining walls, to control costs. For example, in consideration
of limiting costs and reducing environmental impacts, the construction
supervisor authorized less earthwork than had been proposed by the
construction contractor when the road activity was being redesigned.
This resulted in the exposure of some road sections to potential
damage from landslides and water runoff because they are adjacent to
steep slopes.[Footnote 79] We observed areas along Road 2, in
particular, where the road structure had failed, apparently as the
result of insufficient drainage or weakened retaining structures that
were unable to withstand water flows during rain storms. We also
observed repair efforts by the Cape Verde government's road
maintenance contractor that illustrate how sustained attention to
maintenance will be needed to keep the road network functional (see
figure 6 on page 27).
Quality of bridges. Work completed for the bridges activity was
performed according to contractual requirements, met quality
standards, and should enable the infrastructure to function for the
duration of its 50-year design life, according to the construction
supervisor's progress reports and the MCA-Cape Verde project manager.
The construction supervisor's final report noted that the bridges may
have been overdesigned, with more concrete and reinforcing steel than
required for structural stability.[Footnote 80] The report also
indicated that the type of cement used in the concrete mix was
different, and less resistive to corrosion, than the type originally
specified. To protect the bridges from corrosion, due to their
proximity to the ocean shore, the construction contractor applied a
waterproofing treatment to the concrete that was used to construct the
bridges. However, use of this waterproofing treatment creates a new
maintenance requirement for the Cape Verde government to manage.
Roads and Bridges: Sustainability:
MCC determined that stable maintenance financing was critical to
sustaining its roads and bridges activity and established this as a
condition for disbursement of compact funds. Over the course of the
compact, the Cape Verde government's road institute developed its
capacity for collecting user fees that it directed to funding
maintenance for the national road network.[Footnote 81] However,
according to Cape Verde government officials, the agency lacks
adequate funds for road maintenance. For example, road institute
officials indicated that lack of funds for road maintenance is the
greatest challenge facing the agency, and other Cape Verde government
officials told us that current funding for road maintenance would meet
less than half of requirements.
Cape Verde Watershed Management and Agricultural Support Project:
Water Management and Soil Conservation Activity:
MCC disbursed approximately $6 million for the water management and
soil conservation activity, which was designed to improve natural
resource management and increase agricultural productivity in three
watersheds--Faja (São Nicolau Island), Mosteiros (Fogo Island), and
Paul (Santo Antão Island)--through the construction of water
management and distribution infrastructure.
Water Management and Soil Conservation: Results:
MCC met some key original and final targets for the water management
and soil conservation activity (see table 8 for key performance
results for the water management and soil conservation activity).
Because the activity was rescoped and construction delayed, the agency
expects that agricultural productivity will be delayed. For example,
MCC did not meet its original or final target for the volume of water
available in the three watersheds at compact end. MCC achieved
approximately 353,000 cubic meters for the volume of available water
in the three watersheds at compact end, which was about 40 percent of
the original target of approximately 875,000 cubic meters and about 76
percent of the final target of approximately 466,000 cubic meters.
According to MCC, since the water was delayed, the agency does not
expect immediate changes in agricultural productivity.
Table 8: Key Performance Results for Water Management and Soil
Conservation Activity, Cape Verde:
Indicator: Reservoirs constructed;
Original target: 28;
Final target: 28;
Final result: 28;
Percentage of original target met: 100%;
Percentage of final target met: 100%.
Indicator: Volume of available water (m3);
Original target: 875,355;
Final target: 465,800[A];
Final result: 352,978;
Percentage of original target met: 40%;
Percentage of final target met: 76%.
Indicator: Tons of solid material retained through dikes[B];
Original target: 25,552;
Final target: 25,552;
Final result: 46,763;
Percentage of original target met: 183%;
Percentage of final target met: 183%.
Source: GAO analysis of Millennium Challenge Corporation data.
Notes: We considered the original target to be that which was first
documented for each performance indicator, in either the 2006, 2008,
or 2010 monitoring and evaluation plan, and the final target to be
that which was documented in the 2010 monitoring and evaluation plan.
In addition, the final results in this table reflect the results
achieved by compact completion, although some activities continue
after the compact completion and continue to achieve results.
[A] The target for this indicator was changed to 627,500 cubic meters
in the 2008 monitoring and evaluation plan and further changed to
465,800 in the 2010 monitoring and evaluation plan.
[B] MCC established this indicator to measure the amount of arable
land conserved through the use of rural soil conservation and water
catchment infrastructure.
[End of table]
Responding to environmental concerns identified during implementation,
MCC rescoped the activity from a combination of wells and reservoirs
to only reservoirs, which delayed completion and operation of water
management infrastructure as well as the adoption of drip irrigation.
Following a 2-year delay in constructing water management
infrastructure, not all reservoirs were operational at compact end.
[Footnote 82] As of January 2011, MCC reported all 28 reservoirs
constructed were operational. MCC officials, the contractor, and some
farmers we met with in Cape Verde said that farmers were slow to adopt
drip irrigation because of the delay in the construction of
infrastructure and the low water availability. MCC also reported that,
for fully functional water systems, adoption of drip irrigation was
slow, partially due to the completion of works coinciding with the
rainy season. For example, during our visit to one reservoir in the
Paul watershed in December 2010, we found that five of the seven
available drip irrigation connections were hooked up to farm plots.
Figure 10 shows a connected farm plot.
Figure 10: Irrigated Participant Farm, Cape Verde Watershed Management
and Agricultural Support Project:
[Refer to PDF for image: photograph]
Source: GAO.
[End of figure]
Water Management and Soil Conservation: Sustainability:
MCC and the government of Cape Verde took some initial steps to
enhance the sustainability of completed water management
infrastructure. For instance, in January 2009, the government of Cape
Verde's National Water Council established a water-fee structure for
the three watersheds. MCC reported that it was actively engaged with
the government to develop the water-fee policy, which was a condition
required for MCC disbursements. In addition, communities and water
users are responsible for maintenance of the water management
infrastructure. The Cape Verde agricultural ministry and an MCA-Cape
Verde contractor also worked with local community water associations,
composed of farmers and other water users, to develop water management
plans for each watershed. However, during our visit to Cape Verde, we
found that the National Water Council had not begun collecting water
fees in one of the three watersheds.
Agribusiness Development Services Activity:
MCC disbursed approximately $5 million for the agribusiness
development services activity, which consisted at compact signature of
several activities to increase the productivity and marketing of
agricultural products by farmers and agribusinesses, including
training of farmers,[Footnote 83] technical assistance in postharvest
agricultural techniques, and construction of postharvest packing and
quality control centers.
Agribusiness Development Services: Results:
MCC did not meet key original targets and most final targets for the
agribusiness development services activity (see table 9 for key
performance results for the agribusiness development services
activity). For example, MCC reported that 553 farmers were trained in
at least three out of five subject areas by compact end, achieving 69
percent of the target of 800 trained farmers.
Table 9: Key Performance Results for Agribusiness Development Services
Activity, Cape Verde:
Indicator: Number of farmers trained[A];
Original target: 800;
Final target: 800;
Final result: 553;
Percentage of original target met: 69%;
Percentage of final target met: 69%.
Indicator: Number of farmers adopting drip irrigation;
Original target: 337;
Final target: 337;
Final result: 106;
Percentage of original target met: 32%;
Percentage of final target met: 32%.
Indicator: Hectares under improved or new irrigation[B];
Original target: 121;
Final target: 111[C];
Final result: 13.4;
Percentage of original target met: 11%;
Percentage of final target met: 12%.
Indicator: Construct and equip postharvest centers[D];
Original target: 3;
Final target: 1[E];
Final result: 1[F];
Percentage of original target met: 33%;
Percentage of final target met: 100%.
Source: GAO analysis of Millennium Challenge Corporation data.
Notes: We considered the original target to be that which was first
documented for each performance indicator, in either the 2006, 2008,
or 2010 monitoring and evaluation plan, and the final target to be
that which was documented in the 2010 monitoring and evaluation plan.
In addition, the final results in this table reflect the results
achieved by compact completion, although some activities continue
after the compact completion and continue to achieve results.
[A] The "number of farmers trained" indicator is the number of farmers
trained in at least three of five training areas.
[B] MCC renamed the original indicator "Area irrigated with drip
irrigation" to reflect a modified definition in its 2010 monitoring
and evaluation plan.
[C] The change in target for this indicator was documented in the 2008
monitoring and evaluation plan.
[D] MCC revised this process milestone indicator to "construct and
equip postharvest center in Santo Antão island," one of the three
watersheds, in its 2010 monitoring and evaluation plan.
[E] The change in target for this indicator was documented in the 2010
monitoring and evaluation plan.
[F] The Cape Verde agricultural ministry indicated that it plans to
pursue construction of the two postharvest centers designed under the
MCC project on the islands of São Nicolau and Fogo. The Ministry
reported that it has committed to fund the construction of the two
postharvest centers in its 2011 budget.
[End of table]
MCC rescoped the agribusiness development services activity following
implementation challenges, and the contractor reported challenges in
implementing the activity and achieving targets.
* Small agribusiness sector. MCC reported that it eliminated the
activity's focus on the agribusiness sector after finding that sector
in Cape Verde to be small, but continued to work with the broader
agricultural sector.
* Limited training capacity of Cape Verde agricultural ministry staff.
MCA-Cape Verde reported that it had originally planned for the Cape
Verde agricultural ministry to implement the farmer training activity;
however, when it found that the ministry did not have the capacity to
train farmers, it hired a contractor to assist in implementation of
the farmer training activity and other aspects of the agribusiness
development services activity.
* Limited authority of contractor over Cape Verde agricultural
ministry staff. The contractor reported that its inability to directly
train farmers and lack of authority over ministry field staff trainers
made it difficult to meet the training targets.[Footnote 84]
* Limited targeting of farmer trainings. The contractor reported that
using the Cape Verde agricultural ministry's farmer training list,
which was not targeted, resulted in a significant portion of time and
resources spent on beneficiaries that had little interest in the
training and saw little value in attending training sessions.[Footnote
85] We spoke with several farmers in one watershed in Cape Verde who
said the training had been helpful, but most were unable to specify
which training they had taken, new information they had learned, or
new techniques they had applied on their farms.
Agribusiness Development Services: Sustainability:
The MCA-Cape Verde contractor took steps to promote sustainability of
agribusiness development activities, and the Cape Verde agricultural
ministry has expressed interest in continuing certain activities
beyond the end of the compact, but MCC and the contractor have
expressed concern about the sustainability of some activities. For
example, the contractor took steps to promote the sustainability of
the agribusiness development services activity after compact
completion, including developing training materials for the Cape Verde
agricultural ministry, helping establish and train farmers
associations, and implementing a farm-to-market pilot project for
testing postharvest practices along the produce value chain. The Cape
Verde agricultural ministry reported that it will continue training
farmers through its extension centers using training materials
developed under the compact activity. However, the contractor reported
that even after receiving training under the compact, all ministry
field staff did not have the capacity to train farmers, given their
work loads. For example, the contractor stated that ministry field
staff had multiple responsibilities, including involvement in multiple
donors' agriculture-related programs.
The Cape Verde agricultural ministry has also taken steps to privatize
management of the postharvest center, including a commitment in
February 2010 to finance the costs of operating the postharvest center
and advertisement in June 2010 for a private management team. However,
the postharvest center was not in operation as of December 2010 and
had not yet been privatized.[Footnote 86] According to MCC officials,
the ministry did not contract with a private management team and has
established a government management team to manage operations for the
next 2 years. MCC reported that it has flagged privatization of the
postharvest center as an issue critical to the sustainability of the
project. MCC stated that it has received assurances from the ministry
that it intends to privatize operations, but MCC is unclear about the
timeline.
Access to Credit Activity:
MCC disbursed $600,000 for the access to credit activity, which was
designed to meet demands in the three watersheds for financing drip
irrigation, working capital, and agribusiness development.
Access to Credit: Results:
MCC exceeded key original and final targets for the access to credit
activity (see table 10 for key performance results for the access to
credit activity). For example, four eligible microfinance institutions
(MFI) accessed the $600,000 MCC credit line to provide $617,000
agricultural loans. MCC and the contractor stated that they were
optimistic about continued demand for drip irrigation credit once
water management infrastructure was fully operational and the rainy
season ended.
Table 10: Key Performance Results for Access to Credit Activity, Cape
Verde:
Indicator: Value of agricultural and rural loans;
Original target: $600,000;
Final target: $600,000;
Final result: $617,000;
Percentage of original target met: 103%;
Percentage of final target met: 103%.
Indicator: Percentage of MFI loan portfolio past due more than 90
days[A];
Original target: 5;
Final target: 5;
Final result: 4;
Percentage of original target met: Exceeds target[B];
Percentage of final target met: Exceeds target[B].
Source: GAO analysis of Millennium Challenge Corporation data.
Notes: We considered the original target to be that which was first
documented for each performance indicator, in either the 2006, 2008,
or 2010 monitoring and evaluation plan, and the final target to be
that which was documented in the 2010 monitoring and evaluation plan.
In addition, the final results in this table reflect the results
achieved by compact completion, although some activities continue
after the compact completion and continue to achieve results.
[A] The "Portfolio Risk above 90 Days" indicator is the value of all
MFI loans with one or more installment of principal past due more than
90 days as a percentage of the gross loan portfolio.
[B] According to MCC, repayment rates were very high for the project,
exceeding the target, due to strong portfolio management.
[End of table]
Access to Credit: Sustainability:
According to MCC, as a result of the strong performance of the four
MFI loan portfolios, MCC converted its loans to each MFI into grants
at the end of the compact, enhancing the sustainability of
agricultural credit efforts. Following an evaluation of the MFIs'
operational and financial performance, MCA-Cape Verde determined that
all four MFIs were eligible for conversion of MCC loans under the
credit line to grants. MCC converted its loans into grants by the end
of 2010. Two MFIs reported that they had not previously provided loans
in the agricultural sector in certain locations, but following a
positive experience with the MCC credit line, they anticipate
continued growth of these loan portfolios.
MCC did not require that an oversight entity monitor the MFIs' use of
grant funds for agricultural purposes beyond the end of the compact,
but the agency included limited oversight terms in the grant
conversion that may promote sustainability. The agency specified in
its grant terms that funds are to be used solely for agribusiness and
drip irrigation credit and are subject to MCC audit for the first 2
years.
Cape Verde Private Sector Development Project:
Partnership to Mobilize Investment Activity:
MCC disbursed about $400,000 for the partnership to mobilize
investment activity, which was intended to help the Cape Verde
government identify, prioritize, design, and implement interventions
to increase investment in priority sectors.
Partnership to Mobilize Investment: Results:
MCC had not funded private sector investments in priority sectors for
the partnership to mobilize investment activity by the end of the
compact, but had funded the creation of a private credit bureau during
the administrative closeout period (see table 11 for key performance
results for the partnership to mobilize investment activity). MCC had
initially allocated $5 million for this activity, but MCC, the World
Bank, and the government of Cape Verde were unable to agree on which
priority sectors should receive investment support. Therefore, MCC
reallocated funds from this activity to the compact's infrastructure
project. However, MCC funded technical assistance to support the
creation of a private credit bureau. In January 2011, after the end of
the compact and during the administrative closeout period, the
Chambers of Commerce signed a contract with an investment partner to
create a private credit bureau. Upon signature of this contract, MCA-
Cape Verde provided $250,000 to the Chambers of Commerce to invest in
the credit bureau.[Footnote 87]
Table 11: Key Performance Results for Partnership to Mobilize
Investment Activity, Cape Verde:
Indicator: Value added in priority sectors above current trends;
Original target: none set;
Final target: Activity eliminated[A].
Indicator: Volume of private investment in priority sectors above
current trends;
Original target: none set;
Final target: Activity eliminated[A].
Indicator: Volume of public investment in priority sectors above
current trends;
Original target: none set;
Final target: Activity eliminated[A].
Source: GAO analysis of Millennium Challenge Corporation data.
Notes: We considered the original target to be that which was first
documented for each performance indicator, in either the 2006, 2008,
or 2010 monitoring and evaluation plan, and the final target to be
that which was documented in the 2010 monitoring and evaluation plan.
[A] All components of this activity were eliminated except the
establishment of a private credit bureau, which did not have an
associated indicator.
[End of table]
Partnership to Mobilize Investment: Sustainability:
MCC took steps to support the new credit bureau's operational and
financial sustainability by requiring a private sector partnership and
private sector investments to be in place before MCC provided support
for the activity. Private ownership may provide an incentive to
enhance the sustainability of the credit bureau.
Financial Sector Reform Activity:
MCC disbursed $1.4 million for the financial sector reform activity,
which consisted of technical assistance to support the development of
microfinance institutions and government efforts to expand access to
the primary market for government securities.
Financial Sector Reform: Results:
MCC met or exceeded its original and final targets, but eliminated a
key target for the financial sector reform activity (see table 12 for
key performance results for the financial sector reform activity). For
example, MCC met or exceeded its targets for MFI operational and
financial self-sufficiency. According to MCC officials, technical
assistance to the government of Cape Verde under the compact also
helped produce financial sector reforms, but MCC eliminated funding
for financial software to implement reforms following procurement
delays.[Footnote 88]
Table 12: Key Performance Results for Financial Sector Reform
Activity, Cape Verde:
Indicator: Microfinance institutions operationally self-sufficient;
Original target: 4 of 8;
Final target: 4 of 5[A];
Final result: 5 of 5;
Percentage of original target met: 125%;
Percentage of final target met: 125%.
Indicator: Microfinance institutions financially self-sufficient;
Original target: 3 of 8;
Final target: 3 of 5[A];
Final result: 3 of 5;
Percentage of original target met: 100%;
Percentage of final target met: 100%.
Indicator: Percentage of MFI loan portfolio past due more than 30
days[B];
Original target: 14%;
Final target: 14%;
Final result: 10%;
Percentage of original target met: 139%;
Percentage of final target met: 139%.
Indicator: Percentage of government securities held outside of
financial institutions and government agencies;
Original target: 8%;
Final target: Activity component eliminated.
Source: GAO analysis of Millennium Challenge Corporation data.
Notes: We considered the original target to be that which was first
documented for each performance indicator, in either the 2006, 2008,
or 2010 monitoring and evaluation plan, and the final target to be
that which was documented in the 2010 monitoring and evaluation plan.
[A] The change in target for this indicator was documented in the 2010
monitoring and evaluation plan.
[B] This indicator measures the value of all MFI loans that have at
least one installment of principal past due for more than 30 days as a
percentage of the gross loan portfolio.
[End of table]
Under this activity, MCC funded technical assistance to eight MFIs in
several areas, including accountability and internal controls, lending
methodologies, and client services, to support their operational
efficiency and financial sustainability. According to two MFI
representatives we spoke with during our visit to Cape Verde, the
assistance they received helped professionalize MFI credit agents and
provided them with technical competence to develop and market loan
products for the agricultural sector.
Financial Sector Reform: Sustainability:
The MFIs that received technical assistance achieved operational and
financial self-sufficiency, which will enable them to continue their
agricultural loan operations. In addition, according to MCC, the Cape
Verde government agreed to fund the software with country funds and
completed the financial sector reforms, showing strong country
ownership and commitment to compact goals.
[End of section]
Appendix III: Honduras Compact Results:
Honduras Compact Background:
Honduras, with a population of about 7.2 million, was classified as a
low-income country with a per capita income of $1,820 for fiscal year
2011.[Footnote 89] U.S. development assistance accounts for about 13
percent of total assistance to Honduras over the last 10 years, making
the United States its fourth-largest donor.
MCC and the government of Honduras signed a 5-year compact in June
2005, which entered into force in September 2005 and ended in
September 2010. The compact, for which MCC provided $215 million in
funding at compact signature, consisted of two projects.
* The transportation project was aimed at reducing transportation
costs between targeted production centers and national, regional, and
global markets. Activities include reconstructing portions of highways
and secondary roads. Expected beneficiaries include road users and
urban and rural businesses.
* The rural development project was aimed at increasing the
productivity and business skills of farmers who operate small and
medium-size farms and their employees. Activities include providing
technical assistance to farmers in the production of high-value crops
and constructing and improving selected farm-to-market roads. Expected
beneficiaries include trained farmers, their communities, and the
agricultural sector.
The compact also included funding for program administration, to
support compact implementation and program management, and for
monitoring and evaluation to measure the impact of compact activities.
Table 13 shows the Honduras compact's planned activities, objectives,
and beneficiaries, as of compact signature.
Table 13: Structure of Honduras Compact, at Signature:
Project: Transportation;
Planned Activities (funding allocation):
* Highway CA-5 ($96.4 million): The improvement of two segments of
Highway CA-5 totaling 109 kilometers, including 50 kilometers between
Taulabe and Comayagua (the "North Segment") and 59 kilometers between
Vila de San Antonio and Tegucigalpa (the "South Segment");
* Secondary road ($21.3 million): The upgrade of key secondary routes
to improve the access of rural communities to markets, totaling an
upgrade of 91 kilometers of secondary roads;
* Weight control system ($4.7 million): The construction of an
effective vehicle weight control system and the issuance of contracts
to operate it effectively;
* Transportation project manager ($3.3 million);
Objective: Reduce transportation costs between targeted production
centers and national, regional, and global markets;
Expected Beneficiaries: (1) Users of improved roads that result in
lower transportation costs to markets and social service delivery
points (e.g., hospitals, schools); (2) Employees and owners of urban
and rural businesses that rely on the Honduran road network. The
Transportation Project was also expected to have a significant
economic impact in the greater Central American region since it
constitutes a key component of the Atlantic Corridor.
Project: Rural development;
Planned Activities (funding allocation):
* Farmer training and development ($27.4 million): The provision of
technical assistance in the production and marketing of high-value
horticulture crops;
* Farm-to-market roads ($21.5 million): The construction and
improvement of feeder roads to connect farms to markets, totaling
approximately 1,500 kilometers of rural roads;
* Farmer access to credit ($13.8 million): The provision of technical
assistance to institutions, loans to such institutions, and support in
expanding the national lien registry system;
* Agricultural Public Goods Grant Facility ($8 million): The provision
of grants to fund agricultural "public goods" projects that the
private sector cannot provide on its own;
* Rural development project manager ($1.5 million);
Objective: Increase the productivity and business skills of farmers
who operate small and medium-size farms and their employees;
Expected Beneficiaries: (1) Program farmers whose productivity and
business skills are improved; (2) The communities of the program
farmers who experience increased employment and reduced transportation
costs to markets and social service delivery points (e.g., hospitals,
schools); (3) The agricultural sectors, due to public goods and quasi-
public goods funded by the Agricultural Public Goods Grants Facility.
Project: Program administration and monitoring and evaluation;
Planned Activities (funding allocation):
* Program administration ($12.1 million): Support administration and
implementation of the compact, including program management,
oversight, and audit;
* Monitoring and evaluation ($5 million): The measurement and
evaluation of progress toward the achievement of the compact goal and
objectives.
Source: GAO analysis of Millennium Challenge Corporation data.
[End of table]
Honduras Transportation Project:
CA-5 Highway Reconstruction Activity:
CA-5 Highway: Objective:
MCC allocated $96.4 million to reconstruct 109 kilometers of the CA-5
highway.[Footnote 90] The northern portion of the CA-5 highway
connects Tegucigalpa--the capital of Honduras--to Puerto Cortes on the
north coast, providing the primary route for import and export traffic
between Puerto Cortes and the major production and consumption centers
in and around San Pedro Sula, Comayagua, and Tegucigalpa. Figure 5
shows the locations of the CA-5 highway activities.
CA-5 Highway: Results:
MCC disbursed $90.3 million for the CA-5 highway reconstruction
activity by contract completion. MCC did not meet its target for
kilometers of highway upgraded, completing 49.5 kilometers, or 45
percent of the target (see table 14 for key performance results for
the CA-5 highway activity).[Footnote 91]
Table 14: Key Performance Results for CA-5 Highway Reconstruction
Activity, Honduras:
Indicator: Kilometers of highway upgraded (km);
Original target: 109;
Final target: 109;
Final result: 49.5;
Percentage of original target met: 45%;
Percentage of final target met: 45%.
Source: GAO analysis of Millennium Challenge Corporation data.
Note: We considered the original target to be that which was first
documented for each performance indicator, in either the 2006, 2008,
or 2010 monitoring and evaluation plan, and the final target to be
that which was documented in the 2010 monitoring and evaluation plan.
In addition, the final results in this table reflect the results
achieved by compact completion, although some activities continue
after the compact completion and continue to achieve results.
[End of table]
MCC originally planned to fund all reconstruction included in four
contracts for the four sections of the CA-5 highway. However, while
completing final design, acquiring right-of-way, and beginning to
award contracts, MCC determined that, because estimated costs had
increased, it would be unable to complete the 109 kilometers within
the 5-year compact timeframe and within the funding allocation of
$96.4 million. Consequently, the Honduras government, working with
MCC, arranged for a loan from the Central American Bank for Economic
Integration (CABEI) to fund up to $130 million of the CA-5
reconstruction, and MCC reduced its allocation to $89.3 million. This
brought total funding for the CA-5 reconstruction to $219 million,
more than double the original estimate.[Footnote 92] The $219 million
MCC and CABEI allocated for the CA-5 reconstruction included $20.2
million--$19 million from MCC and $1.2 million from CABEI--for land
acquisition and relocation costs; $195 million--$70.3 million from MCC
and $124.8 million from CABEI--for construction supervision and
construction contract costs; and $3.4 million from CABEI for other
consulting and administrative costs.
Varying amounts of the $195 million in construction supervision and
construction contract work were completed in each section of the
highway by the end of the compact.[Footnote 93]
* Section 1. After completing the design for section 1 of the CA-5
highway, MCC lacked sufficient funding to construct the 24.3-kilometer
section. Construction began in June 2010 with about $75 million in
CABEI funds and was about 5 percent complete when the compact ended.
MCC expects section 1 to be completed by June 2012. However, in March
2011, MCC officials stated that additional work added to the contract
may require MCA-Honduras to extend that date.[Footnote 94]
* Section 2. Construction began in February 2009 on the $68 million,
33.3-kilometer section 2 of the CA-5 highway and was about half
completed when the compact ended. MCC allocated about $21 million (31
percent) and CABEI allocated about $47 million (69 percent) for
section 2, with MCC's allocation covering the cost of about 10
kilometers of constructed road. Construction was scheduled to be
completed by March 2011, but MCA-Honduras is considering extending the
completion date to September 2011 because of additional construction
work, rain, and other delays.
* Sections 3 and 4. Reconstruction is 100 percent complete for 49.5
kilometers of the highway's two northernmost sections--sections 3 and
4--with about $52 million allocated to the activities. This amount
included MCC funding of about $49 million (94 percent) and CABEI
funding of about $3 million (6 percent). See figure 11 for before and
after pictures of section 4.
Figure 11: CA-5 Section 4 before and after Reconstruction, Honduras
Transportation Project:
[Refer to PDF for image: 2 photographs]
Source: MCA-Honduras.
Note: After reconstruction, pavement includes four through lanes,
added turn lanes, and improved pavement surface.
[End of figure]
CA-5 Highway: Challenges:
Contract bid amounts, land acquisition costs, and contract
modification costs exceeded MCC's estimates, causing overall costs for
reconstructing the CA-5 highway to exceed allocations for the activity
and preventing MCC from achieving its original target, according to
MCA-Honduras officials.
* Construction contract bid amounts. Construction contract bid amounts
for reconstructing each section of the CA-5 highway were significantly
higher than MCC's initial estimates, owing in part to requests from
the Honduras government for changes in scope and changes in design,
according to MCA-Honduras officials.
Section 1. The construction contract bid for section 1 exceeded
estimated costs by 15 percent.
Section 2. The construction contract bid for section 2 exceeded
estimated costs by 112 percent. The original design was to increase
the road from two to three lanes in some areas. However, the Honduras
government requested that the entire section have four lanes,
increasing the travel lane pavement area by 43 percent.
Section 3. The construction contract bid for section 3 exceeded
estimated costs by 11 percent, after the Honduras government requested
a third lane for passing to improve traffic flow in a few areas with
steep inclines.
Section 4. The construction contract bid for section 4 exceeded
estimated costs by about 75 percent. The Honduras government requested
that four lanes be installed in some portions of the section and that
concrete, rather than asphalt, be used for the pavement. In addition,
according to MCA-Honduras officials, 12 kilometers of a special base
treatment were added to support the concrete pavement.[Footnote 95]
* Land acquisition costs. The additional costs of acquiring right-of-
way for the additional lanes and relocating adjacent housing and
businesses exceeded initial estimates by almost 600 percent. According
to MCA-Honduras officials, the original estimate for land acquisition
and relocation was $3.1 million, but the final budgeted cost was about
$20.2 million. Officials said that due-diligence studies conducted
before the design phase had not included the costs of resettling
residents and business owners from acquired land. In addition, the
original land acquisition costs were estimated based on the land's
official value for tax purposes rather than on its market value (which
is typically higher), in accordance with normal practice in Honduras,
and did not include relocation costs. MCA-Honduras officials said
that, to accelerate the acquisition of land for the CA-5, they worked
with the Honduras government to pass legislation that allows citizens
to be reimbursed for market value land costs and relocation costs.
According to MCC officials, relocation of the businesses provided
economic benefits by allowing the business owners to retain their
livelihood. In addition, businesses were grouped together to reduce
traffic congestion related to cars stopping along the road and small
chambers of commerce were developed to promote the businesses (see
figure 12).
Figure 12: Relocated Businesses (in front) and Homes (in rear),
Honduras Transportation Project:
[Refer to PDF for image: photograph]
Source: MCA-Honduras.
[End of figure]
* Contract modifications. Modifications of contracts during
construction for sections 2, 3, and 4 raised CA-5 costs by about 6
percent, according to our review of construction supervision reports.
A construction supervision official for section 2 stated that some of
these increases were the result of road design plans with insufficient
detail, which required the construction of additional retaining walls,
earthwork, and drainage pipes beyond those included in the contract
plans. The construction supervision official for section 4 stated that
the increases were due to the addition of drainage pipes and other
items.
Secondary Roads Reconstruction Activity:
Secondary Roads: Objective:
MCC planned to reconstruct 91 kilometers of secondary roads, which
connect rural roads to primary roads such as the CA-5 highway.
[Footnote 96]
Secondary Roads: Results:
MCC disbursed $27.7 million to reconstruct 65.5 kilometers of
secondary roads by compact completion. MCC met the final target of
65.5 kilometers of secondary road reconstructed after a reduction in
the original target from 91 kilometers (see table 15 for key
performance results for the secondary roads activity).
Table 15: Key Performance Results for Secondary Roads Activity,
Honduras:
Indicator: Kilometers of secondary road upgraded (km);
Original target: 91;
Final target: 65.5[A];
Final result: 65.5;
Percentage of original target met: 72%;
Percentage of final target met: 100%.
Source: GAO analysis of Millennium Challenge Corporation data.
Notes: We considered the original target to be that which was first
documented for each performance indicator, in either the 2006, 2008,
or 2010 monitoring and evaluation plan, and the final target to be
that which was documented in the 2010 monitoring and evaluation plan.
[A] The target for this indicator was changed to 62 kilometers in the
2008 monitoring and evaluation plan and further changed to 65.5
kilometers in the 2010 monitoring and evaluation plan.
[End of table]
After accepting bids for the first secondary road construction
contract, MCC agreed to a reduction in the target for reconstructing
secondary roads because the cost of the reconstruction work greatly
exceeded original estimates, according to MCA-Honduras officials. The
officials also stated that the amount of planned MCC funding increased
after the first contract was let because the bid amounts were more
than estimated. According to the officials, the original estimated
reconstruction cost was about $235,000 per kilometer, but the actual
cost was about $422,000 per kilometer--an 80 percent increase.
For the reduced target, MCA-Honduras selected 65.5 kilometers of
secondary roads from among a group of roads expected to provide the
highest rate of economic return by increasing vehicle speeds and
reducing vehicle maintenance costs. The selected roads, located in
three different parts of the country, were constructed through three
separate contracts and were completed by the end of the compact.
According to MCA-Honduras officials, the reconstructed roads have
brought benefits such as improving the health of residents near the
road by reducing airborne dust, improving access to land near the
roads, attracting new farmers and laborers, and improving access to
health clinics. Figure 13 shows the secondary roads before and after
the reconstruction was completed.
Figure 13: Secondary Roads before and after Reconstruction, Honduras
Transportation Project:
[Refer to PDF for image: 4 photographs]
Photographs:
Comayagua-Ajuterique-La Paz:
Before;
After.
Sonaguera-KM-35 (El Coco):
Before;
After.
Source: MCA-Honduras.
Note: The top two pictures show that the road was widened (requiring
the reconstruction of a building), the road surface was paved, and
sidewalks were added. The bottom two pictures show that the road was
widened with shoulders, the road surface was paved, the culvert under
the road was repaired and widened, and pavement markings were added.
[End of figure]
Weight Control System Activity:
Weight Control: Objective:
MCC allocated $4.7 million to facilitate the implementation of a
weight control system, including activities such as constructing eight
truck weigh stations and the purchase of ancillary equipment along the
CA-5, to help limit damage to the roads from overweight
vehicles.[Footnote 97]
Weight Control: Results:
MCC disbursed about $90,000 for the weight control system activity.
MCC terminated funding for this activity in 2009 in response to the
country's political situation (see table 16 for key performance
results for the weight control activity).
Table 16: Key Performance Results for Weight Control Activity,
Honduras:
Indicator: Number of weight stations built;
Original: 8[A];
Final target: Activity eliminated.
Source: GAO analysis of Millennium Challenge Corporation data.
Notes: We considered the original target to be that which was first
documented for each performance indicator, in either the 2006, 2008,
or 2010 monitoring and evaluation plan, and the final target to be
that which was documented in the 2010 monitoring and evaluation plan.
[A] The target for this indicator was changed to 3 in the 2008
monitoring and evaluation plan, and the indicator was removed in the
2010 monitoring and evaluation plan.
[End of table]
MCC officials stated that prior to the decision to eliminate the
activity, they worked with the Honduran government to enact
legislation allowing Fondo Vial--the Honduran road maintenance
agency[Footnote 98]--to regulate and enforce weight limits on Honduran
roads. According to the Honduran government and MCA-Honduras
officials, the government is trying to develop a smaller weight
control activity, with one permanent weigh station and two portable
stations, to start enforcing weight limits on the CA-5. However, at
the time of our visit in November 2010, the government had not
established a definite plan or obtained funding for the activity, and
MCC is no longer monitoring the activity to provide us with an update.
Transportation Project: Quality:
To provide management control and ensure quality for the Honduras
transportation project, MCA-Honduras established an organization
consistent with MCC's management structure for infrastructure projects.
The management organization for infrastructure projects included a MCA-
Honduras transportation director and staff; contracted project
management consultant who also performed design engineer services; and
contracted independent construction supervisors, who reviewed the work
of the project construction contractors for the CA-5 highway and
secondary roads.[Footnote 99] MCC hired an independent engineering
consultant to provide them with independent reviews and
recommendations of MCA-Honduras' design and construction activities.
In addition, MCA-Honduras implemented a quality control process, with
independent construction supervisors and contractors ensuring that
construction of the CA-5 highway and secondary roads followed designs.
[Footnote 100] The contractors were responsible for the primary
testing, or quality control, and independent construction supervisors
were responsible for a smaller amount of testing to confirm that the
contractor's tests were accurate. In our review of contracts, we found
that to implement the quality control plan, the independent
construction supervisors and contractors conducted testing on
certified testing equipment and kept records of daily activities and
test results (see figure 14).[Footnote 101]
Figure 14: Testing Equipment in Contractor's Laboratory for CA-5
Section 2, Honduras Transportation Project:
[Refer to PDF for image: 2 photographs]
Concrete strength testing equipment;
Soil strength testing equipment.
Source: GAO.
[End of figure]
While the work on the CA-5 highway sections and secondary roads was
conducted with a quality control process in place, we observed
instances of roadside erosion, pavement roughness, surface slickness,
landslides, steep slopes, and limited use of roadside safety measures
that raised concerns about the quality of the completed works.
* Roadside erosion. We found problems with erosion in some areas that
had not been adequately revegetated, resulting in drop-offs at the
edge of pavement, undermining of sidewalks, and filling of drainage
areas (see figure 15). At one site, construction supervision officials
stated that revegetation was included in the contract to control
erosion, but they decided not to have the contractor install it
because it was dry season and the revegetation would not survive. At
another location, there was no erosion control included in the design
of a drainage way, resulting in erosion from rains. If these erosion
problems are not resolved during construction, they will present
maintenance challenges that will require additional funding.
Figure 15: Revegetation along Reconstructed CA-5 Highway and Secondary
Road, Honduras Transportation Project:
[Refer to PDF for image: 3 photographs]
Proper revegetation of fill slopes along CA-5;
CA-5 Section 4: Lack of revegetation along edge of drainage ditch
resulting in erosion;
Secondary road: Lack of revegetation of fill slope resulting in
erosion of fill behind and under sidewalk.
Source: GAO.
[End of figure]
* Pavement roughness. Pavements on the CA-5 section 3, the CA-5
section 4,[Footnote 102] and secondary roads met contractual
requirements for pavement smoothness; however, these CA-5 sections and
secondary roads did not meet the International Roughness Index (IRI)
targets that MCC and MCA-Honduras had set (see table 17).[Footnote
103] The project designer had not included the IRI measures in the
contract documents as a performance specification; thus, the
contractor was not required to meet IRI targets, which resulted in
increased long-term maintenance and user costs.
Table 17: Targeted and Achieved International Roughness Index (IRI)
for CA-5 and Secondary Roads, Honduras:
Road: CA-5 Section 1;
Target IRI (meters/kilometer): 1.9;
Achieved IRI (meters/kilometer): Not completed.
Road: CA-5 Section 2;
Target IRI (meters/kilometer): 1.9;
Achieved IRI (meters/kilometer): Not completed.
Road: CA-5 Section 3;
Target IRI (meters/kilometer): 1.9;
Achieved IRI (meters/kilometer): 2.2.
Road: CA-5 Section 4;
Target IRI (meters/kilometer): 1.9;
Achieved IRI (meters/kilometer): 3.2.
Road: Secondary roads;
Target IRI (meters/kilometer): 2.5;
Achieved IRI (meters/kilometer): 3.2.
Source: GAO analysis of Millennium Challenge Corporation data.
Note: A lower IRI indicates greater smoothness, with 0 meters per
kilometer indicating a perfectly smooth surface.
[End of table]
* Surface slickness. On two of the completed secondary roads, we
observed some areas of asphalt seepage to the road surface--a
condition known as asphalt flushing, which can affect road safety by
reducing skid resistance, making the surface slick, or obscuring
pavement markings (see figure 16). According to MCA-Honduras
officials, the contractor previously had taken action to mitigate the
deficiency on the road with the worst flushing and felt it was
satisfactorily repaired; however, it still existed at the time of our
visit in November 2010.
Figure 16: Flushed Asphalt on Secondary Roads, Honduras Transportation
Project:
[Refer to PDF for image: photograph]
Source: GAO.
[End of figure]
* Landslides. Landslides were found along CA-5 in sections 2, 3, and
4. For example, in the unfinished section 2 of the CA-5, a large
landslide made the uncompleted road almost impassable and caused
delays in construction of section 2 (see figure 17).[Footnote 104] The
geotechnical analysis identified by MCC as being those used to assess
the risks of landslides in the original CA-5 highway designs did not
include detailed analysis identifying how specific slopes would be
stabilized, prevention measures that could be included in the
construction plans, or an analysis of sections 3 and 4 of the CA-5. If
such detailed analysis had been conducted during the design of the
highway, the construction plans could have included such measures,
thus reducing landslides and maintenance costs.
Figure 17: Landslide in CA-5 Section 2, Honduras Transportation
Project:
[Refer to PDF for image: photograph]
Source: GAO.
Note: The landslide occurred in an area of a new road construction.
The rock and soil collapsed and almost covered the entire roadway,
delaying construction until a new construction plan was designed.
[End of figure]
* Steep slopes. In several locations along one secondary road, we
observed that the contractor had excavated soil to construct the road
and left steeps slopes that were almost vertical, with soil eroding
along the face of the excavation and filling drainage areas (see
figure 18). Construction supervisor officials said that this type of
design and construction was typical in Honduras because there was
limited right-of-way available to construct gentler slopes that were
less subject to erosion. However, we observed some locations where
there appeared to be sufficient right-of-way and the slope was still
vertical. For example, on one contract where right-of-way was
available, the construction supervision officials stated that the work
was constructed with a steep slope to save the cost of the excavation.
Although the decision to limit right-of-way acquisitions and reduce
the amount of excavation reduces costs and reconstruction time, it
increases the cost of long-term maintenance to ensure the pavement
does not deteriorate due to inadequate drainage.
Figure 18: Erosion of Steep Slope along Secondary Road, Honduras
Transportation Project:
[Refer to PDF for image: photograph]
Source: GAO.
Note: In part due to the steep slope, the excavated area is eroding
and blocking the roadside drainage.
[End of figure]
Inadequate or inconsistent traffic safety measures. We found
inadequate or inconsistent use of traffic safety measures on the
completed CA-5 sections and secondary roads:[Footnote 105]
* Concrete barrier wall was installed along retaining walls with drop-
offs, but guardrail was not generally installed along steep
embankments and drop-offs (see figure 19).
* Guardrail with safety end treatments or crash cushions to protect
motorists was not installed at the ends of most concrete barrier walls
and concrete bridges (see figure 19).
* Guardrail was installed to protect vehicles from concrete bridge
railing ends on one secondary road but not on another, in part due to
limited funding for the second road, according to MCC officials.
* Solid pavement centerlines were installed in a different manner on
one secondary road than on the other two roads, with the one road not
following design standards that MCC officials said they generally used
for the activity. MCC officials attributed the lack of uniform
centerlines to one road contract having less detailed specifications
than the other two road contracts, resulting in the contractor using a
different standard supplied by the Honduran transportation ministry.
MCC asserted that motorist safety was not affected; however, this
approach differs from the traffic controls used in the United States,
where uniformity of traffic control devices, such as pavement
markings, is considered vital to their effectiveness, promoting
highway safety and efficiency and minimizing the occurrence of
crashes.[Footnote 106]
MCC officials expressed confidence in the safety of the completed CA-5
sections and secondary roads, stating that the design of the road
reconstruction had met Central American standards; that the Honduras
transportation ministry had accepted and approved the proposed
designs; and that the traffic safety devices included in the
reconstruction exceeded those traditionally used on Honduran roads.
However, MCC officials acknowledged that they did not perform a cost-
benefit analysis of additional traffic control and traffic safety
devices during the design of the contracts and that funding
limitations had affected the extent to which safety improvements were
included in the construction contracts. According to MCC, additional
safety improvements were installed when funding was available.
[Footnote 107]
Figure 19: Locations on Completed CA-5 without Traffic Safety Devices,
Honduras Transportation Project:
[Refer to PDF for image: 2 photographs]
No guardrail protecting vehicles from dropping into the drain or
hitting the retaining wall at the outlet of the culvert.
Source: GAO.
No safety end treatment (crash cushion or guardrail) to protect
motorists from colliding with the end of the concrete bridge rail (see
circled area).
Source: MCA-Honduras.
[End of figure]
Transportation Project: Sustainability:
Uncertainty over Honduras government funding for road maintenance
calls into question the likely sustainability of the MCC-funded roads.
According to the compact, the key issue for sustainability of the
transportation project is routine, periodic, and emergency road
maintenance, such as sealing cracks, repainting the pavement markings,
cleaning ditches and drainage structures, repairing potholes,
resurfacing, and clearing landslides. Several of the quality
deficiencies we observed--erosion, roughness, slickness, and
landslides--will increase the amount and cost of maintenance needed
over time, and failure to perform the planned maintenance may result
in escalating maintenance needs. For example, without required
maintenance,
* erosion may block drainage, causing road deterioration and
undermining the sidewalks, pavements, or drainage structures, causing
them to fail;
* increasingly rough pavement, as measured by the IRI, will likely
require the road to be resurfaced sooner than planned and raise road
user costs; and:
* landslides may close roads, produce unexpected safety hazards, or
block drainage, causing road deterioration.
However, several circumstances call into question the Honduran
government's ability to provide the required maintenance over the 20-
year period specified in the compact. MCC expressed concerns about
whether the reconstructed roads would be maintained so as to sustain
reductions in road users' travel costs. Contractors and construction
supervisor officials also expressed a concern that, unless the
Honduras government improved its level of road maintenance, the
reconstructed roads would likely not be maintained.
Although MCC officials worked with the Honduras government to increase
its funding of road maintenance from a precompact amount of $37
million in 2005 to $64 million in 2010, this funding is for
maintenance of all roads on the official Honduran road network and not
specifically for compact-funded roads.[Footnote 108] In addition, the
commitment did not specifically address road maintenance after 2010.
With the increased funding, MCC officials stated that they expect that
the Honduran government will maintain the MCC-funded sections of CA-5
and some of the key secondary roads, but are concerned that it may not
be at the level required to maximize the road's life span.
The amount that the Honduran government has committed for road
maintenance is less than required by law and needed for the roads.
According to officials from the Honduras transportation ministry and
documents prepared by Fondo Vial, the government's allocation for 2010
represents less than half of the road maintenance allocation required
by Honduras law. These documents show that Honduras law requires the
government to allocate 40 percent of a fuel tax for road
maintenance.[Footnote 109] However, according to our analysis of Fondo
Vial documents, the percentage of fuel tax allocated for road
maintenance has varied, from 27 percent in 2000 to 14 percent in 2006
to 19 percent in 2010, even though Fondo Vial's road maintenance plan
recommends road maintenance be funded at $210 million annually--or
about 60 percent of the fuel tax.
MCC's elimination of the vehicle weight control activity from the
Transportation Project and the extent to which the Honduran government
completes the activity in the future will affect the sustainability of
the CA-5 road reconstruction. According to one Honduras government
official, there is currently no control of overweight trucks shipping
goods, and a large number of truckers exceed legal weight limits.
[Footnote 110] Without enforcement of weight limits on the CA-5 and
other MCC-funded roads, the roads will deteriorate faster, reducing
transportation cost savings and increasing road maintenance costs.
Honduras Rural Development Project:
Farmer Training and Development Activity:
MCC disbursed $26.6 million for the farmer training and development
activity, which was designed to improve the techniques and business
skills of farmers, assist farmers in improving agricultural
productivity, and achieve higher incomes from the production of high-
value horticulture crops.[Footnote 111]
Farmer Training and Development: Results:
MCC did not meet some of its original key targets, but it met or
exceeded three of its four final targets for the farmer training and
development activity (see table 18 for key performance results for the
farmer training and development activity). For example, 6,029 farmers
harvested high-value horticulture crops, which is 82 percent of the
original target of 7,340 and which exceeds the final target of 6,000.
[Footnote 112] According to MCC, this target was reduced to provide
additional technical assistance to those trained, to increase the
sustainability of the assistance provided.
Table 18: Key Performance Results for Farmer Training and Development
Activity, Honduras:
Indicator: Total recruited farmers receiving assistance;
Original target: 8,255;
Final target: 8,255;
Final result: 7,265;
Percentage of original target met: 88%;
Percentage of final target met: 88%.
Indicator: Program farmers harvesting high-value horticulture crops[A];
Original target: 7,340[B];
Final target: 6000[C];
Final result: 6029;
Percentage of original target met: 82%;
Percentage of final target met: 100%.
Indicator: Hectares harvesting high-value horticulture crops[A];
Original target: 11,830[B];
Final target: 8,400[C];
Final result: 9,287;
Percentage of original target met: 79%;
Percentage of final target met: 111%.
Indicator: Business plans prepared by program farmers with technical
assistance;
Original target: 6,480;
Final target: 6,960[D];
Final result: 16,119;
Percentage of original target met: 249%;
Percentage of final target met: 232%.
Source: GAO analysis of Millennium Challenge Corporation data.
Notes: We considered the original target to be that which was first
documented for each performance indicator, in either the 2006, 2008,
or 2010 monitoring and evaluation plan, and the final target to be
that which was documented in the 2010 monitoring and evaluation plan.
In addition, the final results in this table reflect the results
achieved by compact completion, although some activities continue
after the compact completion and continue to achieve results.
[A] To be counted for this indicator, the program farmer must (1) in
the first year of participation, have a crop mix demonstrated to have
an expected annual net income of at least $2000 per hectare; and (2)
in the second year of participation, have earned a net income of at
least $2000.
[B] This indicator was originally set with a higher target that was
meant to be achieved after compact completion. As a result, this
target represents the target that was originally scheduled to be
accomplished by compact end.
[C] The change in target for this indicator was documented in the 2010
monitoring and evaluation plan.
[D] The target for this indicator was changed to 5,520 in the 2008
monitoring and evaluation plan and further changed to 6,960 in the
2010 monitoring and evaluation plan.
[End of table]
The farmer training activity provided a number of benefits for
participating farmers. The program provided farmers with improved
skills in crop choice and site selection, land preparation, soil and
water management, and crop protection. A number of farmers in Honduras
stated that, as a result of the training, they began growing different
types of crops--for instance, switching from corn and beans to new
higher-profit crops such as plantains, peppers, and onions--and using
new agricultural techniques. Several farmers said they increased crop
volumes, quality, and income. Figure 20 shows irrigation on a training
participant farm.
Figure 20: Irrigation on Farmer Training and Development Activity
Participant Farm, Honduras Rural Development Project:
[Refer to PDF for image: photograph]
Source: GAO.
[End of figure]
Farmer Training and Development: Sustainability:
According to the compact, the farmer training activity is to be
sustained by program farmers who are able to maintain their new level
of productivity and expand their business. In addition to providing
technical assistance directly to farmers, the farmer training and
development activity involved working with entities along the farm
production value chain to enhance the sustainability of the activity
after compact completion. For instance, the contractor emphasized
involving the private sector in program activities, including buyers,
wholesalers, processors, and input and equipment service providers. In
addition, the farmer training activity also helped farmers form
associations for growing and selling their products to increase the
sustainability of techniques and production practices. According to
farmers we spoke with, forming associations helped them sell to larger
producers and encouraged certain producers to purchase goods directly
from these farms, which had not happened previously.
However, according to the contractor and farmers we spoke with in
Honduras, sustainability remains a concern for more than half of
farmers receiving assistance. In its final report submitted to MCA,
the contractor estimated that it takes approximately four to six
production cycles for the new skills farmers obtain to become
sustainable. According to the report, 90 percent to 95 percent of
program farmers who began receiving assistance in the first 2 years of
the program will continue using the new technologies. However, of the
farmers who were recruited late--more than 50 percent of the total
number of program farmers--half are expected to reach sustainability.
Farmers in Honduras stated that, although they intended to continue
using the new techniques, they were concerned about the ability of
some farmers to sustain their new skills and overcome future
challenges after the program ended. According to MCC officials, both
the contractor and the farmers have an incentive for overstating
potential sustainability challenges, as the contractor is interested
in receiving additional funding and the farmers are seeking additional
services.
Farm-to-Market Roads Activity:
MCC disbursed $20.1 million for the farm-to-market roads activity,
which was designed to improve rural roads that directly serve farms,
providing durable, all-weather access to secondary and primary roads
and ultimately improving access to markets and to social services.
[Footnote 113]
Farm-to-Market Roads: Results:
MCC did not meet its original target but nearly achieved the revised
target for the farm-to-market roads activity (see table 19 for key
performance results for the farm-to-market roads activity). MCC funded
the reconstruction of 495 kilometers of farm-to-market roads, or 33
percent of the original target of about 1,500. The target was reduced
to 692 kilometers in the 2008 monitoring and evaluation plan and
further reduced to 499 in the 2010 plan. Ultimately, MCC achieved 99
percent of the final revised target.
Table 19: Key Performance Results for Farm-to-Market Roads Activity,
Honduras:
Indicator: Kilometers of farm-to-market road upgraded;
Original target: 1,500;
Final target: 499[A];
Final result: 495;
Percentage of original target met: 33%;
Percentage of final target met: 99%.
Source: GAO analysis of Millennium Challenge Corporation data.
Notes: We considered the original target to be that which was first
documented for each performance indicator, in either the 2006, 2008,
or 2010 monitoring and evaluation plan, and the final target to be
that which was documented in the 2010 monitoring and evaluation plan.
[A] The target for this indicator was changed to 692 kilometers in the
2008 monitoring and evaluation plan and further changed to 499 in the
2010 monitoring and evaluation plan.
[End of table]
MCA-Honduras and MCC officials cited cost increases and compact
changes as the primary reasons for the reduction in kilometers of farm-
to-market roads reconstructed. The partial termination of the Honduras
compact in 2009, in response to the country's political situation,
included termination of the uncommitted portion of the farm-to-market
roads activity, representing approximately 93 kilometers of farm-to-
market roads. In addition, in generating the original target, MCC used
a per-kilometer cost estimate of $14,300, based on Fondo Vial quality,
environmental, and social standards, but revised the estimate to
$42,000 per kilometer because the Fondo Vial standards did not meet
compact requirements. Furthermore, according to MCC officials, MCC
chose to improve the durability of the roads built to increase the
life of the roads by, for instance, adding drainage structures that
reduce water damage. As a result, MCC funded fewer total kilometers of
road.
The farm-to-market roads reconstructed were selected based on a list
of proposed roads with an estimated economic rate of return of at
least 12 percent. The reconstructed roads included 38 stretches of
roads in 29 different municipalities and 10 departments throughout
Honduras. With the completion of the roads, MCA-Honduras officials
said that rural residents' travel times to more urbanized areas for
access to markets and health centers had been reduced from 6 hours to
1 hour in some cases (see figure 21).
Figure 21: Farm-to-Market Roads before and after Reconstruction,
Honduras Rural Development Project:
[Refer to PDF for image: 4 photographs]
Before and after photos of two roads.
Source: MCA-Honduras.
[End of figure]
Farm-to-Market Roads: Sustainability:
Lack of equipment, expertise, and funding for road maintenance by the
municipalities where many reconstructed roads are located may affect
the sustainability of the roads. Although Fondo Vial is responsible
for maintaining some farm-to-market roads in Honduras, in many cases
the roads are maintained by municipalities. According to MCA-Honduras
officials, MCA-Honduras required municipalities to agree to co-finance
a percentage of the road reconstruction activities, based on the
poverty level of the community, as a condition for receiving funding.
This co-financing could be made up of cash and in-kind contributions,
such as materials. In addition, the municipality had to agree to
permanently maintain the roadway.
However, the maintenance of the road and its associated benefits is a
concern. MCA-Honduras officials stated that, although some
municipalities may be acquiring additional equipment, the
municipalities generally lack the equipment and expertise to maintain
the roads. We found an example of this in one section of farm-to-
market road where the road had washed out in a low area and
maintenance was being performed by hand with little progress. MCA-
Honduras had intended to help improve the municipalities' expertise in
proper road maintenance procedures through training. However, no funds
were available for the training after MCC funding was partially
terminated partially as a result of the country's political situation.
Farmer Access to Credit Activity:
MCC disbursed $12.8 million for the farmer access to credit activity,
which consisted of three components--an agricultural credit trust
fund, technical assistance for financial institutions, and a national
property registry activity. This activity was designed to increase the
supply of credit to rural borrowers, including program farmers and
other agribusiness borrowers. The agricultural credit trust was a $6
million fund that was designed to provide loans to financial
institutions to improve the availability of credit for rural lending.
The technical assistance program provided assistance to financial and
nonfinancial institutions to strengthen the institutions and assist
them in developing products to more effectively serve the horticulture
industry. The expansion of the national property registry activity was
designed to create a new registry of movable property and facilitate
implementation of legislation required to institute such a new system.
[Footnote 114]
Farmer Access to Credit: Results:
According to MCA-Honduras officials, implementation challenges led to
scope modifications and delays in the farmer access to credit
activity. An initial lack of interest in accessing the agricultural
credit fund among traditional banking institutions led MCA-Honduras
and the contractors to refocus these activities on smaller sources of
credit, such as financial intermediaries and input suppliers. These
early challenges and resulting modifications meant that the
agricultural credit fund was not effectively operating until late in
the compact.
In addition, the agricultural credit fund, which was initially
intended to target program farmers, was modified to include
horticulture producers and businesses. According to MCC, small farmers
making the transition to high-value horticulture used existing
resources and savings and did not require access to credit until
market opportunities expanded. Due to this delay in demand for credit
and an interest in enhancing the sustainability of the lending
activity, MCC and MCA-Honduras decided to expand the scope to include
nonprogram farmers. Additionally, according to MCA-Honduras and MCC
officials, some initial opposition to reforming collateral laws and a
political transition in Honduras significantly increased the time it
took to enact the new law.
MCC met most key original and all final targets for the farmer access
to credit activity, following modifications and delays in
implementation (see table 20 for key performance results for the
farmer access to credit activity). For example, the total value of
loans disbursed to farmers, agribusinesses, and other producers in the
horticulture industry was $10.7 million--more than 170 percent of the
revised target of $6 million and 37 percent of the original target of
$28.8 million.[Footnote 115] MCC noted that the updated indicator
reflected changes in the operational guidelines for the use of loan
fund resources that allowed nonprogram farmers, agribusinesses, and
vendors in the horticulture industry to access credit. An MCC official
noted that, as a result of rescoping the activity, MCA-Honduras was
better able to reach beneficiary populations that likely would not
have been served under the original design.
Table 20: Key Performance Results for Farmer Access to Credit
Activity, Honduras:
Indicator: Funds lent to financial intermediaries (millions of U.S.
dollars);
Original target: 6;
Final target: 6;
Final result: 7.2;
Percentage of original target met: 120%;
Percentage of final target met: 120%.
Indicator: Value of loans disbursed to the horticulture industry
(millions of U.S. dollars);
Original target: 28.8[A];
Final target: 6b;
Final result: 10.7[C];
Percentage of original target met: 37%;
Percentage of final target met: 178%.
Indicator: Lien registry equipment installed (percentage);
Original target: 100 in year 3;
Final target: 100 in year 4[B];
Final result: 100 in year 5;
Percentage of original target met: 100 in year 5%;
Percentage of final target met: 100 in year 5%.
Source: GAO analysis of Millennium Challenge Corporation data.
Notes: We considered the original target to be that which was first
documented for each performance indicator, in either the 2006, 2008,
or 2010 monitoring and evaluation plan, and the final target to be
that which was documented in the 2010 monitoring and evaluation plan.
In addition, the final results in this table reflect the results
achieved by compact completion, although some activities continue
after the compact completion and continue to achieve results.
[A] This target ($28.8 million) was originally set for a similar
indicator measuring the value of loans to program farmers, which was
ultimately replaced by a number of indicators, including this
indicator, and a lower target of $6 million.
[B] The change in target for this indicator was documented in the 2008
monitoring and evaluation plan.
[C] The value of this indicator ($10.7 million) includes the value of
loans repaid and relent ($5.2 million) from the agricultural credit
trust fund. This value ($10.7 million) does not include an additional
$6.4 million in loans leveraged by financial institutions. According
to MCC, adding the $6.4 million of funds leveraged by financial
institutions to the $10.7 million of funds lent from the trust fund
would result in double-counting of some funds. In addition, no target
was established for the value of funds leveraged by financial
institutions.
[End of table]
Financial institutions participating in both the agricultural credit
fund and technical assistance activity also said that these activities
helped them increase the credit they provide to the agricultural
sector in Honduras. Representatives of one financial institution in
particular said that the training helped them develop special
products, which they were previously unfamiliar with, to provide
credit to the agricultural sector.
Farmer Access to Credit: Sustainability:
MCC took steps to increase the sustainability of the farmer access to
credit activity through continuation of certain activities beyond the
end of the compact. According to MCA-Honduras officials, since the
agricultural credit fund activity started late, MCC arranged for the
activity to continue after the end of the compact to achieve the
intended effects. The agricultural credit fund will continue operating
for 5 additional years after the compact is complete, which will
enhance the sustainability of these loans to the horticultural
industry. Since MCA-Honduras and MCC will no longer oversee the
agricultural credit fund after compact end, a committee chaired by
Honduras's Ministry of Finance was set up to oversee the
administration of the agricultural credit fund. According to the
contractor of the technical assistance activity, many of the new
financial tools adopted by financial institutions as a result of the
technical assistance are self-sustaining, as they do not require
external updates and are self-financing. In addition, we spoke with
representatives of several financial institutions in Honduras who
stated their intentions to continue lending to the agricultural sector
and taking out loans with the agricultural credit fund after compact
completion.
Agricultural Public Goods Grants Facility Activity:
MCC disbursed $8.8 million for the agricultural public goods grants
facility activity,[Footnote 116] which funded 15 small competitive
grants designed to support activities that enhance and accelerate the
development of market-based commercial agriculture, particularly the
horticultural sector.[Footnote 117]
Agricultural Public Goods Grants Facility: Results:
MCC met or exceeded some original and most final targets for the
agricultural public goods grants facility activity (see table 21 for
key performance results for the agricultural public goods grants
facility activity). For example, irrigation systems reached more than
950 farmers, or almost 250 percent of the target for the number of
farmers connected to the community irrigation system.
Table 21: Key Performance Results for Agricultural Public Goods Grants
Facility Activity, Honduras:
Indicator: Number of hectares under irrigation;
Original target: 203;
Final target: 203;
Final result: 400;
Percentage of original target met: 197%;
Percentage of final target met: 197%.
Indicator: Number of farmers connected to the irrigation system;
Original target: 392;
Final target: 392;
Final result: 967;
Percentage of original target met: 247%;
Percentage of final target met: 247%.
Indicator: Number of farmers testing biological control agents;
Original target: 100;
Final target: 100;
Final result: 80;
Percentage of original target met: 80%;
Percentage of final target met: 80%.
Indicator: Number of coffee plants cloned;
Original target: 375;
Final target: 250[A];
Final result: 259;
Percentage of original target met: 69%;
Percentage of final target met: 104%.
Source: GAO analysis of Millennium Challenge Corporation data.
Notes: We considered the original target to be that which was first
documented for each performance indicator, in either the 2006, 2008,
or 2010 monitoring and evaluation plan, and the final target to be
that which was documented in the 2010 monitoring and evaluation plan.
In addition, the final results in this table reflect the results
achieved by compact completion, although some activities continue
after the compact completion and continue to achieve results.
[A] The change in target for this indicator was documented in the 2010
monitoring and evaluation plan.
[End of table]
Agricultural Public Goods Grants Facility: Sustainability:
Agricultural public goods grants facility took longer than expected to
implement, but MCA-Honduras officials were positive about
sustainability. Public goods grants were planned for 18 months, but
almost every activity had to be extended beyond the end of the
originally planned completion date. Public goods grants were
implemented by local organizations with the support of the local
community to improve sustainability. According to some public goods
grantees, local communities with irrigation systems received training
in the maintenance of such systems and help establishing a user-fee
structure that would fund maintenance costs. According to those
grantees and MCA-Honduras officials, such arrangements will bolster
the sustainability of the irrigation systems.
[End of section]
Appendix IV: Comments from the Millennium Challenge Corporation:
Millennium Challenge Corporation:
United States of America:
875 Fifteenth Street NW:
Washington, DC 20005-2221:
(202) 521-3600:
fax (202) 521-3700:
[hyperlink, http://www.mcc.gov]
June 23, 2010:
Mr. David Gootnick:
Director, International Affairs and Trade:
U.S. Government Accountability Office:
441 G Street, NW:
Washington, DC 20548:
Re: MCC Comments to Draft Report GA0-11-728:
Dear Mr. Gootnick:
Thank you for the opportunity to review and comment on the U.S.
Government Accountability Office's draft report "Compacts in Cape
Verde and Honduras Achieved Reduced Targets" (GA0-11-728). We at MCC
are appreciative that your report has highlighted many of the
impressive results achieved by the first two compacts to fully
complete. The report further reflects MCC's deep commitment to results
and transparency, and will serve as an important learning tool for
management as we continually seek to improve the investment of
taxpayer dollars.
In Cape Verde, MCC assistance resulted in the completion of the first
phase of a major port modernization project, the improvement of roads
and construction of new bridges, as well as training for farmers. In
Honduras, MCC supported the rehabilitation of several key roads,
including a critical stretch of the Central American Highway, and
training in improved farming techniques for over 7,000 farmers.
These results were achieved under challenging circumstances, requiring
MCC and its partners to make significant changes to projects and
reduce some initial targets. The report demonstrates, however, that in
making changes to projects, MCC remained focused on results, meeting
the majority of the revised targets and making substantial progress
toward achieving the shared development objectives of the United
States and MCC's partner countries. Moreover, the report highlights
that independent evaluations are already in process that will assess
the cost-effectiveness of these interventions, a further reflection of
both the rigor of MCC's evidence-based approach to investment and our
commitment to learn from our experiences.
As set forth in more detail in the attached comments, MCC agrees with
the intent of GAO's recommendations. The long-term sustainability and
monitoring of MCC's investments are central to our mission, and MCC
commits to work with GAO to develop specific actions to implement the
recommendations. MCC has applied many of the lessons learned from its
early compacts and prior GAO reports. As a result, we are already
implementing aspects of GAO's current recommendations and expect that
future compacts will benefit as we incorporate these lessons into our
programs.
Finally, we wish to thank you and the GAO staff for the professional
manner in which the audit was conducted and the opportunities given to
MCC to provide additional information and feedback.
Sincerely,
Signed by:
Patrick C. Fine:
Vice President:
Department of Compact Operations:
[End of letter]
MCC Comments to the Draft GAO Report (GAO-11-728):
Compacts in Cape Verde and Honduras Achieved Reduced Targets:
GAO Recommendation: To maximize the sustainability of MCC-funded
infrastructure projects and to reduce the amount of maintenance
required after compact completion, work with partner countries to make
project, planning design, and construction decisions that reduce long
term maintenance costs.
MCC Comments: MCC takes seriously the maintenance and sustainability
of its investments. Prior to signing a compact, MCC systematically
assesses sustainability and formulates meaningful and pragmatic
actions that our partner countries must take during implementation of
the compact to move towards self-sufficiency. MCC monitors progress on
those actions, and takes action during implementation to correct non-
compliance.
The rehabilitation of infrastructure improves the condition of assets
such that the need for maintenance is reduced, for at least a period
of time. Of course this is not sufficient, and in designing projects,
MCC seeks to strike a proper balance between front end capital
investment costs and ongoing operations and maintenance costs. Thus,
among the steps that MCC has taken, in its pre-construction
activities, is systematic analysis — such as value engineering and
life cycle cost analysis — to consider the effects of durability and
maintenance costs and to reflect these in the final designs. For
example, MCC could invest more in slope protection and some of the
measures GAO has cited in its draft report, but such measures may not
be justified in all cases, particularly in a developing country
context.
During the design phase, considerable attention is paid by MCC to
minimization of operations and maintenance costs. In many instances,
MCC has insisted on upgraded drainage standards on road projects over
the objections of country counterparts who may prefer to rehabilitate
more kilometers. The same applies to MCC's insistence on installation
of the appropriate pumps and other equipment on water treatment and
irrigation projects in a way that is both cost effective and
maintainable in the local setting.
The concern with maintenance carries over to the attention MCC pays to
long term operations of facilities. As part of the design of
implementation arrangements, MCC works to ensure that institutions and
systems are put into place to provide for the sustainability of
projects over the long term. Examples include the establishment of and
provision for capacity building of water users associations for
irrigation projects, capacity building of maintenance organizations in
the road sector, and the purchase of maintenance equipment for
government agencies that will be entrusted with the care of MCC funded
projects when completed.
In order to cover the inevitable maintenance costs, many of MCC's
compacts require governments to set aside funding for maintenance from
the general treasury or to set up maintenance funds with dedicated
sources of funding (e.g., fuel levies, other targeted user fees, or
taxes) as a condition to disbursements of the grant. MCC has also
supported the formation of agencies to manage maintenance planning,
funding and contracting in some cases. More recently, we have
allocated funding toward periodic (as opposed to routine) maintenance
costs of roads in a country. MCC's policy engagement to increase
country capacity to undertake needed maintenance for all sector
assets, not just MCC-funded assets helps countries to adopt plans to
move towards full-funding, resulting in a lasting benefit for the
sector.
In the draft report, GAO concludes that "MCC took steps to require
partner countries to plan to effectively operate and maintain the
infrastructure, including privatization of port operations in
Cape Verde and the provision of road maintenance funding in Cape Verde
and Honduras. The partner countries made progress meeting MCC's
requirements in these areas, but they continue to face funding and
other challenges that are key to sustainability." MCC agrees that the
Cape Verde and Honduras compacts are examples of both the positive
effects that the MCC compacts achieved toward sustainability and the
challenges that remain. All infrastructure projects around the globe
face challenges to long term sustainability, and financing maintenance
is a challenge in both developed and developing countries.
In Cape Verde, MCC took significant measures to improve road
maintenance systems, and the GAO witnessed the maintenance program
working. MCC incentivized the establishment of the road maintenance
fund, which is functioning, and all MCC-funded roads and bridges are
being maintained. For instance, the GAO report shows a photograph of a
Government of Cape Verde-funded contractor making needed repairs to a
road, financed by the road levy that was instituted to meet the
conditions in the compact.
Similarly, in Honduras, as a result of conditions that MCC placed on
disbursements of funding, GAO notes that the government increased its
road funding from $37 million in 2005 to $64 million in 2010 (a 73%
increase. While this amount remains short of what would be required to
cover the entire network, the willingness to make this increase has
helped change the priority and direction of road maintenance funding
in the country. There can be no guarantee that partner countries will
continue to make these investments now that the MCC compact is over.
MCC believes, however, that this is ultimately the responsibility of
the country and is one of the reasons why MCC selects countries based
on good governance criteria and fosters country ownership so that
countries will meet this responsibility going forward.
GAO Recommendation: To enhance the accuracy of MCC's ERR projections,
ensure, during compact implementation, that updated ERR analyses are
well documented and supported and that key revised indicators and
targets are reflected in updated ERR analyses.
MCC Comments: This recommendation has two components, the first
related to our economic work and the second related to the monitoring
and evaluation (M&E) targets. MCC agrees with both aspects of this
recommendation.
With respect to the economic analysis during implementation, MCC's pre-
investment economic rates of return (ERRs) represent our best
assessment of the future returns of a project as designed at that
time. When the anticipated scope of the project changes, however, it
is MCC's policy that ERRs should be updated (resources permitting,
with exceptions documented and explained). When ERRs are updated, MCC
agrees that these changes should be adequately documented, so that
informed stakeholders can follow the logic and the sources of the data
of the project as conceptualized at that time.
With respect to the consistency between ERR models and M&E targets,
MCC's current M&E policy requires that these be linked to the extent
possible. When changes to the project design or scope are proposed,
MCC agrees that the economic implications of these changes should be
assessed and documented, and that the consistency between M&E targets
and the current ERR model should be maintained.
In Honduras and Cape Verde, the GAO found that in some instances the
lack of documentation on updated ERR analyses made it difficult to
know whether the revised ERR results are accurate and reliable, and
that the ERR analyses were not clearly linked to the revised targets
in the M&E plans. MCC has taken significant steps to correct this
issue. As GAO notes, MCC adopted a new policy on the approval of
modifications to compact programs in 2010. Among other measures which
improve the process for analyzing the impact of program modifications on
ERRs and beneficiaries, the policy requires that significant changes
be documented prior to approval and that changes to M&E indicators and
targets must be verified by the appropriate staff.
GAO Recommendation: To enhance the accuracy of MCC's ERR projections,
develop guidance for re-estimating ERRs at compact completion and
during the long-term period when compact benefits are realized to
ensure that updated estimates reflect the most recent and reliable
information available for MCC's compact investments and outcomes.
MCC Comments: Again, this recommendation encompasses two distinct
ideas, the re-estimation of ERRs at compact completion and the re-
estimation of ERRs at some future point(s) well after completion,
consistent with the long-term returns of our infrastructure and other
investments. MCC acknowledges the importance of measuring ERRs over
the life of its projects, and will develop guidance that takes the
following considerations into account:
In some cases, the calculation of ERRs at the time of compact
completion could provide useful information, if MCC has preliminary
evidence regarding observed program impact. But in many cases, MCC may
not have much more than input and output data at compact completion,
and re-estimation of the ERR at that time may produce little or no new
information over an existing model. Alternatively, MCC has committed
resources for independent evaluators to undertake estimations of ERRs
based on impact evaluation data. These ERRs, which will be produced
one-two years after completion, will provide more useful information.
A more significant issue is the re-estimation of ERRs beyond the
current evaluation plan. MCC recognizes that the persistence of
benefits over time is an important issue for compact evaluation, but
notes that our assistance to partner countries is restricted by
statute to five years. This limits the terms and types of commitments
MCC could make with partner countries to sustain an
effective monitoring program over the lifespan of a project.
MCC is committed to working with GAO to agree on guidance to achieve
the shared objective of the recommendation, which is to continue to
transparently monitor the results of the compacts, so that the long-
term impacts of MCC investments are known and the lessons learned are
incorporated into future programs. Any such guidance will need to take
into consideration, however, the limitations on MCC's assistance to a
country in the long term and the administrative and funding
constraints of committing to actions up to 20 years in the future.
Additional MCC Comments to GAO Findings:
Given that the GAO report focuses on indicators and targets, MCC would
like to highlight a couple of other important results of the compacts
in Cape Verde and Honduras that are not fully reflected in the report.
In Cape Verde, the compact contributed to significant policy reforms
that will have long-term impacts on their respective sectors. For
example, the government issued a national decree lifting a 20-year
embargo on agricultural exports from the island of Santo Ana), and a
new microfinance law was passed to authorize collection of savings by
microfinance institutions.
In the case of Honduras, the compact led to the passage and
implementation of legislation to permit secured transactions of
equipment, movable and other personal property, the introduction of a
new and higher standard for resettlement, and the near doubling of
road maintenance funding. These are key policy changes which are
expected to make lasting contributions to Honduran economic
development. The secured transaction legislation and security interest
registry has been instrumental in improving the credit opportunities
for small and medium-sized enterprises. The resettlement legislation
developed and enacted during the compact enabled the resettlement of
affected parties in accordance with a higher standard for social
safeguards, coordination and efficiency.
Financing and implementation challenges meant that not all of the
sections of the CA-5 Highway in Honduras that were initially projected
could be completed during the compact. With the support of MCC's
compact, however, the Government of Honduras was able to obtain
concessional financing from the Central American Bank for Economic
Integration (CABEI) to complete all of the sections, currently
scheduled for 2012. This is a clear example of the ability of MCC to
leverage its resources and partner with other donors. The fact that
the CABE-financed sections of the project will continue to be
implemented by MCA-Honduras is also a testament to the good governance
and effective administration of development assistance that
MCC is fostering in its partner countries.
[End of section]
Appendix V: GAO Contacts and Staff Acknowledgments:
GAO Contact:
David Gootnick, (202) 512-3149 or gootnickd@gao.gov:
Staff Acknowledgments:
In addition to the contact named above, Emil Friberg Jr. (Assistant
Director), Michael Armes, Diana Blumenfeld, Lynn Cothern, Gergana
Danailova-Trainor, Miriam Carroll Fenton, Ernie Jackson, Leslie Locke,
Reid Lowe, Amanda Miller, and Suneeti Shah Vakharia made key
contributions to this report. Additional technical assistance was
provided by Lucas Alvarez, Juan Avila, Chloe Brown, Thomas Costa,
Martin DeAlteriis, Michael Derr, Kevin Egan, Vanessa Estevez, Etana
Finkler, Rachel Girshick, Kieran McCarthy, Lauren Membreno, Werner
Miranda-Hernandez, Mark Needham, Nelson Olhero, Joshua Ormond,
Marisela Perez, Kyerion Printup, Cristina Ruggiero, Carla Rojas, Jena
Sinkfield, and Omar Torres.
[End of section]
Related GAO Products:
Millennium Challenge Corporation: Summary Fact Sheet for 17 Compacts.
[hyperlink, http://www.gao.gov/products/GAO-10-797R]. Washington,
D.C.: July 14, 2010.
Millennium Challenge Corporation: MCC Has Addressed a Number of
Implementation Challenges, but Needs to Improve Financial Controls and
Infrastructure Planning. [hyperlink,
http://www.gao.gov/products/GAO-10-52]. Washington, D.C.: November 6,
2009.
Millennium Challenge Corporation: Summary Fact Sheets for 11 Compacts
Entered into Force. [hyperlink,
http://www.gao.gov/products/GAO-08-1145R]. Washington, D.C.: September
26, 2008.
Millennium Challenge Corporation: Independent Reviews and Consistent
Approaches Will Strengthen Projections of Program Impact. [hyperlink,
http://www.gao.gov/products/GAO-08-730]. Washington, D.C.: June 17,
2008.
Millennium Challenge Corporation: Analysis of Compact Development and
Future Obligations and Current Disbursements of Compact Assistance.
[hyperlink, http://www.gao.gov/products/GAO-08-577R]. Washington,
D.C.: April 11, 2008.
Management Letter: Recommendations for Improvements to MCC's Internal
Controls and Policies on Premium Class Air Travel. [hyperlink,
http://www.gao.gov/products/GAO-08-468R]. Washington, D.C.: February
29, 2008.
Millennium Challenge Corporation: Projected Impact of Vanuatu Compact
Is Overstated. [hyperlink, http://www.gao.gov/products/GAO-07-1122T].
Washington, D.C.: July 26, 2007.
Millennium Challenge Corporation: Vanuatu Compact Overstates Projected
Program Impact. [hyperlink, http://www.gao.gov/products/GAO-07-909].
Washington, D.C.: July 11, 2007.
Millennium Challenge Corporation: Progress and Challenges with
Compacts in Africa. [hyperlink,
http://www.gao.gov/products/GAO-07-1049T]. Washington, D.C.: June 28,
2007.
Millennium Challenge Corporation: Compact Implementation Structures
Are Being Established; Framework for Measuring Results Needs
Improvement. [hyperlink, http://www.gao.gov/products/GAO-06-805].
Washington, D.C.: July 28, 2006.
Analysis of Future Millennium Challenge Corporation Obligations.
[hyperlink, http://www.gao.gov/products/GAO-06-466R]. Washington,
D.C.: February 21, 2006.
Millennium Challenge Corporation: Progress Made on Key Challenges in
First Year of Operations. [hyperlink,
http://www.gao.gov/products/GAO-05-625T]. Washington, D.C.: April 27,
2005.
Millennium Challenge Corporation: Progress Made on Key Challenges in
First Year of Operations. [hyperlink,
http://www.gao.gov/products/GAO-05-455T]. Washington, D.C.: April 26,
2005.
[End of section]
Footnotes:
[1] 22 U.S.C. § 7708(j).
[2] MCC commits funding when a compact is signed and obligates funds
after the compact enters into force. As of June 2011, MCC had signed
compacts with, in order of signature, Madagascar, Honduras, Cape
Verde, Nicaragua, Georgia, Benin, Vanuatu, Armenia, Ghana, Mali, El
Salvador, Mozambique, Lesotho, Morocco, Mongolia, Tanzania, Burkina
Faso, Namibia, Senegal, Moldova, the Philippines, Jordan, and Malawi.
[3] Consolidated Appropriations Act, 2008, Pub. L. No. 110-161, §
668(d)(1)(A). The act also required us to examine the financial
control and procurement practices of MCC and its accountable entities.
We responded to this requirement separately in GAO, Millennium
Challenge Corporation: MCC Has Addressed a Number of Implementation
Challenges, but Needs to Improve Financial Controls and Infrastructure
Planning, GAO-10-52 (Washington, D.C.: Nov. 6, 2009).
[4] We did not include the Madagascar compact in this review because,
as the result of a pattern of actions inconsistent with MCC policy,
MCC formally terminated the compact effective August 31, 2009.
Protests and instability in Madagascar in January 2009 ultimately led
to the forced resignation of the country's elected president.
[5] Other board members are the U.S. Trade Representative, the
Administrator of the U.S. Agency for International Development, the
CEO of MCC, and up to four Senate-confirmed nongovernmental members
who are appointed by the President from lists of individuals submitted
by congressional leadership.
[6] Candidate countries must not be statutorily barred from receiving
U.S. assistance.
[7] To be eligible for MCA assistance, a country must pass the
indicator for control of corruption and at least one-half of the
indicators in each of the following three categories: ruling justly,
investing in people, and encouraging economic freedom. To pass an
indicator test, a country must score better than at least one-half of
the other candidates (above the median) in its income group.
[8] In our November 2009 report on MCC's compact development and
implementation processes for infrastructure projects, we recommended
that MCC (1) improve fiscal accountability plans and ensure
comprehensive policies for all MCA expenses, (2) reinforce MCC's price
reasonableness analysis guidance, and (3) improve project design
reviews and cost estimates prior to issuing contract solicitations.
MCC has implemented the second of these recommendations and has
indicated that it has taken steps to implement the remaining
recommendations where applicable. See [hyperlink,
http://www.gao.gov/products/GAO-10-52].
[9] There are four types of indicators, including (1) goal indicators,
which measure the economic growth and poverty reduction changes that
occur during or after compact implementation; (2) objective
indicators, which measure the intermediate and long-term effects of an
activity or set of activities and are related to output indicators;
(3) output indicators, which measure, describe, and quantify the goods
and services produced by the activity; and (4) process milestone
indicators, which measure progress toward the completion of project
activities.
[10] MCC and MCAs monitor the progress of compact activities using an
indicator tracking table, which is a reporting tool that displays
targets and tracks progress against them. The tracking table is
designed to help MCC and MCAs track interim progress toward compact
goals. MCA staff in Cape Verde and Honduras conducted periodic checks
to ensure that data used to track compact results were valid,
reliable, and timely. In addition, MCC also hired independent
evaluators to review the reliability of data collected by contractors
in both countries.
[11] According to MCC's 2009 annual report, MCC is conducting impact
evaluations for every MCC compact. Specifically, approximately 50
percent of all MCC compact activities representing almost 60 percent
of all MCC compact funds are assessed using independent impact
evaluations.
[12] In our July 2006 report on the status of MCC's compact
implementation, we recommended that MCC (1) ensure that economic
analyses of compact proposals better reflect country conditions and
involve country participation and (2) improve monitoring and
evaluation by obtaining more reliable baseline data, ensuring a clear
linkage to economic analyses, developing criteria for establishing and
adjusting targets, and ensuring timely development of evaluation
designs. MCC has implemented these recommendations. See GAO,
Millennium Challenge Corporation: Compact Implementation Structures
Are Being Established; Framework for Measuring Results Needs
Improvement, [hyperlink, http://www.gao.gov/products/GAO-06-805]
(Washington, D.C.: July 28, 2006).
[13] During MCC's due diligence review, MCC determines whether the
proposal that an eligible country has submitted meets MCC criteria to
ensure that proposed programs will be effective and funds well-used.
[14] The results of the due diligence assessment are reported in an
investment memo--an internal document that analyzes the compact--
submitted to MCC's investment management committee. The investment
management committee consists of MCC's vice presidents and other
senior officials and reports to the Chief Executive Officer. The
committee reviews the memo and decides whether to recommend proceeding
to compact negotiations. This ERR information is also found in MCC
documents such as compacts, compact summaries, annual reports, and
congressional notifications and budget justifications.
[15] According to MCC's 2006 guidelines for monitoring and evaluation
plans, the economic analysis determines the main variables that drive
program results, which can become indicators, and values of these
variables can become targets. As a result, targets are usually
directly linked to and derived from the economic analysis. In
addition, according to earlier MCC guidelines for monitoring and
evaluation plans issued in January 2006, indicators proposed should be
linked as much as possible to the economic assessment justifying the
program.
[16] In our June 2008 report on MCC's projections for ERRs and compact
impact on income and poverty, we recommended that MCC (1) adopt and
implement written procedures for a secondary independent review of its
economic analyses and (2) improve MCC's guidelines by identifying a
consistent approach with preferred methods for projecting compacts'
impact on income and poverty. MCC has implemented these
recommendations. See GAO, Millennium Challenge Corporation:
Independent Reviews and Consistent Approaches Will Strengthen
Projections of Program Impact, [hyperlink,
http://www.gao.gov/products/GAO-08-730] (Washington, D.C.: June 17,
2008).
[17] The organization of the management structure may vary across
compacts and projects.
[18] In some cases, project designs already exist and MCAs do not
engage a design engineer in implementing the project.
[19] Construction quality management is a joint responsibility of the
contractor and construction supervisor. The construction contractor is
responsible for quality control, which involves, among other tasks,
material and construction testing. The construction supervisor
provides quality assurance through its oversight activities, which may
include, for example, independent material and construction testing.
[20] Testing is typically completed to ensure construction materials
meet performance characteristics. For example, compaction tests are
done to ensure underlying soils are able to support pavement
structures. In addition, completed work is tested to ensure it was
installed properly and performs as intended. For example, smoothness
tests can be performed on newly placed pavements.
[21] We previously reported on the effect of insufficient planning on
Cape Verde's infrastructure project and steps that MCC has taken to
improve planning for future compacts. See [hyperlink,
http://www.gao.gov/products/GAO-10-52].
[22] A small amount of phase 1 work remained undone at the end of the
compact because its completion is contingent upon the completion of
other work that was not funded by MCC. In addition, MCC is currently
providing technical support to resolve one issue of defective
construction related to the new access road.
[23] Phase 2 work is being performed based on the MCC-funded design
for the port improvement activity.
[24] The reservoirs funded by MCC are water storage tanks ranging in
size from 200 cubic meters to 1,000 cubic meters; the reservoirs are
fed by springs, wells, or rain.
[25] The targets do not reflect the extent to which the scope of the
CA-5 was expanded to improve traffic flow. Targets are based on
centerline kilometers (one kilometer of road length measured along its
center), which do not identify the number of traffic lanes
reconstructed. If the targets had been based on lane kilometers (one
kilometer per lane in length), additional traffic lane lengths
completed would have been reflected as progress toward the target.
[26] MCC funded the preparation of the final design documents, the
environmental impact assessment, and the development and
implementation of resettlement action plans for the entire highway
project.
[27] In June 2009, Honduran President Zelaya was removed from office
after attempting to change the constitution to allow for his re-
election, which the Honduran congress and judiciary opposed. In
response to the Honduran president's removal and the failure to
reestablish democratic order, which demonstrated a pattern of actions
inconsistent with MCC's eligibility criteria, MCC's Board of Directors
terminated $10 million of MCC assistance, reducing the compact total
to $205 million. The partial termination of the compact eliminated
funding for the weight control activity and the uncommitted portion of
the farm to market roads activity, corresponding to the cancellation
of approximately 93 kilometers of farm-to-market roads. MCC also
placed a hold on funding for a section of the CA-5 highway activity,
under the transportation project; the hold on funding was lifted in
early 2010.
[28] To be "a Program Farmer harvesting high-value agricultural
products," the Program Farmer must (1) in the first year of
participation, have a crop mix demonstrated to have an expected annual
net income of at least $2000 per hectare; and (2) in the second year
of participation, have earned a net income of at least $2000.
[29] The partial termination of the Honduras compact in 2009, in
response to the political situation, included termination of the
uncommitted portion of the farm-to-market roads activity corresponding
to the cancellation of approximately 93 kilometers of farm-to-market
roads.
[30] The movable property registry activity also involved the
facilitation of a new law that allowed credit seekers to use a new
type of property--such as equipment, shop inventory, future crops,
tractors, supply contracts, sewing machines, and more--as collateral,
and also established a registry system to monitor the property.
[31] According to MCC, small-program farmers moving into high-value
horticulture used existing resources and savings and did not require
access to credit until market opportunities expanded. As a result of
the delayed demand for credit, MCC and MCA decided to expand the scope
to include nonprogram farmers.
[32] The value of this indicator ($10.7 million) includes the value of
loans repaid and relent ($5.2 million) from the agricultural credit
trust fund. This value ($10.7 million) does not include an additional
$6.4 million in loans leveraged by financial institutions. According
to MCC, adding the $6.4 million of funds leveraged by financial
institutions to the $10.7 million of funds lent from the trust fund
would result in double-counting of some funds. In addition, no target
was established for the value of funds leveraged by financial
institutions.
[33] The road institute was created in June 2003 as the Cape Verde
government's authority for operating the national road network. The
institute collects user fees that are allocated to a maintenance fund
(85 percent), local municipalities (10 percent), and operating
expenses (5 percent). Maintenance funds are used to service
approximately 425 kilometers of roads--including the MCC-funded roads,
which are part of the national road network of approximately 1,500
kilometers.
[34] MCC did not plan for an oversight entity to oversee use of the
grant funds, but MCC's grant agreements provide the agency with audit
authority over the grant finds for the 2 years following the compact.
[35] The Honduran government agreed to the increase in its funding in
2007.
[36] Roads are designed to carry estimated numbers of vehicles with
specific weight loads. When the numbers and weights of vehicles are
higher than those planned for in the design, roads deteriorate more
quickly.
[37] Targets set for this activity indicated that the percentage of
overweight vehicles using the CA-5 would be reduced from 23 percent to
7 percent. The due diligence report stated that the current levels of
overweight vehicles are expected to reduce the 15-year life of the
road by 2 years and further reduce the life of bridges.
[38] IRI is a measure of roughness of the road pavement in terms of
meters per kilometer. The IRI affects vehicle operating costs, ride
quality, and road damage. For example, according to an MCC analysis
used to determine the benefits of the new pavement, the IRI for CA-5
section 4 pavement, which was planned to be 1.9 upon completion of
construction, was not expected to degrade to an IRI of 3.2--the IRI
for the newly completed section of pavement--until almost 14 years
after the project was complete.
[39] According to MCC officials, both the contractor and the farmers
have an incentive for overstating potential sustainability challenges.
The contractor is interested in receiving additional funding and the
farmers are seeking additional services.
[40] Due to MCC restrictions, MCA cannot incur new commitments or make
expenditures with MCC funding after the compact end date. Therefore,
due to project implementation delays in Cape Verde, the evaluations of
the port, roads and bridges, and agricultural activities will be
funded with MCC due diligence funds instead of compact funds. Due
diligence funds are used by MCC to cover costs associated with
assessing compact proposals and providing compact implementation
oversight.
[41] MCA-Cape Verde hired the impact evaluation consultant to develop
an impact evaluation design from September 2009 to August 2010.
However, MCC reported the contract was terminated because the
suggested design did not reflect the approach proposed by the
government of Cape Verde.
[42] According to MCC, baseline data were collected before
implementation of the port activity as part of normal operations by
the port authority. In addition, five baseline surveys were conducted
before compact closeout.
[43] According to MCC, baseline data were collected through a World
Bank socioeconomic study and traffic surveys in 2004 and 2005.
[44] According to MCC, MCA-Cape Verde contracted an impact evaluation
consultant in November 2006 to develop an impact evaluation design.
However, MCC reported that, due to rescoping of the project, MCA-Cape
Verde did not accept the impact evaluation design recommendations.
This contractor was subsequently rehired to conduct the impact
evaluation for this project.
[45] The qualitative evaluation of five local MFIs found that all
reported growth in their loan portfolios and improvements in their
operational and financial sustainability, some of which the
institutions attributed to the MCC compact. The MFIs reported that
growth was due to several factors, including access to funds under
MCC's access to credit activity and other programs such as Cape
Verde's National Program for the Fight Against Poverty and the U.S.
African Development Foundation.
[46] MCC determined during implementation of the first several
compacts that, in most cases, it is not advisable to assess the impact
of activities before they have been completed and have demonstrated
tangible, measurable results. Accordingly, MCC has modified its
evaluation strategy to collect final data after the investments have
been completed, in some cases as much as 12 to 24 months after compact
closeout. Therefore, MCC issued a new contract totaling $1.06 million
for the continuation and completion of the Honduras transportation and
farmer training and development impact evaluations, which were
initially to be completed under an MCA contract by the compact's end.
This contract does not include the outstanding access to credit
activity impact evaluation for which MCC plans to issue an additional
contract.
[47] The evaluator estimated the ERR for 8 of the 15 grants, with a
weighted average, to be 38 percent.
[48] The updated port ERR is based on the completion of both Phases I
and II and includes a 20 percent cost increase contingency.
[49] For the port improvement activity's original ERR estimate of 23
percent, MCC assumed that improvements to the Port of Praia would
prevent a slowdown in growth in the tourism sector that would have
resulted from congestion and higher transportation costs at the port.
However, the model for the original ERR estimate rejects the notion
that efficiency gains would be passed on to consumers, owing to the
monopoly position of shippers and shipping lines. From the updated
analysis, MCC reported a return of 29 percent. MCC's updated analysis
was based on studies undertaken by a French engineering consulting
firm, which modeled the results of MCC investments in operational
detail. In particular, the model captures explicitly the contribution
of MCC investments to relieving constraints on handling capacity,
productivity, and, ultimately, port traffic.
[50] MCC stated that the 10.1 percent cited in the Cape Verde
restructuring memo was referenced in error.
[51] The Partnership to Mobilize Investment, an activity of the
private sector development project, was mostly eliminated, but as that
project activity was not included in the original ERR analysis, there
was no reason to adjust the ERR. In addition, the two social roads of
the roads and bridges activity of the infrastructure project were also
eliminated, but because those roads were not included in the original
ERR analysis either, there was no need for an adjustment.
[52] According to the Honduras compact, the target of 14,400 hectares
was to be achieved by the end of year 5 of the compact and was fully
consistent with the modeling of the benefit stream in the original ERR
model. The compact was to remain in force for 5 years from the entry
into force, dated September 29, 2005.
[53] MCC officials stated that they checked whether these target
changes shifted the ERR beyond the hurdle rate.
[54] The independent impact evaluator for this activity has estimated
the ERRs for 8 of the 15 agricultural public goods grants in Honduras.
The selected 8 projects were chosen because they have completed their
financing and infrastructure construction phase with support from MCA-
Honduras. While the estimated ERR for these projects shows a high
economic rate of return of 38 percent, the rate cannot be compared to
the original ERR since it does not include all 15 grants and the
original ERR is based on the expected rate of return for the activity
as a whole.
[55] The cost estimate for the port improvement activity includes both
phase 1, which was finished in October 2010, and phase 2, which was
not finished by compact completion.
[56] See [hyperlink, http://www.gao.gov/products/GAO-10-52].
[57] The granting of a disbursement request is contingent on MCC
finding the quarterly package satisfactory in form and substance.
[58] For fiscal year 2011, MCC's cutoff for lower-middle-income
candidates was a per capita income of $3,945.
[59] Using program administration and monitoring and evaluation funds,
MCC funded capacity-building activities, including strengthening e-
government systems. According to MCC, these activities contributed to
building the capacity of the Cape Verde government.
[60] MCC awarded in July 2008 a fixed unit price contract to a
Portuguese construction consortium in the amount of $42.3 million.
Contract modifications increased the contract value to $45.3 million
by the time work was completed in October 2010. The $3 million (7
percent) increase resulted from changes such as realigning the access
road and providing additional shore protection.
[61] Buildings eliminated from the scope of the phase 1 contract were
in the proximity of the cargo village and included offices for customs
and port operations staff, warehouses, entrance gates, and a workshop.
These buildings were subsequently constructed by the same contractor
that built the phase 1 works under a separate contract with the Cape
Verde government.
[62] According to MCC, in September 2010, the Cape Verde government
awarded a contract for phase 2 works to the same contractor that
constructed phase 1 of the port improvement activity.
[63] According to MCC, the cost of quarry materials amounted to about
5 percent of the total construction cost.
[64] Planning, design, and contract procurement actions continued over
a 33-month period from the compact's entry into force in October 2005
through award of a construction contract in July 2008.
[65] Implementation delays contributed to cost increases as a result
of construction prices rising approximately 30 percent, according to
MCC, from the beginning of the compact to the time the phase 1
construction contract was awarded in July 2008.
[66] The proper title of this government agency is the Ministry of
Infrastructure, Transport, and Telecommunications.
[67] Design life is the minimal time that constructed infrastructure
is expected to provide reliable performance without major investments
to keep it safe and efficient. According to the design engineer for
the port improvement work, the design life of components varies. For
example, the design life of the rehabilitated wharf (wharf 2) is 50
years and the design life of the cargo village container lot and
access roads is 20 years.
[68] The lower access road is positioned along the coast and is
protected by a structural system designed to mitigate the effects of
hydraulic forces created by waves and currents. The design of the
shore protection structure specifies that the base of its outer layer
is to be set in a trench along the seafloor. The structure's outer
layer consists of specially shaped interconnected CORE LOC™ concrete
units--the units measure approximately 4 cubic meters and weigh about
10 tons--that provide for structural stability.
[69] As part of the quality assurance process, the design engineer
conducted site visits on five separate occasions while the shore
protection structure was being built, diving to inspect the underwater
work. These dives, as well as a sixth dive in October 2010, found,
among other things, that the trench was not built in some areas, so
that the base of the shore protection structure rested on the
seafloor; in other areas, the trench was built to the wrong
dimensions, so that the trench was wider than the base of the shore
protection structure and the resulting fit was loose.
[70] In October 2010, U.S. Army Corps of Engineers submitted a report
on the basis of its initial assessment that identified repair
alternatives. Following the initial report, an underwater survey was
conducted to obtain greater detail of seafloor conditions. Data
obtained from the survey is being used to develop physical model tests
of the alternative solutions. MCC expects that results of the model
tests will be available in August 2011. These results will then be
used to determine which repair alternative will be implemented.
[71] Under the agreement, the parties committed to activating a
Dispute Adjudication Board with binding authority to resolve
outstanding issues, such as determining the split of costs for repairs
to the underwater trench and the outcome of the construction
contractor's $4.3 million claim for increased costs associated with
its initial construction of the trench. The three-member board is to
be composed of a member nominated by the Ministry of Transportation, a
member nominated by the construction contractor, and a president
chosen by agreement between the two members. As of the beginning of
May 2011, the board was still being constituted and its deliberations
had not yet begun.
[72] The initial designs of both the roads and bridges construction
activities were funded by the World Bank and completed prior to the
compact. After it had awarded construction contracts for the roads and
bridges, MCA-Cape Verde found that the designs were of poor quality
and inadequate as a basis for construction. MCA-Cape Verde
subsequently took steps to redesign the roads and bridges activities,
which led to implementation delays and increased costs as the new
designs were generally to a higher standard than the original designs.
[73] The construction contractor initially completed work to redesign
the road rehabilitations and incorporate enhanced features such as the
addition of drainage culverts. MCA's construction supervisor reviewed
the contractor's design and made modifications based on technical and
cost considerations. Construction was completed on the basis of the
construction supervisor's modified design.
[74] According to MCC, construction costs rose during the time the
activity was being redesigned, and a price escalation allowance in the
construction contract contributed to a cost increase of approximately
$1.8 million.
[75] Construction of the two roads deleted from MCA-Cape Verde's
contract was completed under a separate contract administered by the
Cape Verde transportation ministry and funded through a loan from the
government of Portugal; MCC reported that the cost of the contract to
build the deleted roads was approximately $9.8 million.
[76] The $2.4 million increase in the total value of the bridges
construction contract included approximately $1.1 million to
compensate the contractor for delays and for escalation of prices.
[77] Rip-rap consists of rocks, rubble, or preformed concrete shapes
that are put in place to prevent erosion to an embankment or structure.
[78] The duration of the roads' design life varies by component. For
example, the pavement has a design life of 15 years, while culverts
and retention structures have design lives that range from 20 to 50
years.
[79] Other methods, such as installation of walls at the base of
slopes to prevent soils from falling onto the road, were implemented
in an effort to mitigate damage from potential landslides.
[80] According to the supervisory engineer, the overdesigned elements
account for approximately 8 percent of the total construction cost.
[81] The institute collects user fees that are allocated to a
maintenance service fund (85 percent), local municipalities (10
percent), and operating expenses (5 percent). Maintenance funds are
used to service approximately 425 kilometers of roads--including the
MCC-funded roads, which are part of the national road network of
approximately 1,500 kilometers.
[82] According to an October 2010 report by an independent engineer,
the water management infrastructure constructed with MCC funds was not
complete or operational on all islands. For example, some reservoirs
were not yet filled with water, some water distribution systems were
incomplete, and some water meters were nonfunctioning.
[83] The contractor developed the farmer training curriculum in five
subjects--agronomy, drip irrigation, marketing, pest management, and
postharvest techniques--as well as training materials on these topics
for the Cape Verde agricultural ministry, among other activities.
[84] The contractor reported that it was not able to train farmers
directly under this activity and, instead, implemented a training of
trainers program for the Cape Verde agricultural ministry's field
extension workers, or field staff.
[85] The contractor reported that it provided technical assistance to
several farmers who expressed interest in learning new agricultural
techniques and additional assistance. According to the contractor,
these farmers were more likely to encourage others to apply such
techniques.
[86] In September 2010, the government of Cape Verde lifted a long-
standing embargo on agricultural imports from the island of Santo
Antão, contingent on the operation of a postharvest quality control
and inspection center that would mitigate the effects of a millipede
pest prevalent in agriculture on the island.
[87] MCC disbursed funds to MCA-Cape Verde for the creation of the
credit bureau, allowing MCA-Cape Verde to sign a grant with the
Chambers of Commerce. The grant agreement specified that receipt of
funds by the Chambers of Commerce was contingent on the contract
signed between the Chambers of Commerce and its investment partner.
[88] MCC reported that the government of Cape Verde passed legislation
that brought MFIs into the formal, regulated financial sector. In
addition, MCC reported that the government of Cape Verde modified
legislation permitting the sale of government securities to
individuals, and the Ministry of Finance approved a new auction
process for government securities. MCC required these financial sector
legislative reforms for disbursements.
[89] For fiscal year 2011, MCC's cutoff for low-income candidates was
a per capita income of $1,905.
[90] Reconstruction of the roads is generally on existing roadway
routes. MCC funded CA-5 reconstruction included widening and
resurfacing the road in some sections and replacing the existing
pavement in one section with new concrete pavement.
[91] MCA-Honduras awarded four fixed unit price contracts to
reconstruct the four sections of the CA-5 highway. A contract for
Section 1 was awarded to a Honduran construction firm in February of
2009 in the amount of $39.7 million. A contract for Section 2 was
awarded to a Costa Rican construction consortium in September of 2008
in the amount of $48.4 million. Contracts for Section 3 and Section 4
were both awarded to an Italian construction firm in May of 2008 in
the amounts of $16.2 million and $23.2 million, respectively.
[92] According to MCC officials, because CABEI's loan to the Honduras
government provided sufficient funding for CA-5 reconstruction, MCA-
Honduras reallocated, with MCC approval, about $7 million of the $96.4
million previously allocated for the activity to the secondary roads
activity, bringing the allocation to $89.3 million. The $90.3 million
that MCC had disbursed for CA-5 reconstruction as of March 31, 2011,
represented about 41 percent of total reconstruction costs.
[93] According to MCC officials, the length of the CA-5 Highway
reconstructed and still under construction totaled 107 kilometers,
compared with MCC's final target of 109 kilometers.
[94] MCA-Honduras officials stated that they plan to continue
operating under the MCA-Honduras name for about 2 years, until the
construction of CA-5 sections 1 and 2 are completed. MCC officials
said they agree to the continued use of the name until the projects
are completed, provided MCA-Honduras does not take any actions that
would risk MCC's reputation.
[95] Because the concrete pavement is expected to reduce long-term
maintenance costs, according to an analysis by the design engineer,
MCA-Honduras allowed an adjustment of $2.3 million when evaluating
bids for construction with concrete pavement.
[96] Secondary road reconstruction generally included widening the
existing unpaved roads, improving drainage, adding additional base
material to the road, and applying an asphalt chip and seal pavement
surface. In some areas, sidewalks were included and pavers were used
for the road pavement.
[97] Administration of the weight control stations was to be the
Honduran government's responsibility.
[98] Fondo Vial is the Honduran agency responsible for maintaining all
primary roads (such as the CA-5), secondary roads, and some rural
roads. Some rural roads are the responsibility of Honduran
municipalities.
[99] The project management consultant, who was responsible for the
final design of the CA-5 activities and management of all
transportation project activities and the farm-to-market road
activities, was terminated after 3.5 years. As a result, the MCA-
Honduras staff worked directly with the construction supervisors they
had hired to oversee each contractor. According to MCC officials, to
hire a replacement consultant would have taken time, delayed the
activities past the end of the compact, and would not have guaranteed
improved performance. MCA-Honduras staff also coordinated project
designs and changes with the Honduras transportation ministry, but the
ministry did not take an active role in the direct supervision of work.
[100] We visited the construction sites and interviewed independent
construction supervisors and contractors for three of the four CA-5
contracts (sections 2, 3, and 4 contracts); and two of the three
secondary road contracts (the Comayagua-Ajuterique-La Paz contract and
the Choluteca-Orocuina contract).
[101] According to a construction supervision official, Honduras has
no certification processes to ensure the qualifications of those
responsible for quality control, however construction supervisors and
contractors generally used a combination of on-the-job training,
inspectors with many years of training, and oversight by a
professional engineer to ensure that the tests were conducted
properly. In addition, all of the construction supervisors and
contractor officials we interviewed were certified as having a quality
management system that met the requirements of the International
Organization for Standardization (ISO), although this certification
was not required in their contracts with MCA-Honduras. The ISO 9001
specifies the requirements for a quality management system to
consistently provide a product that meets customer requirements and
all statutory and regulatory requirements.
[102] After the MCA-Honduras quality control process identified
unacceptable concrete pavement roughness on section 4 of the CA-5, the
construction supervisor required the contractor to mill the new
concrete pavement until it met contract requirements.
[103] New pavement IRI ratings generally range from 1.5 to 3.5; the
higher the IRI, the rougher the pavement, with an IRI of 0 being
perfectly smooth. IRI is used in determining the reduction in road-
user costs and is an indicator of when additional resurfacing work is
needed. As IRI increases, traffic speed can be reduced, suspension
damage increases, and fuel, oil, and tire consumption is increased. In
an MCC analysis used to determine the benefits of the new pavement,
the IRI for CA-5 section 4 pavement was not expected to degrade to an
IRI of 3.2--the IRI for the newly completed section of pavement--until
almost 14 years after the project was complete.
[104] After the landslide, MCA-Honduras commissioned a geotechnical
study to develop solutions to modify the reconstruction of several
landslide areas. For this location, the study suggested cutting the
slope back at a less steep incline, installing monitoring equipment to
notify officials if it starts to slide again, and stabilizing other
slide locations. When we visited the site in November 2010, MCA-
Honduras had not yet determined a final course of action or estimated
the cost of the remediation work; however, construction supervision
officials estimated that it could cost around $1.1 million. In April
2011, MCC officials were not able to provide updated information on
the status or cost of the remediation effort for the section 2
landslide because it is now the Honduran government's responsibility.
[105] As a part of evaluating compact proposals, MCC uses a due
diligence review process to determine whether the proposal meets MCC
criteria, to ensure that proposed programs will be effective and that
funds will be well-used. The due diligence outline for the Honduras
proposal stated that increased vehicle speed and risk of accidents
would be negative consequences of the improvements and that road
safety had been adequately factored into the design. The proposed use
of safety measures was more closely in keeping with those used on U.S.
highways than those previously used in Honduras, including signage to
keep drivers informed about the road ahead and steel guardrails on
dangerous curves and other locations.
[106] U.S. Department of Transportation, Federal Highway
Administration, Manual on Uniform Traffic Control Devices for Streets
and Highways, 2009 Edition (Washington, D.C.: December 2009).
[107] MCA officials also stated that, although crash statistics are
not available in most countries to identify the economic benefits of
installing improved traffic safety measures, the cost of addressing
key safety issues should be included in project cost assessments prior
to compact implementation.
[108] The Honduran government agreed to increase its funding in 2007.
[109] Fondo Vial documents show that the percentage of the fuel tax
required by law to be allocated to road maintenance was 35 percent in
2000, 38 percent in 2001, and 40 percent from 2002 through 2010.
[110] The objective for this activity was to reduce the percentage of
overweight vehicles using the CA-5 from 23 percent to 7 percent. The
due diligence report stated that the current levels of overweight
traffic are expected to reduce the 15-year life of the road by 2 years
and further reduce the life of bridges.
[111] The farmer training and development activity, which began in
September 2006, provided technical assistance and training to farmers
in crop management, business skills, marketing, and postharvest
handling.
[112] An original target of 8,255 was planned to be achieved after the
end of the compact in September 2010. In the second monitoring and
evaluation plan, MCC noted that since it is unclear that program funds
and monitoring and evaluation resources will be available after the
compact ends, the compact target of 7,340 will be used, which was
scheduled to be completed by May 2010, before the compact ends.
[113] Reconstruction of the roads was generally on the existing
routes. The farm-to-market road reconstruction included widening the
road, improving drainage, and building an aggregate road in place of a
dirt road.
[114] According to MCC, the new law allowed credit seekers to use an
entirely new set of property--such as equipment, shop inventory,
future crops, tractors, supply contracts, and sewing machines and
more--as collateral and also established a registry system to monitor
the property.
[115] The original target ($28.8 million) was set for a similar
indicator measuring the value of loans to program farmers, which was
ultimately replaced by a number of indicators, including this
indicator, and a lower target of $6 million. The final result ($10.7
million) does not include an additional $6.4 million in loans
leveraged by financial institutions. According to MCC, adding the $6.4
million of funds leveraged by financial institutions to the $10.7
million of funds lent from the trust fund would result in double-
counting of some funds. In addition, no target was established for the
value of funds leveraged by financial institutions.
[116] According to the public goods grants manual, a public good is
both nonexcludable and nonrival and, as a result, cannot be profitably
provided by the private sector. Nonexcludable means that it is not
feasible to exclude use and, as a result, everyone may use the good or
service; therefore, the private sector cannot recover investment
costs. Nonrival means that one person's use does not preclude or
diminish another person's use, and multiple users may enjoy the
benefits. To qualify as a public good for the purposes of this
activity, the good does not need to be completely nonexcludable, but
excludability must be cost-prohibitive such that the private sector is
unlikely to provide the good.
[117] Ten of the selected grants were for irrigation works designed to
increase hectares under irrigation and the number of farmers with
access to irrigation water. Three grants were for research projects
focused on different topics related to agricultural productivity,
including potato seed production, reproduction of coffee hybrids, and
biological pest control. One grant was for an activity focused on
fruit pest eradication in a particular region of Honduras with an
agricultural competitive advantage. One grant was for a technology
transfer activity focused on increasing productivity and income of
micro, small, and medium-scale processing agribusiness in Honduras.
[End of section]
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