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DE RUEHQT #0818/01 2472136
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O R 042135Z SEP 09
FM AMEMBASSY QUITO
TO RUEHC/SECSTATE WASHDC IMMEDIATE 0003
INFO RUEHQT/AMEMBASSY QUITO

UNCLAS QUITO 000818 
 
SENSITIVE 
SIPDIS 
STATE FOR WHA DAS  MCMULLEN, WHA/AND, AND EEB/IFD/ODF 
STATE PASS TO USAID FOR A-AA/LAC JANET BALLANTYNE AND 
DAA/LAC EDWARD LANDAU 
 
 
E.O. 12958: N/A 
TAGS: PREL EAID EC
SUBJECT: Proposal for Foreign Assistance Agreement to Explore Host 
Country Contracting for Project Implementation 
 
REF: A) QUITO 779, B) QUITO 786, C) LANDAU E-MAIL TO 
SANCHEZ-BUSTAMANTE DATED 09/04/2009 (NOTAL) 
 
¶1. (U) Action Request for USAID/LAC in paragraph 10. 
 
 
 
¶2.  (SBU) Summary.  The Government of Ecuador (GOE) has proposed a 
"transition clause" in USAID/Ecuador's Assistance Agreement to 
signal our concurrence with exploring host country contracting 
(HCC) in the near future.  DAA/LAC Landau has suggested, and 
USAID/Ecuador agrees, that we should investigate the possibility of 
using HCC for one project as a pilot effort.  While Post cannot 
guarantee that the GOE will agree with this approach, USAID/Ecuador 
is ready to pursue it.  If the GOE agrees, USAID/Ecuador will have 
to seriously consider HCC as a potential contracting mechanism in 
the future.  This may have implications for USAID programs in other 
countries of this region.  End Summary. 
 
 
 
¶3.  (U) On August 31, 2009, the GOE sent a proposed "transition 
clause" that it would like included in the amendment to 
USAID/Ecuador's Bilateral Assistance Agreement ("Amendment").  The 
two main points of this clause are: (1) that USAID and the 
Ecuadorian Agency for International Cooperation (AGECI) should 
explore alternatives for GOE direct implementation (i.e., HCC) of 
USG development programs starting in FY 2011; and (2) that the GOE 
will participate in the technical evaluation committees that select 
contractors and grantees for new projects. 
 
 
 
¶4.  (SBU) USAID/Ecuador shared this proposed clause with A-AA/LAC, 
DAA/LAC, the Regional Legal Adviser, and the Regional Contracting 
Officer.  Guidance received from DAA/LAC (REF c) suggests that 
USAID and AGECI jointly select a project and related GOE 
counterpart institution to explore feasibility of pilot host 
country contracts in accordance with the Foreign Assistance Act of 
1961, as amended, Sections 102 and 601, and USAID Automated 
Directives System Chapter 305. 
 
 
 
¶5.  (SBU) Following this guidance, USAID/Ecuador will explain to 
the GOE that it will include a transition clause in the Amendment 
indicating that host country contracting will be considered as a 
potential contracting mechanism in the future.  USAID/Ecuador will 
focus on one project only, namely the Integrated Municipal 
Development Project, which builds small-scale social and productive 
infrastructure along Ecuador's borders.  The Technical Secretariat 
for Plan Ecuador will be the GOE Contracting Agency for this 
effort. 
 
 
 
¶6.  (SBU) If the GOE accepts this approach, USAID will conduct an 
assessment of the Contracting Agency's procurement capability 
during the next several months.  USAID's assessment team will have 
the qualifications necessary to assess all aspects of the 
Contracting Agency's capabilities, including procurement system, 
accounting system, and internal controls. 
 
 
 
¶7. (U) If the assessment results in a recommendation that host 
country contracting is practical, then the USAID Mission Director 
will review the recommendations of the assessment team and certify 
the acceptability of the Contracting Agency's procurement system if 
the facts support doing so.  The AA/LAC will then review the 
recommendations and certification, and approve or disapprove a 
single source, negotiated procurement with the host government.  If 
the assessment indicates that use of HCC would be impractical or 
inappropriate and the USAID Mission Director cannot make a positive 
determination, then contracting by USAID itself will be used. 
 
 
 
¶8.  (SBU) If the AA/LAC approves a single source, negotiated 
procurement with the GOE, then USAID/Ecuador would move to host 
country contracting for its Integrated Municipal Development 
Project starting in FY 2011.  If the pilot host country contracting 
mechanism is successful during implementation of the Integrated 
Municipal Development Project in FY 2011, then USAID/Ecuador may 
explore other areas of its assistance program that might be 
conducive to host country contracting. 
 
 
¶9.  (U) Regarding the GOE's desire for more involvement in the 
selection of contractors and grantees, USAID/Ecuador already 
invites GOE staff to participate in technical evaluation committees 
(TEC).  USAID/Ecuador ensures that the USG maintains a majority 
vote in the TEC and is careful to comply with the FY 2009 
Appropriations Act, Sec 7034(k), which prohibits approval by the 
host government of democracy, human rights, and governance 
activities of non-governmental organizations. 
 
 
 
¶10.  (SBU) Comment and Action Request:  The GOE may accept the 
pilot approach largely because it wants to have a signed Amendment 
before the October 20, 2009 Bilateral Dialogue.  However, by 
including this transition clause in the Amendment, USAID/Ecuador is 
committing to seriously consider host country contracting as a 
possible implementation mechanism for the future.  If USAID/Ecuador 
does not fulfill this commitment, then negotiations for future 
assistance agreements will turn increasingly difficult.  As 
adoption of host country contracting may have consequences in other 
countries in the region where USAID implements development 
programs, Post urges Washington to confirm this approach before 
USAID/Ecuador meets with the GOE on September 14, 2009. 
HODGES