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

GAO-11-728 Published: Jul 25, 2011. Publicly Released: Jul 25, 2011.
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Highlights

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.

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Recommendations

Recommendations for Executive Action

Agency Affected Recommendation Status
Millennium Challenge Corporation To maximize the sustainability of MCC-funded infrastructure projects and to reduce the amount of maintenance required after compact completion, the MCC Chief Executive Officer should work with partner countries to make project planning, design, and construction decisions that reduce long-term maintenance needs and costs.
Closed – Implemented
MCC agreed with the recommendations in the GAO report, and in response has worked with the governments receiving more recent compacts to plan and craft the compacts with the aim of reducing long- term maintenance needs as well as providing technical assistance to strengthen planning, design, project management, funding, and execution capacity of the partner countries during compact development, implementation, and post-compact stages. MCC's 2014 guidelines now require road planning, design, and construction procedures to ensure prudent investment decisions are made to reduce long-term maintenance needs on critical roadway elements such as pavement, drainage and bridge structures.
Millennium Challenge Corporation To enhance the accuracy of MCC's ERR projections, the MCC Chief Executive Officer should 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
Closed – Implemented
The Millennium Challenge Corporation (MCC) agreed with our recommendation to ensure that updated ERR analyses are well-documented and supported and that key revised indicators and targets are reflected in updated economic rate of return (ERR) analysis. In response to our recommendation, MCC updated its "Guidelines for Country Team and Peer Review of Cost-Benefit Analysis" to require that new ERR models developed after the initial ERR but before Compact closeout be subject to peer review. This new step suggests that greater quality assurance would be applied to the link between revised indicators and targets and the updated ERR analysis. MCC provided information on the compact with Senegal as an example of how this policy was implemented: (1) For the Senegal Roads Rehabilitation Project, concern over high cost estimates and inaccurate original baseline data on road roughness for the RN2 (road in the North) led MCC to re-measure the road roughness and recalculate ERRs based on the new information. (2) For the Senegal Irrigation and Water Resource Management Project, monitoring data that was inconsistent with the baselines and targets that were set in the original Indicator Tracking Table (ITT), which caused MCC to critically examine the relationship between the baselines and targets, how the indicators were being reported, and what assumptions were made when baselines and targets were originally set. MCC also included language in its May 2012 Policy for Monitoring and Evaluation of Compacts and Threshold Programs to ensure that revised MCC targets are analyzed to assess whether they maintain the integrity of the original ERR. If the new ERR is below the hurdle rate, the modified targets must be approved.
Millennium Challenge Corporation To enhance the accuracy of MCC's ERR projections, the MCC Chief Executive Officer should 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.
Closed – Implemented
MCC agreed with the recommendations in the GAO report, and in response to our recommendation, has strengthened its guidance around ERRs. More specifically, in January 2012, MCC revised and implemented Guidelines for Country Team and Peer Review of Cost-Benefit Analysis, which established the process for Country Team and Peer review of cost-benefit analyses and the resulting estimates of ERR. Furthermore, these guidelines state that all cost-benefit analysis models are updated at closeout (within 90 days of the end of the closure period). These steps support closing GAO's recommendation as implemented.

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