According to USAID’s Automated Directives System (ADS), a fixed-amount reimbursement agreement is the preferred method in financing multiple-unit construction activities, such as road construction (ADS Supplemental 317).
Disbursements for a fixed-amount reimbursement agreement are made for outputs rather than inputs, outputs being the physical completion of a project or subproject or a quantifiable element of the project. The output must meet previously agreed-upon specifications or standards before reimbursement is made to the host country. The amount of reimbursement is fixed in advance based on reasonable cost estimates reviewed and approved by USAID. To ensure compliance with agreed plans and specifications, the mission is required to conduct periodic inspections of the project, as well as to certify, upon completion, compliance with agreed-upon plans and specifications.
A fixed-amount reimbursement agreement can reduce common risks occurring in road reconstruction projects, such as extension of completion dates and increased costs, because the recipient is not reimbursed until subprojects are completed and the amount paid to the host government is fixed, limiting exposure to rising costs.
For road activities, the mission [can use] a separate fixed-amount reimbursement agreement for each segment of road, reducing the risk of missing target completion dates and allowing some flexibility to address price escalations for construction. A x percent escalation fee [can be] incorporated into the budget for road activities to cover any rising costs. However, the mission and implementers agreed that, at the time each agreement is signed, published construction price indexes relevant to the geographic area will be used instead. Using published price indexes will reduce the risk of unsupported price escalations.
A fixed-amount reimbursement agreement reduces risks because the approval process for reimbursement under such an agreement is extensive. Engineers and technical experts and USAID review all requests for reimbursements to ensure compliance with specifications and standards.
Source: AUDIT REPORT NO. G-391-11-005-P JUNE 20, 2011
This information is derived from audit reports of the Office of the Inspector General. The source refers to the audit report, which is available on this site as part of the Audit Database Project: an educational tool for compliance with USAID regulations. Please see the disclaimer of this site before using this information.
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