Description

The study uses the term project implementation units (PIUs) to refer to all special staffing and "ringfencing" arrangements made in agencies to manage and implement projects.

The debate revolves around frequent observations that PIUs, as supported by external agencies, would have high direct and indirect costs, would tend to develop into parallel organizations, and dilute central government policy through their allegiance to donor agendas. PIUs, although widely used on account of their supposed efficiency, are alleged by some to be less efficient than assumed.

The study investigated the effects of PIUs on implementation efficiency and capacity development, and examined ways of simultaneously improving implementation efficiency and project management capacity, particularly for ADB financed projects.

Summary of findings

• Around 90% of ADB's investment projects are managed using some type of PIU. Almost a sixth of the projects use internally staffed PIUs and a third use externally staffed PIUs. The remaining 52% of projects have a mix of internal and external staff. Forty-four percent of PIUs are temporary and are to be dissolved upon completion of the project; 26% were unclear about their fate after project completion. Twelve percent of PIUs regarded themselves as "permanent", i.e., they expect to find new projects to manage upon completion of the present project(s), and 18% were to merge, i.e., the PIU staff would be (re-)absorbed as permanent staff of the parent agency.

• PIUs are primarily used as a mechanism to implement projects and to create capital assets, rather than as a tool to build human or institutional capacity. The effects of PIUs on capacity development in the executing agencies are variable. A risk of separate, externally staffed PIUs undermining the agency's project management capacity was confirmed. There is a burden in developing countries of the many separate requirements of external funding agencies.

• The study concludes that PIUs are a generally legitimate and justifiable implementation arrangement for large capital investment projects such as financed by ADB, on account of their efficiency in implementation.

Recommendations

• The project implementation arrangement should be chosen depending on careful analysis of project, agency, and country contexts.

• If the loan modality and government preferences require the establishment of a PIU, ADB should encourage the use of PIUs that are staffed fully by executing and implementing agencies themselves.

• In cases where externally staffed PIUs are more efficient, the risk that they would undermine the parent agency's project management capacity needs to be assessed as a standard practice and mitigated; ADB and executing agencies should agree on their exit strategy and/or transformation for the operation and maintenance phases of the project.

• The cost of project management and the development of capacity to manage projects should be more systematically analyzed during project preparation. Loan financing of project administration costs should be well justified.

• The focus during loan approval by ADB's Board should be on the readiness of projects, so that delays in establishing implementation mechanisms do not become a reason for subsequent delays. If country systems do not allow for the establishment of PIUs before project approval, ADB should enter into policy dialogue to see if this situation can be changed, pointing out the cost of delays in financial terms to the borrower.

• Country portfolio reviews should monitor the effects of implementation arrangements on capacity development.

• The burden in developing countries of the many separate requirements of external funding agencies needs to be addressed through donor harmonization.

Contents

• Executive Summary
• I. Questioning the Role of Project Implementation Units
• II. ADB’s Role In Funding Pius and Project Management Capacity
• III. Influences on Piu Patterns Found in ADB’s Portfolio
• IV. Project Implementation Contexts: Country Perspectives
• V. Effects of Pius on Efficiency and Capacity
• VI. Conclusions, Recommendations and Follow-Up Actions
• Appendixes
• Supplementary Appendixes