New Foreign Aid Bill Mandates 25% Direct Funding to Local Partners by 2028, Streamlining Global Assistance

The Locally Led Development and Humanitarian Response Act is shaking up how the U.S. delivers foreign aid. This bill mandates that the U.S. Agency for International Development (USAID) must ensure that at least 25 percent of its development and global health funds go directly to local partners by the end of fiscal year 2028. This isn't just a suggestion; it’s a hard target designed to shift foreign assistance away from large, often Western-based, international contractors and NGOs toward organizations actually based in the countries receiving the aid (Sec. 1).

Cutting Out the Middleman: Who Counts as 'Local'?

This bill doesn't just talk about local control—it defines it with precision. A “local partner” must be legally organized and have its principal place of business in the country receiving assistance. Crucially, if it’s an organization, it needs autonomous leadership and governance, with at least 51 percent of its board made up of local or regional citizens. For corporations, 75 percent of the beneficial ownership must be held by local citizens (Sec. 1, Sec. 11). This definition is key: it’s designed to prevent large international organizations from simply setting up a shell office to qualify. For people working on the ground in development, this means their local knowledge and expertise finally get the direct funding they deserve, rather than having to wait for resources filtered down through multiple layers of bureaucracy.

Ditching the Red Tape for Local Players

One of the biggest headaches for smaller, local organizations trying to get U.S. funding is navigating the mountain of paperwork and U.S. regulations. This bill tackles that head-on by giving the agency new authorities to simplify the process. For instance, the agency is authorized to accept applications and proposals in local languages rather than requiring everything to be translated into English first (Sec. 6). Think of it like this: instead of a small non-profit in Kenya needing to hire an expensive consultant just to translate their grant application, they can now submit it in Swahili, significantly lowering their barrier to entry.

The Cost of Doing Business Gets Fairer

Another huge win for local partners is the attention paid to indirect cost recovery. When you get a grant, you need money for things like rent, utilities, and administrative staff—the “indirect costs.” The bill authorizes the agency head to increase the de minimis indirect cost rate by 5 percentage points for local partners (Sec. 7). This means more of the grant money can be used to cover essential overhead, stabilizing the local organization rather than forcing them to run on fumes. Furthermore, the bill allows the agency to authorize local partners to use national or international accounting principles instead of the complex U.S. Generally Accepted Accounting Principles (GAAP), making compliance much simpler (Sec. 7).

A New Competitive Edge (and a Catch)

To further boost local capacity, the bill grants the agency new authority to limit competition for certain contracts to local entities only—a kind of set-aside program (Sec. 7). This means local businesses and NGOs can compete for specific contracts without going up against massive global firms. However, this limited competition authority is capped at contracts under $25 million and the total value of these awards can’t exceed 10 percent of the agency’s total annual appropriation. While this is great for building local capacity, limiting competition can sometimes reduce oversight, so the agency will need to be diligent in how it uses this new power to ensure cost-effectiveness and transparency.

Who Feels the Change?

For the large, established international NGOs (INGOs) who currently receive the bulk of U.S. foreign aid, this bill signals a major shift. They will likely see a reduction in the massive direct contracts they are accustomed to, forcing them to pivot from being primary implementers to potentially becoming sub-awardees or capacity builders for the newly funded local partners. For the USAID staff responsible for managing these contracts, the bill requires significant internal changes—from updating manuals to hiring more acquisition and assistance personnel—to handle the increased number of smaller, more complex local partnerships. The success of this law hinges on the agency’s ability to manage this transition effectively, which the bill acknowledges by requiring extensive annual reporting on progress and challenges (Sec. 9).