Aid that is untied (de jure) means aid that is freely and fully available to finance procurement from substantially all aid recipient countries and from OECD countries.

Tied aid refers to aid where procurement of the goods or services involved is limited to the donor country and/or to a group of countries which does not include substantially all aid recipient countries.

In short, de facto untying means removing all informal constraints that would make de jure untied aid de facto tied. For example, publishing the call for bids in only the provider’s language can restrict the ability of suppliers from other countries to participate in the tender. 

Tied aid has a negative impact on aid effectiveness, as it raises the cost of goods, services and works procured by 15% to 30% on average, and by as much as 40% or more for food aid. It also undermines recipient country ownership and the coherence of development policies.

The DAC has constantly worked to improve the effectiveness of its members’ ODA:

• In 1987, the DAC agreed on Guiding Principles for Associated Financing and Tied and Partially Untied Official Development Assistance.
• In 1992, the DAC approved the New Measures in the Field of Tied Aid, with the objective to limit aid and trade distortion, to target aid more effectively to countries and projects with little or no access to market financing and to improve the development quality of tied aid. The new rules concern mutual appraisal, the use of international competitive bidding for large projects (over SDR 50 million), and the Tied aid disciplines. The disciplines parallel rules agreed in 1991 by the Participants in the OECD Arrangement on Officially Supported Export Credits (“The Arrangement”) and relate to (i) country eligibility requirements, (ii) minimum concessionality levels, and (iii) project eligibility: no tied aid for commercially viable projects. They are primarily monitored by the Participants to the Arrangement and the OECD Export Credits and Competition division.
• In 2001, the DAC adopted the Recommendation on Untying Official Development Assistance to the Least Developed Countries.

Untying has also been central to the ODA-related commitments made by the DAC members in other international fora, from the 0.7% ODA/GNI target agreed at the United Nations (UN) in 1970, where aid should in principle be untied, to the 2005 Paris Declaration on Aid Effectiveness [OECD/LEGAL/5017] and all development effectiveness commitments that have followed (Accra, Busan, Nairobi), to the UN Programmes of Actions for the Least Developed Countries.

In the DAC Recommendation, DAC members agree to untie their aid specific partner country groups and sectors. The DAC Recommendation covers least developed countries (LDCs),  highly-indebted poor countries (HIPCs), other low-income countries (OLICs) and countries and territories that are only eligible to financing from the International Development Association (IDA-only).  It excludes free-standing technical co-operation, humanitarian assistance, food aid and core contributions to non-governmental organisations. 

To monitor that aid is both de jure and de facto untied, the DAC Recommendation includes so-called ‘transparency provisions’, which comprise two reporting requirements: 

• Ex ante notification of untied aid offers to be posted on the DAC bulletin board on procurement opportunities. The objective is two-fold: (i) advertise aid procurement opportunities to promote the greatest participation possible, and (ii) verify that conditions for international competition and fair treatment are met, including the use of international competitive bidding (ICB), minimum and equal time left to suppliers to prepare their bids, etc. 
• Ex post reporting on contract awards, including the name and country of incorporation of the contractor. The objective is to assess, based on the geographical distribution of untied contract awards, whether they are untied in reality (de facto), meaning that they are not systematically awarded to donor-based companies. 

DAC members' actions to implement the Recommendation are monitored through biennial reports and their performance is measured against agreed statistical indicators. Their untying policies and practices are also reviewed through the DAC Peer Review process.