6 recommendations for governments transitioning to outcomes based contracting

Over the past three years, this blog covered a range of topics related to pay for success (PFS), including updates from the field, both locally and nationally, and practical advice on key phases and partners in PFS projects. At the same time, the field has been moving toward a broader focus on outcomes and using data-driven decision making to implement performance-based strategies. Because PFS is just one of many performance-based strategies, the Urban Institute worked to create resources that are useful for stakeholders, regardless of the strategy they choose to pursue.

Under the broader umbrella of performance-based strategies, outcomes-based contracting (OBC) describes a direct contract between government and service provider (no investor) that links a portion of payment directly to outcomes, as opposed to inputs and outputs. Our new Incentivizing Results brief provides an overview of OBC and enumerates the benefits, risks, and challenges with which it is associated, along with recommendations for governments interested in OBC.

The following 6 recommendations, gleaned from a scan of past projects, technical assistance experience, and interviews with practitioners and experts, can inform governments aiming to link payment to performance.

1. Base decisions in evidence and data. Local governments should work to incorporate evidence-based policymaking practices in all of their programs and base future investments in past successes.
2. Ensure government and provider data systems can collect outcome data. Data collection and data system maintenance can be challenging, but are necessary to be able to track outcomes consistently.
3. Enhance government staff capacity. Many government staff are unaccustomed to contracts that link payment to outcomes. Local governments should train staff to ensure appropriate capacity.
4. Train and engage service providers to build strong programs. Local governments should view their relationships with service providers as partnerships and work with them to make sure data can be collected and services can be delivered.
5. Determine the most appropriate repayment strategy. Our brief outlines a range of repayment strategies that can be incorporated into contracts. Local governments should consider the capacities of local service providers, their resources, and their staff capacities when determining an appropriate strategy.
6. Create a phased plan to transition to paying for outcomes. Many local governments and service providers are unaccustomed to paying for outcomes and should create a plan to incorporate the new system slowly, allowing time to make adjustments.

Performance-based strategies, including PFS and OBC, are tools that enable governments to track and monitor the progress of their social service investments. Our new brief and the   library of resources we’ve created can help governments make thoughtful decisions around their contracting practices in the future.