Results-Driven Contracting: An Overview

Background

Many of the most important functions of state and local governments – from building and maintaining roads to housing the homeless – involve contracting for goods and services supplied by the private sector. Increasing the effectiveness of procurements is therefore an essential component of improving governments’ overall performance in creating public value. 

Unfortunately, governments often treat procurement as a back office administrative function, rather than as a core part of their strategy for delivering better performance. Governments adopt inappropriate procurement strategies and contract types that are not aligned with their goals. Procurements can be overly prescriptive and regulated, stifling innovation and reducing competition. Contractor performance is rarely tracked in a meaningful manner. Contract management tends to focus on compliance instead of performance improvement, with contractors held accountable for inputs and activities rather than outcomes and impacts (if performance is measured at all). Governments make insufficient use of data on past performance in making future procurement decisions, and tend not to incorporate performance incentives into contracts.

As part of Bloomberg Philanthropies’ What Works Cities (WWC) initiative, the Harvard Kennedy School Government Performance Lab (GPL) is conducting research on cities’ procurement and contracting practices, and providing technical assistance to midsize cities to implement results-driven contracting strategies for their most important procurements. 

We define results-driven contracting in government as a continuum of practice that incorporates some or all of the following activities: 

• identifying specific goals to be achieved by a key procurement, and aligning procurement vehicles, contract types, and requirements with these goals;
• measuring outcomes, impacts, and/or cost-effectiveness of contracted activities;
• using performance data to actively manage contracts, including by working with contractors to monitor progress and detect and resolve issues in real time; 
•  incorporating performance incentives, including by selecting the right contract type, making a portion of payment contingent on outcomes as appropriate, and basing future procurement decisions on past performance; and 
• identifying a portfolio of key procurements and strategically managing these procurements to continuously improve outcomes.  

For several years we have been working with state and local governments around the country to develop pay for success contracts using social impact bonds. Our new work on results-driven contracting is motivated by the hypothesis that the key features of pay for success—identifying specific desired outcomes, procuring and contracting for those outcomes, actively monitoring and managing contracts to achieve outcomes, and, in some cases, conditioning a portion of payment on success—can be applied more broadly to key government procurements and have a substantial and lasting impact on performance. Ultimately, these strategies should produce some combination of lower costs and better results for residents. 

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