Funding For Results: How Governments Can Pay for Outcomes

Funding for 21st century solutions.

Around the world and across levels of government, policymakers use grants and contracts to deploy public dollars to accomplish a broad range of goals. The U.S. government, the world’s largest purchaser of goods and services, distributed in Fiscal Year 2013 alone, over $500 billion in contracts and $546 billion in grants to state and local governments. State and local governments allocated many billions more. In the social services sector, these funds are used to restore wetlands, tackle veteran homelessness, care for aging seniors, improve education, and address other critical policy issues. These programs, while critical, have met varying degrees of success. As governments continue to search for the best ways to achieve real impact, there is an opportunity to inform the design of programs and incentivize certain provider and participant behavior to attain maximum results. Many of these grants and contracts have long been structured in a similar way: They pay for promised activity and effort. However, governments at every level increasingly see an urgent need to identify and pay for desired outcomes, and not to pay for effort only. Across the nation and globally, effective “outcomes-based” grant and contract models are now emerging. When implemented effectively, payment structures based on successfully meeting stated outcomes can dramatically increase efficiency, significantly lower costs, and have a profound impact on program success. Redefining how government funding is distributed has the potential to profoundly impact service delivery and further drive policy goals.

The focus on achieving outcomes is not new to procurement. Many kinds of contracts, such as those used in construction, have included easily defined outcomes along with sophisticated incentive and penalty structures. It is important to recognize that government has been tracking its investments. However, much of the oversight has been focused on compliance and a prescribed process, with an emphasis on guarding against the misuse of public dollars to ensure taxpayer resources are honestly and accountably spent. Hence, government funding has largely tracked metrics focused on outputs, usually the number of people served. Few programs have measured the quality of service or the outcome achieved. In the social services sectors — healthcare, welfare, education, and economic development, in particular — paying for activity has long been the rule. This approach has been due, in part, not only to the need for fiscal compliance, but also to perceived challenges in identifying objective and measurable “successful outcomes” for social services and economic development agreements. But now, as the public sector faces increasing economic challenges and diminishing budgets, alongside a rising demand for services, governments have developed innovative and effective ways to identify, objectively measure, and then pay for successfully achieving outcomes in social services and economic development delivery.

The focus on outcomes in delivery of social services has not come at the cost of effective oversight. While social services agreements have traditionally addressed clarity, accountability, and compliance by basing funding on delivery of outputs, increasingly we now see that the compliance and oversight process can just as effectively be aligned with outcomes-based contracts and grants—and even with reduced and streamlined oversight costs.