Payment by Results Contracts: Are we setting the bar too low?

The concept of a “result” in the development world has had many iterations over the years. At one time, it referred to how many activities were being delivered; later it was about how many people were directly benefitting: number of people trained, number of schools built, number of mosquito nets distributed. More recently, results have meant tangible change. Change in the capacity of a government institution, change not just in the number of children attending school but how their education impacts their life once they have finished school; change in the number of malaria and dengue cases based not just on if people have mosquito nets, but whether they are used correctly and if people are accessing health care in a timely fashion if they do get sick.

From a practical point of view, monitoring “results” in their current iteration is certainly more difficult than the simple counting that used to take place.  We look at results now as “change effected” not simply what was done, which means that qualitative aspects take precedent more often than not. We have to monitor what we are doing within a larger context because “change” is rarely solely impacted by one group or institution or activity. We have to figure out how we have effected change…and later on, during the evaluation stage, determine if that change is having a sustainable impact.

Which brings us to a ““new”” approach to development financing: payment by results contracts (PBR). What are they? In a recent post on Devex, Chris Meyer zu Natrup and Dermott McDonald describe what a PBR contract is, it “pays the contracting party after the intended results have been achieved, or in other words, cash on delivery. The most important difference to traditional grant funding is that PBR contracts set key targets between a donor and contractor and only reimburses the contractor for results actually delivered. Typically, the donor will not advance any funds.”[i] In terms of accountability, this is a good approach. But when it comes to designing programs to guarantee results, there are drawbacks because of the risk that you might not achieve the result and therefore not get paid. What is the impact? Programs that are designed around “payment by results contracts” are going to be more likely to set the bar for what they can and want to achieve much lower than if there were willing to take risks to effect real change leading to lasting impact.

Meyer zu Natrup and McDonald list a number of steps to help minimize the risks to the program when it is funded as payment by results. They are generally concrete and helpful, except for the first one on setting controllable outputs, “The payment milestones should never include results that are not 100 percent under your control. Ensure that results are defined as clearly quantifiable, verifiable and achievable outputs. This should be a fixed precondition upon entering negotiation with the donor. Make sure you communicate this clearly from the outset.”[ii] The problem is that real change is never 100 percent under the control of a single program, nor is it purely quantifiable.

In a nutshell, while payment by results contracts alleviate the risk to the donor that funds will go astray or that nothing will really be achieved, they also promote a regression in the type of programs we want to see implemented: ones that are willing to take risks, effect change on issues that are complex and not wholly quantifiable, and work with partners and communities to ensure that change can lead to lasting impacts to improve the resilience and quality of life of the program beneficiaries.

[i] How to Manage a Payment by Results contract.” Chris Meyer zu Natrup, Dermott McDonald, 3 July 2015, https://www.devex.com/news/how-to-manage-a-payment-by-results-contract-86464

[ii] Ibid.