Making Performance-Based Contracting Work for Kids and Families

D one right, performance-based contracting (PBC) offers a win-win-win to government, providers, and, most importantly, the people being served. Government spends funds more effectively, higher-quality providers thrive, and recipients get better services. Take Tennessee’s experience introducing PBC to its child welfare system. Significantly more children are exiting care to stable homes, providers deliver better outcomes and receive incentive payments to reinvest in strengthening their work, and the Department of Children’s Services (DCS) has kept its budget steady and is getting more bang for its buck. The idea of paying for performance is not new. In child welfare—the field in which our organization, Youth Villages, works—a 2009 study identified fourteen states with performance-based contracts for at least one service. But PBC is far from ubiquitous, and its implementation is inconsistent. The concept has generated excitement recently with the inclusion of $100 million for Pay for Success (PFS) or social impact bonds (SIBs; i.e., private low-risk loans to the government, intended to fund what works) in President Obama’s 2012 budget. But if the end goal is achieving better social outcomes in the most efficient way, the PBC dialogue spurred by PFS/SIBs has been too narrow. While private financing represents a promising tool to motivate behavior change in government, the use of it does not in and of itself solve many of the barriers to successful PBC adoption and execution. In our experience proposing performancebased contracts to government agencies, budget size is not the greatest hurdle. We need to broaden the conversation if PBC is to fulfill its true promise. A deeper discussion on structuring incentives and cultivating a sustainable commitment within government is needed. Youth Villages just celebrated twenty-five years of helping emotionally and behaviorally troubled children and their families live successfully. Last year we worked with more than 20,000 children and families from fifteen states and Washington, DC. Most of our funding comes through typical pay-for-outputs government contracts. In our experience, getting government commitment to issue and fund a performance-based contract is a heavy lift. Great barriers exist, including political pressure to retain weak providers, lack of contracting knowhow, and restrictions on how government funds can be used. We have been part of Tennessee’s child welfare PBC effort since it began in 2006, and it has been an eye-opening experience for us. We would like to share our experiences and what we have learned about PBC.