A Performance-Based Contract (PBC) is a pay-for-results funding model between public or philanthropic donor(s) and one or more service provider(s)/ implementer(s). With the objective to enhance the targeting and effectiveness of interventions, payments are (partly) linked to the achievement of pre-defined and independently verified targets – historically mostly outputs (e.g. medical treatments performed), but increasingly also outcomes (e.g. treatment results). A shift from outputs to outcomes is in particular valuable to ensure that funding is used effectively, and service providers are incentivised to create the desired effects for the end beneficiaries.

While a “pure” PBC is possible, e.g. in cases when implementers have enough own funds to pre-finance the programme (figure 9.3), most PBCs feature a hybrid structure (figure 9.4), with part of the funding paid upfront (e.g. on a input/activities-basis) and the rest based on results. Providing implementers – often NGOs with a limited budget – with an upfront payment allows them to increase their resources and have greater flexibility on how to reach the predefined targets. The proportion of upfront and performance-based payments is variable.


Enable and incentivise social service providers (typically nonprofit organisations) to implement effective solutions and outperform on impact, thus ensuring successful deployment of donors’ funds

Can replace

Social/Development Impact Bonds, grants, public contracts

Risk/Return Profile

n/a (typically no investor involved)

Enterprise Lifecyle

All stages (typically non-profit organisations)


Linked to the length of the intervention

Defining Criteria

Output or outcome-based:
Ongoing results-based payments tied to the achievement of results (outputs or outcomes).
Direct incentivisation:
Incentivisation of the value creator/ outperformance trigger.
Pre-defined metrics and verification methods, but flexibility on approach.
Optional upfront funding:
Potential upfront funding to service providers so as to increase their resources and flexibility.
Risk transfer to implementer:
Transfer of risk to implementing organisation (depending on proportion of upfront and performance-based payments).
Output or outcome verification:
Outputs or outcomes are independently verified.

Interesting Variants and Options

  • Output-Based Aid (OBA): This is a PBC between donors and public/private providers, with the latter being provided with subsidies dependent on the achievement of certain pre-agreed results. OBAs complement or replace users’ contributions. They are used to improve access to and delivery of basic infrastructure and social services (e.g. water and sanitation services) to the poor.


  • Performance-Based Financing (PBF): This is a PBC typically used to fund health providers on a fee-for-service basis, with payments being conditional on the achievement of pre-defined targets that assure the quality of the service.


  • Prize-Based Challenge: This is a form of PBC where an open-bid competition rewards (financially) those providing the best (i.e. most cost-effective and innovative) solution to a specific issue.


  • Conditional Cash Transfers (CCTS): Upon achievement of pre-agreed results (e.g. regular health care checks, increased school attendance) payments are made to disadvantaged households to stimulate investment in human capital.

Source: Innovative Financing Toolkit, BRIDDHI, 2020

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