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.