What Happens If You Pay Contractors Only When Their Programs Work?

Agencies increasingly are entering into "pay for success" contracts to provide social services. Agencies increasingly are entering into "pay for success" contracts to provide social services. Shutterstock

The Obama administration is “doubling down” on its study of the “pay for success” approach to funding social services programs after they demonstrate results, rather than in advance.

In a Tuesday blog post, Budget Director Shaun Donovan and Domestic Policy Council Director Cecelia Munoz wrote that “with the addition of 25 new Pay for Success feasibility studies across the country, the federal government is significantly increasing its investment in PFS.”

Through the Social Innovation Fund housed at the Corporation for National and Community Service, the administration will raise the number of such studies from 33 to 58.  Under Pay for Success, “instead of paying upfront for a social service that may or may not achieve the desired results, the government only pays once an intervention produces specific, measurable, and positive outcomes,” they wrote. Investors provide the up-front money for programs such as a community-re-entry program for released prisoners, and then are repaid with a return if the desired outcome—the ex-prisoners do not end up re-incarcerated—are achieved.

The private sector benefits as well, the officials noted. “The United States has now become the largest PFS market in the world because of visionary social entrepreneurs and bipartisan support among state and local leaders who want practical solutions that yield better results and enable more efficient use of resources.”

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The feasibility studies will be funded in locations such as Boise, Idaho, Baltimore and parts of Virginia and Arizona, OMB said. In total almost 70 projects in 29 states and the District of Columbia are in the works.

A grantee called the Nonprofit Finance Fund has been helping nine PFS projects structure the agreements that are the “backbone of PFS projects,” they wrote. Other grantees include the Corporation for Supportive Housing, the Green and Healthy Homes Initiative, the Harvard Kennedy School Government Performance Lab, the Institute for Child Success, the National Council on Crime and Delinquency, Third Sector Capital Partners and the University of Utah Sorenson Impact Center.

The studies form “part of our broader effort to capitalize on the dramatic increases in the data and information we have available, and the dramatic improvements in our ability to harness them, the White House said, “and to use these tools to modernize our government so it can better deliver for the American people.”

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