Payment by results

Payment by Results (PbR) contracts involve suppliers delivering activities, and payment by donors for some or all of the costs is only on the verified achievement of agreed results. Academic proponents of PbR emphasise a focus on outcome-level results, while donors may also include outputs and processes in their definitions of results. PbR is a relatively new aid mechanism with a limited evidence base, but which brings with it high demands on NGOs and potentially high levels of financial risk.

Bond’s work on PbR aims to generate debate about when PbR is and is not appropriate, and how its risks can be mitigated.

What it means for UK NGOs

A Bond paper on Payment by results provides an introduction for NGOs considering engaging with PbR contracts. It sets out the purpose of PbR, and compares this with the limited existing evidence from Bond members’ experience of its usage, and the wider evidence base from its usage in domestic sectors in the UK. In asking whether your organisation is prepared for PbR, it sets out 3 areas for NGOs to consider:

  • Do you have the cash flow necessary for pre-financing PbR contracts?
  • Do you have the necessary technical capacity (in areas such as bidding, monitoring and evaluation and risk management)?
  • Do you have the risk appetite to take on the significant downside risk that failure to deliver results involves?

In addition, the paper discusses which types of development problems may or may not be amenable to PbR usage, the risks of generating unintended consequences if PbR consequences are poorly designed, and how these risks may be mitigated. Key questions include:

  • Are relevant outcome-level results measurable?
  • Is there a strong evidence base about “what works” in addressing the problem?
  • Do you have adeqaute baseline data before committing to achieving specified results?
  • Is the achievement of outome-level results largely within your control?
  • How long is the contract relative to the time required to achieve measurable changes in results?
  • Do you wish to target particular marginalised groups with your intervention?

We also set out some wider risks of PbR, such as its effect on the diversity of the market of NGOs who may be able to bid for PbR contracts, the risk of skewing aid priorities, inhibiting open relationships and learning among aid partners, and undermining organisations intrinsic motivations to achieve results.

We outline the importance of collaborative design with donors to avoid unintended consequences and mitigate programmatic and financial risks, and provide further practical recommendations both for donors and NGOs to help ensure that PbR is used appropriately.

For a quick introduction to the paper and to debates about Payment by Results, see our guest blog on From Poverty to Power, and a response to our paper from the Center for Global Development.