Performance Contracting: Getting the "How" Right

This is the third of three posts on Performance Contracting. The first post can be accessed by clicking here; the second, by clicking here.

In my first two posts on performance contracting – what we call Partnering For Results – we identified the two key principles for successfully creating contracts to help you ensure your customers experience the results they require:

• Be very clear on who the customer is, and focus on the results they experience


• Be sure you build your contract(s) around results for your customer and not something less

In this third and final post, we want to use these two principles to talk about the how – how you can successfully Partner for Results.

Before beginning to Partner for Results, there are several important decisions that need to be made at the enterprise or jurisdiction level. These are essential to ensuring success. Two of the primary questions are:

• What services will be contracted out?


• What approach will you take to Partnering for Results?

Your organization may elect to have its services delivered almost exclusively through contracts or choose to contract out for selected services. Each organization has to make this decision based on the services it provides, the results it needs to deliver, the best value for the money and what it knows of its community, culture, and politics. But the important thing is to be intentional about this choice and thoughtful in your approach..

Once your organization is clear on which services it wishes to contract out, there are several important decisions regarding the approach to be taken . These include:

• Is this a contract with a sole source ? If so, particular care will need to be taken to structure the contract in a way that preserves the focus on customers and results. Remember that the customers are those who receive the service and experience the benefit – not the contractor.


• Is this contract to be put out for competitive bid? If so, will employees/employee groups be eligible to submit bids to deliver the results? Many jurisdictions have found that employee groups can provide competitive, if not compelling, bids – and that the process of doing so helps the organization get very clear about the true cost of doing business.


• Will your performance contracts help to create a market place for your service delivery? The establishment of performance contracts can create a broader market, with more players and more competition. We’ve seen this occur with performance contracting for child welfare services.


• Performance Contracting can be used to fund innovation. The Office of Hawaiian Affairs, with which we’ve worked extensively to create a powerful Partnering for Results system, is intentionally issuing RFP’s to fund innovation, leveraging the creativity of the community to drive new solutions to achieve Strategic Results around Income, Education and Health.


• Is cost a primary driver for your performance contracting? We caution against using performance contracting primarily to drive down cost. Performance contracting provides an invaluable tool to understand the impact on customers and results – but performance contracting does not always automatically yield cost savings.

When the major policy decisions have been made, keep in mind these keys to operational success in using performance contracting:

• Establish clear, time-specific reporting requirements. Make sure expectations are clearly established in the contract for what performance information will be reported, how, and when. The Office of Hawaiian Affairs has licensed the use of our web-based performance software MFR Live for their contractors to use to report their performance information. This ensures definitions are consistent and makes compilation and review of the results much faster and easier.


• Establish a consistent process for monitoring performance and evaluating the contract. Regular monitoring, feedback and follow-up with contractors helps to improve performance by ensuring the focus remains on the results in the contract and ensures accountability for performance measures in the contract. A performance contracting process that does not actually look at performance regularly is not going to deliver the same results as one that uses it as an active management tool. The Alcohol Drug and Mental Health Board of Franklin County, OH, holds regular “ProviderStat” sessions with their contractors to review and manage performance. The Office of Hawaiian Affairs has two levels of review. A performance review is a desk review of performance reported against the contract. A performance evaluation is more extensive and is conducted on-site.


• Keep time frames in synch with your budget period. Multi-year contracts for the delivery of services do not provide as effective a platform for managing performance as single year contracts, though it is sometimes necessary for very large projects to extend the contract period beyond the budget period. Multi-year contracts encourage a sense of entitlement for the vendor. Shorter time frames – particularly in the beginning of a performance contracting effort – help ensure accountability is at the appropriate levels.


• Publish the results. Publishing the performance information of contractors is a powerful way to demonstrate transparency and accountability for you and for your contractors. It can also be a free and powerful way to foster innovation and to improve performance as your contractors will see who is performing better than they are – and what they can learn from those high performers to improve their own results. There is nothing like published results to foster a little friendly competition.

Partnering for Results provides an incredibly powerful tool to help you align your contractors to provide the greatest possible results for your customers. I hope you have found these posts to be helpful as you think about the challenges and opportunities in Partnering for Results. Let us know if I can help.