After defining an education program’s desired outcomes, LEAs can improve performance on those outcomes by engaging in outcomes-based contracting.
Outcomes-based contracting:
Ties funding to high-priority outcomes.
Requires LEAs and their external providers to shift their thinking from “How much does a service cost?” to “How much is an outcome worth?”
Increases both the LEA’s and external providers’ accountability for improving outcomes.
Foster innovation and a cycle of continuous improvement.
LEAs that use outcomes-based contracting need to determine what portion of the available funding to distribute to providers regardless of performance on outcomes (“base funding”) and what portion of the funding to link to achievement of the desired outcomes (“performance-based funding”). Finding the right balance between base funding and performance-based funding depends on the LEA’s goals and the expectations of external providers.
Tying too large a share of overall funding to performance-based funding and making the base funding too small may leave external providers without enough funding to implement their program activities.
Tying too small a share to performance-based funding - less than 5% - might not create sufficient incentive for external providers.
When tying funding to particular outcomes, LEAs should set thresholds at performance levels that are challenging yet achievable. LEAs may tie a larger portion of the funding to outcomes that are more achievable and a smaller portion of funding to outcomes that are more challenging to achieve or that are longer-term outcomes.
After defining the priority outcomes and establishing thresholds for performance-based payments, an LEA must establish a data verification process to determine whether the provider achieves the intended outcomes. LEAs may use a combination of:
The LEA’s own data.
Data reported by providers.
Data reported by third parties.
The expectations of the provider to participate in this verification process should be outlined in the RFP.
Regardless of the data source, this data will serve as performance data for the external provider and the program more broadly. LEAs should collaborate with their providers and use the data to strengthen programming and services. Ultimately, the LEA will be able to use these data for both formative and summative evaluative purposes and should be transparent with providers about using the data for this purpose.