"Results Based Grantmaking", available on the FPSI
website
The Short Answer
1. Partner with contractors in developing the system of reporting.
2. Establish a moratorium on penalties until the system has operated
for 3 years.
3. Use non-cash rewards
4. Create safeguards against unintended consequences and
perverse incentives,
5. Disseminate best practice information.
6. Operate the system with low visibility until you are sure
you know what you're doing.
7. Collect comparable data
8. Finally, practice what you preach.
Full Answer
(1) There are fads running through the public and private sectors for
performance based contracts. Much of this work goes under the heading of
"applying business-like (read "cash") incentives to reward good performance
and punish bad performance."
(2) Rewards and punishments in contracting is nothing new. There have been a
wide range of incentive schemes that have been used over the years. Some are
quite common and familiar, like book advances to authors, with full payment when the book
is complete; or
penalties for each day a construction project goes past its deadline; or amounts
held in escrow pending delivery of products or services etc.
(3) Some approach this subject with almost military zeal. The notion of wielding
performance incentives seems to make the role of contract monitor more
powerful. But the truth is that successful use of performance measures is a
complex undertaking and the details of how it is done will very much dictate whether it will help
or hurt the system.
(4) Things that will hurt the system
Unrealistic standards or expectations.
Same standards applied to very different providers with
different case mixes.
Emphasis on punishment and penalty, not reward and
recognition.
Using data before you have a track record on what is achievable.
Collecting too much data and letting the data collection process get in the way of
service delivery.
(5) Things that will help
Partner with contractors in developing the system of reporting.
This should include an open process to identify measures and make
recommendations on how measures are used in contracting. It should include
training for agency and contract staff in how to identify and use
performance measures to improve performance. And it should address how contract
improvement targets and, if appropriate, performance standards will be
established. It is best to wait until you have a few years' experience
before formalizing either.
Establish a moratorium on penalties until the system has operated
for 3 years. This requires some political courage, but is a way to show good
faith about fairness, and address the contractors' fears about misuse of the
data.
Use non-cash rewards (such as greater flexibility for managers in the
use of budgeted funds) and individual and group recognition for good (and
improving) performance.
Create safeguards against unintended consequences and perverse incentives,
including the incentives to manipulate numbers or skim easy clients in order
to meet performance requirements. Where significant cash incentives are
involved, underlying reporting should be audited.
Disseminate best practice information. The object is for
contractors to succeed, not fail. And the contracting agency should do
everything it can to help contractors be successful.
Operate the system with low visibility until you are sure
you know what you're doing. Performance systems are as much political and they
are technical processes. Be smart about politics. Grow the system slowing
while you work out the bugs. Don't rush into establishing standards.
Emphasize performance improvement not the achievement of specific
performance targets. Provide lots of space in the process for the story
behind the curve. Share successes and when asked, be honest about low
performance. This is a time to say "This is the reason why we put this
system in place - to identify and improve performance..."
Collect comparable data and track other state and national efforts so
that you know what is comparable (and what is not comparable) performance elsewhere.
Finally, practice what you preach. Agencies issuing contracts or
making grants should also use performance measures to assess their own
performance and work to improve. For example, contracting agencies should
regularly monitor how long it takes to process a contract and pay and invoice.
And should commit to using performance measures throughout the agency.
(6) Contract language itself should set up a regular reporting process and
process for joint quarterly review of progress against baselines. Contract
reporting can actually use the progress report categories 2,3, and 4 from the Progress
Report Prototype
(7) Questions all grant makers should ask themselves and their grantees:
How does your grant fit into a larger strategy to improve the well-being
of a (whole) population (e.g. all children, all elders, all citizens in a
geographic area)?
How would your customers be better off is your grant/project provided
good service (was successful)? How could you measure that?
