The “pay for success” movement in the non-profit world is starting to take hold at the federal, state, and local levels. But a prerequisite is having some way of measuring success — and ensuring that funding models encourage it.

The Urban Institute has launched a new web resource to explain various forms of performance-based contracting aimed at delivering targeted, high-impact preventative social services where an intervention at an early stage could reduce the need for higher-cost services in the future.

Pay for success funding systems can take many different forms and already operate in different policy arenas. “They include value-based payments to hospitals and nursing homes, performance-based contracts with workforce providers, merit-based pay in schools, and performance-based payments to colleges and universities,” according to Patrick Lester, director of the Social Innovation Research Center at the IBM Center for the Business of Government. These involve many billions of dollars in annual public funding.

Two of the most prominent of these outcome-based funding systems are social impact bonds and performance-based contracting. A new IBM Center report by Lester offers a guide to understanding and selecting the best approach—through performance-based contracting or social impact bonds—depending on the situation at hand.

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