New Reason Report: Pay for Success Contracting—The Emerging Paradigm
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New Reason Report: Pay for Success Contracting—The Emerging Paradigm

A new Reason Foundation policy brief released today examines Pay for Success (PFS) contracts, which provide a way for governments to test human service programs through the private sector and only pay if the program delivers on its promised results. Although they have been in existence for just five years, PFS contracts have generated a great deal of interest around the world in that short time. There are now more than 50 PFS contracts underway or completed globally, with 11 in the United States.

The policy brief is authored by Joe Coletti, co-founder and CEO of the Better Yes Network and former leader of the North Carolina Government Efficiency and Reform (NC GEAR) initiative, which included an exploration of PFS contracts in human services, education and public safety.

At its core, a PFS contract is a type of public-private partnership that combines private financing and performance-based contracting in the delivery of social services. Originally premised on saving governments enough money on other programs for them to pay investors back their capital with a premium, more recent approaches have explored ways to value projects based on a combination of hard savings, social benefit, and public willingness to pay.

PFS contracts represent the latest attempt by governments to stop paying for individual programs that do not work. With 10% of federal programs having any evaluations, and few of those showing positive results, there is a clear opportunity to find and stop wasted spending. However, some limited government advocates have been more likely to view PFS contracts as potential vehicles to create new avenues of government spending without reducing government elsewhere or acknowledging the cost. This paper examines these perspectives and is intended as a primer for policymakers on the emerging paradigm of PFS contracting.

The full policy brief is available here.

Leonard Gilroy is vice president of government reform at Reason Foundation and senior managing director of Reason's Pension Integrity Project.