Pay-for-Success: Funding Environmental Outcomes Through Results-Based Contracts

1. EXECUTIVE SUMMARY:
Our project was on Pay-for-Success (PFS), a government contracting model whereby the commissioning agency offers payment to a contracted firm only upon successful completion of a project. Ongoing data from these projects shows the potential for a 63% cost reduction in environmental outcomes for a project over a 5-year period, and ultimately creating a cleaner and better-managed environment.
The project came about through a partnership with the Environmental Policy Innovation Center (EPIC) for the purpose of conducting an analysis on PFS. The project aimed to address the policy question of: How do PFS contracts benefit states or municipalities that utilize them, and how do they generate more benefits, whether it be in cost savings or environmental outcomes, compared to the traditional design-bid-build method?
For this project, me and my team interviewed 17 organizations and 20 interviewees with expertise in PFS and other alternative contracting models and examined 13 contracts and Requests for Proposals covering a diverse range of projects.
By comparing PFS with the traditional design-bid-build method for government contracting, along with two hybrid versions of PFS involving third-party investors and stepwise payments, the overall conclusion was that PFS is the most effective contracting method for environmental projects.

2. IMPORTANCE:
PFS-based contracts for environmental outcomes are being implemented in various parts of the U.S ranging from the East Coast in Anne Arundel County, Maryland, to the West Coast in Sacramento County, California, for projects such as land restoration, mitigation banks, and storm water management. Today, governments and organizations have seen PFS as a means of generating the most cost-effective environmental benefit. However, not much study has been done for PFS, thus driving our team’s desire to look into this to see if the benefits from PFS actually existed. Thus, as a team we were trying to answer the following questions through our research: How do PFS contracts benefit states or municipalities that utilize them, and how do they generate more benefits, whether it be in cost savings or environmental outcomes, compared to the traditional design-bid-build method?

3. IMPACT AND REACH:
The team spoke with 17 organizations and 20 interviewees with expertise in PFS and other alternative contracting models on and examined 13 contracts and Requests for Proposals covering a diverse range of projects. Through this approach, the team was able to develop an understanding of the benefits and drawbacks of PFS, and how it compares to other contracting methods. The overall data and information collected and analyzed form the basis of our evaluation on the comparison of PFS and other potential contracting methods.
Given the unorthodox nature of PFS, the analysis conducted in this report focuses on categorizing and evaluating the risks that agencies and firms must deal with when it comes to government contracting. From the interviews conducted and contracts reviewed, a major emphasis was placed in these main criteria:
· Financial: Overall costs and cost-savings of the project;
· Time: Involving time spent on the project and if it was completed under the set deadline;
· Outcome: What goals were achieved and did the firm complete what it set out to do;
· Reputation: How did the agency and firm look coming out of this project;
· Management: Did oversight and implementation of the contract satisfy everyone and lead to a successful performance result.
Quota Sampling, SWOT Analysis, and a CAM matrix are used for analyzing risks, scoring policy options and ranking policy options. By comparing PFS with the traditional design-bid-build method for government contracting, along with two hybrid versions of PFS involving third-party investors and stepwise payments, the overall conclusion was that PFS is the most effective contracting method for environmental projects and should be adopted so that more sustainability projects can be pursued.
This project will be greatly beneficial to government agencies looking to expand their scope of environmental projects. For a government agency, the cost savings generated from PFS means that an agency could potentially pay 63% less than what was paid under the original contracting method over a 5-year time frame. PFS further enables the agency to withhold payment to the contracted firm until a satisfactory job is completed, while ensuring efficient project completion, optimal outcomes, and minimal administrative burden on the agency.

4. COLLABORATIONS:
To assess and showcase the overall results of PFS, our team (from UCLA Luskin School of Public Affairs) partnered with Environmental Policy Innovation Center (EPIC) to conduct an analysis on PFS. EPIC is a non-profit organization based in Washington D.C with the mission to build policies to speed up environmental progress.

5. YOUR ROLE WELL DEFINED
My role in the project was team leader. I conducted and ran interviews with government agencies, environmental firms, and academics in the field on PFS and its pros, cons, and best practices. I was also the point of contact between the team, our client, and the people we reached out to and had to consistently give them updates on our progress with the interviews and the written report as well as schedule meetings between the team and the client. In addition, I was the team member who drafted our Policy Options section and wrote up our Executive Summary for the report. Overall, we went above and beyond what the school assignment requested of us since we were determined to reach out to as many people as possible on this topic and worked with our client pass the submission deadline of the report in order to draft a second document on our overall research so that our client could use it for future meetings and discussions on PFS.