Outcomes-Based Contracting: Overview
If you’re new to outcomes-based contracting (OBC), the concept can feel a little overwhelming—especially if you’ve heard that it’s all or nothing. But that’s a common misconception. In reality, OBC is much more flexible than you might think, and it’s designed to align the goals of everyone involved. This post will break down what outcomes-based contracting is, how it typically works, and what you need to know about using the right data to track progress and ensure success.
What is Outcomes-Based Contracting?
OBC is a way of structuring contracts that focuses on results, rather than just completing a list of tasks. The idea is that instead of paying a contractor for simply delivering a service, payment is based on whether or not the agreed-upon outcomes are met. Typically, OBCs have a base price, which is paid out no matter what, and if the contractor hits all the targets, the rest of the contract’s value is paid out. This is a far cry from the “all or nothing” scenario many people imagine when they first hear about OBC.
This kind of contracting is gaining momentum in education and is already common in sectors where the goal is to make sure resources are tied directly to measurable improvements, like healthcare and public services. But, like any contract, OBC needs to be structured carefully, with the right data to back it up. That’s where many administrators managing contractors run into trouble.
1. Don’t Short-cut Clearly Defining the Outcomes
When you’re setting up an OBC, the first—and perhaps most important—step is defining the outcomes. Without a clear, agreed-upon definition of success, it’s impossible to determine if the contractor has met the goals. This is where vague terms like “improve student outcomes” or “increase student engagement” can cause confusion down the road.
Instead, focus on being specific and measurable. What exactly are you looking for? How will you know when you've reached it? For example, instead of “improve student performance,” you might say, “increase reading proficiency scores on a specific measure by 5% within one academic year.” It's also crucial to establish a starting point for each metric ahead of time, so that progress can be accurately measured against a clear baseline. This kind of clear, measurable outcome, with a defined starting point, makes it easier to track progress and ensures everyone knows what success looks like.
Suggested Action:
Sit down with all stakeholders (such as your leadership team, lead teachers, and anyone else involved) early on and agree on what outcomes will be used to evaluate success. The clearer these are, the smoother your contract execution will be. While best done as early as possible, there’s no better time to start than now.
2. Understand Context and External Factors
A crucial part of OBC is recognizing that not everything is within your control—and that’s okay. You can’t predict every twist and turn a project might take, but you can build flexibility into the contract. External factors like budget cuts, policy changes, or even unpredictable events (as we learned with COVID) can affect the success of a project, and a good contract accounts for these possibilities.
OBC works best when it’s adaptable. For example, you might agree on specific outcomes but also include clauses that allow the contractor to revisit the terms if significant external changes occur. This kind of flexibility is vital in sectors like education, where sudden shifts can happen at any time. It will also go a long way in building a strong, collaborative working relationship with the contractor.
Remember, as I mentioned in my previous blog post on measurement tool sensitivity, even the tools you use to measure success must be sensitive enough to detect meaningful changes over time. If your metrics don’t consider these external factors, you’re setting yourself—and your contractor—up for failure.
Suggested Action:
When drafting your contract, be sure to discuss and include provisions for changes due to external factors. This creates a more realistic and achievable roadmap for everyone involved. Your district procurement office or business manager may also be able to help with this as well—use all of your resources whenever possible!
3. Balance Quantitative and Qualitative Metrics
When tracking progress in an outcomes-based contract, it’s easy to get caught up in the numbers. How many students scored proficient or above on assessments? How many met their growth targets on standardized tests? While these quantitative measures are important, they don’t always tell the full story. For instance, a rise in test scores might look good on paper, but what if student engagement is declining or teacher burnout is on the rise? Numbers alone can’t capture these complexities, which is why qualitative metrics—like feedback from teachers, students, and other stakeholders—are equally valuable. This is one of the reasons why our Compassionate Assessment Framework is so impactful: it ensures that we’re considering the whole student and the broader culture surrounding assessment.
Additionally, as I’ve discussed in previous posts, it’s essential to ensure that the quantitative metrics you use are sensitive enough to detect the changes you’re aiming for. If you’re measuring a long-term goal with short-term data, the progress may not be immediately visible, even if it’s happening. Choosing metrics thoughtfully will help avoid unnecessary frustration and keep everyone on the right track.
Suggested Action:
When setting up your contract, include both quantitative and qualitative metrics. Use surveys, observations, and even interviews to supplement the numbers with real-world context. Make sure to determine criteria for success that reasonably can be supported by the qualitative metrics you choose to include.
4. Don’t Forget Communication and Feedback Loops
Another key aspect of outcomes-based contracting is ongoing communication. OBCs are often long-term agreements, so waiting until the end to check whether the contractor hit the outcomes can lead to unwanted surprises. Regular check-ins allow you to assess progress, make adjustments, and address any issues before they grow beyond addressing effectively.
Establishing feedback loops early in the process makes it easier to catch problems as they arise. A simple check-in can make all the difference in ensuring that both parties, you as the client and the contractor, stay aligned and focused on the agreed-upon outcomes. By keeping the lines of communication open, you’ll avoid last-minute scrambles and misunderstandings.
Suggested Action:
Build regular communication into the contract from the start. These check-ins will allow for real-time adjustments and keep the project or services on track. These check-ins may seem like just one more thing at first, but in the long run will save you time from having to clean up after a failed project or undelivered services.
Final Thoughts
Outcomes-based contracting offers an opportunity to align resources with results, but it’s not without its challenges. By clearly defining outcomes, accounting for external factors, balancing metrics, and keeping the lines of communication open, you can set up a contract that works for everyone involved.
Understanding what metrics to use—and why—can help you avoid some of the most common pitfalls of outcomes-based contracting. By focusing on meaningful, actionable data, you can ensure your contracts drive real growth and success for your students and schools. Let’s make assessment a tool for progress, not just accountability.
