Strategy 3: Link Payments to Outcomes

• In 2020, Partner4Work, the workforce development agency for the Pittsburgh area, issued this RFP to identify training programs that would provide a specific pathway for job seekers to gain industry-recognized credentials and employment. To incentivize credential attainment, the RFP specified that “payment will be made 50% on enrollment into a training program and 50% when documentation of a credential earned is provided.” Evidence-driven organizations, including Per Scholas, were awarded contracts through this RFP allowing them to serve more participants.
• The Memphis Workforce Investment Network used WIOA funds in 2018 to award an outcomes-based contract for transitional jobs services to the Center for Employment Opportunities (CEO), which offers an evidence-based model for reentry employment. The contract paid for three specific thresholds: (1) 40% for participants enrolled, entered into the system, and confirmed to be eligible; (2) 40% for participants completing transitional employment; and (3) 20% for participants successfully placed in unsubsidized employment. The contractor was required to invoice on a monthly basis for participants meeting the thresholds. Memphis and CEO tracked outcomes for these participants for at least four quarters using WIOA data to better understand the link between the outcomes payments and longer-term impacts.
• The City and County of San Francisco Office of Economic and Workforce Development restructured its contracts for American Job Centers to offer a 10% performance-based payment for the placement of individuals with barriers to employment into jobs paying above the minimum wage. The RFP explains that the agency “will provide a base cost-reimbursement amount for start-up, operating expenses, training and supportive services. 90% of the grant budget will be offered as the base reimbursement amount. The remaining 10% of the grant amount will be set aside for performance-based grant achievements.”
• In 2020, the Workforce Development Board of Central Ohio (WDBCO) released performance-based RFPs for their One-Stop Center operator and their main career services provider that combine cost-reimbursement with performance payments for priority outcomes. The contract specifies performance metrics beyond WIOA Common Measures and each metric was assigned a baseline measure as the minimum level of performance required to begin receiving bonus payments, and each metric accounts for 9% of the total direct operational costs.
• Use these templates and sample language to help develop your agency’s performance-based grants and contracts.

WIOA Pay-for-Performance

One type of performance-based contracting is WIOA’s Pay-for-Performance (PFP) provision. DOL provides guidance on how to implement a PFP approach through their Training and Employment Guidance Letter and additional resources.

Like performance-based contracting, PFP is intended to improve the effectiveness of WIOA programs by focusing on evidence-based approaches that move beyond simply tracking inputs and outputs toward rewarding service providers for achieving specific outcomes. However, workforce agencies interested in implementing PFP should be aware of both its pros and cons. While RFA highly encourages workforce agencies to use performance-based contracting, RFA cautions against the use of PFP specifically. State and local workforce areas interested in PFP should carefully consider the potential burden of PFP’s implementation requirements and the limited number of successful PFP examples that exist.

Pros and Cons

Pros

• The ability to leverage 10% of WIOA funding as “no-year” funding, meaning workforce agencies can spend it beyond the normal two-year limit, and to accumulate each year’s 10% set-aside until there are sufficient funds to launch a PFP initiative.
• The ability to use those dollars until expended means workforce agencies can pay for longer-term outcomes, such as employment after five years.
• If outcomes are not met, and funds are not paid out, local workforce areas can keep those dollars if they put them toward another PFP contract.

Cons

• Increased compliance requirements, including a feasibility study (which can be done in-house), an independent data validator, technical assistance, and an evaluation plan, among others.
• Limitations of the 10% set-aside, which may only be used to make outcomes payments. This limitation on paying for necessary, related activities could eliminate local agencies’ ability to use the PFP authority.
• Lack of clarity regarding what performance indicators may be linked to payment and on what timetable, making it difficult to identify allowable focus populations, metrics, or when to measure a specific performance indicator for payment.
• Limited number of existing PFP contracts and less familiarity among potential service providers, partners, and monitors of its requirements, requiring more upfront time to ensure alignment and buy-in.

Examples

• To date, the DOL has approved a very small number of PFP projects, meaning there are few examples of successful implementation for other jurisdictions to review or replicate.
• The SkillSource Group, Inc. is the non-profit arm of Virginia Career Works – Northern Region and the local workforce development agency. In 2017, data showed that young adults in foster care and juvenile justice programs were not accessing One-Stop Job Centers or available services to help them onto career pathways. Skillsource implemented PFP to link funding directly to positive outcomes for these young people, awarding vendors up to $150,000. Unfortunately, these contracts were suspended by the DOL after award due to additional clarity required through an updated guidance letter. Contracts were eventually restarted, and while this work demonstrates the innovation possible through PFP, it also highlights its challenges.

Equity Considerations in Linking Payments to Outcomes

• Most programmatic delivery has a degree of fixed costs that the organization will incur, such as rent and utilities, materials, and staff, regardless of the outcome of the individual. When establishing the amount of funding that will be tied to performance outcomes, setting the threshold too high can disincentivize small organizations that do not have the capital to operate their programs while waiting for payments tied to future outcomes. Take care to establish a percentage allocation that is meaningful but that does not require the provider to operate at too high of a risk. Talking directly with providers is a good way to find out what is feasible for them.
• Incorporate equity considerations into feasibility study, programmatic design, and evaluation plan. This includes incorporating participant voices, whenever possible, to ensure that the selected outcomes do not discourage the service provider from serving participants equitably nor unintentionally block focus populations from participating in an intervention that is otherwise intended to meet their needs.

How to Get Started

1. Identify priority outputs and outcomes: Workforce agencies will need to first identify the outputs and outcomes that are most important to their overall goals for the program. Doing so can help clarify the agency’s values and priorities and focus the attention of service providers. A logic model, also called a theory of change, is a useful tool to capture this information. Prioritizing a limited number of outputs and outcomes that are linked to payment will also narrow the scope of data collection and reporting for providers, lowering the administrative burden placed on them and requiring them to track a smaller quantity of data. This lower administrative burden may also make performance-based RFPs accessible to a wider, more diverse pool of applicants.
2. Determine if data is available for those metrics or if new data collection is necessary: For performance-based contracting to work, it is crucial to have access to data in a timely way to review performance and pay providers. When starting with performance-based contracting, it can help to use administrative data that is already accessible. This will make data collection easier and, since agencies are already familiar with this data, they will have a better sense of how clean and reliable it is and how often they’ll receive it. However, this approach may not work for agencies that are prioritizing things that haven’t been measured before, like job quality. Agencies will need to find a balance between ease of data collection and achieving program goals, and this balance may look different across workforce areas.
   1. Another approach is to ask the provider to collect and directly report data. Agencies can meet with providers to understand what data they currently collect and what they can feasibly collect in the future. In cases where data is not already being tracked, the local workforce agency will likely have to pay for new data collection, identify how data will be collected, and examine how the burden of this data collection will fall on providers or program participants. For example, if field staff will need to collect more data from participants, are there sufficient staff to handle this task?
   2. Data can be collected and shared in several ways, including enrollment forms, surveys, interviews and focus groups. For data that sits outside of an agency’s direct control, it can be accessed through data-sharing agreements.
3. Decide what portion of payment to link to the achievement of priority outputs and outcomes: Setting these thresholds is a balancing act that depends on the workforce agency’s goals and the financial situation of providers. Tying too large a share of overall payment to performance and making the base payment too small may leave providers without enough funding to operate. When tying payment to particular outputs and outcomes, workforce agencies should set thresholds at levels that are challenging yet achievable. Agencies may tie a larger portion of payment to outcomes when those outputs or outcomes are more achievable, such as the number of people enrolled, and a smaller portion of payment to outcomes that are more challenging to achieve or that are longer-term outcomes. Tying less than 5% of payment to achieving a given output or outcome is usually not enough of an incentive for providers. Download this sample language for use in performance-based grants/contracts.
4. Identify a data verification process to determine whether providers truly achieved outcomes: In cases where providers are collecting and reporting data, agencies may choose to verify the data by matching it to narrative reports submitted by providers, auditing a random sample, or asking for information on the provider’s data collection, storage, and reporting procedures and systems. The aim is to understand how the data emerged and how it ties back to actual participants. For example, did providers collect earnings data through a survey or did they use participants’ Social Security information? Workforce agencies will need to allocate sufficient staff time to data verification and ensure that providers have capacity, both in terms of data systems and personnel, to collect complete and accurate data. Ultimately, workforce agencies need to build trust-based relationships with providers.

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