Moving to outcomes-based aims when commissioning work
Whether you’re a remote school or one of the largest agencies serving the nation and the wider Pacific, there was something for everyone at the latest Knowledge Hour conversation.
World Commerce & Contracting (WCC) delivered a talk about how outcome-based contracting could reframe procurement projects big and small.
WCC Chief Executive Officer Sally Guyer and WCC President Tim Cummins focussed on why commercial success increasingly depends on shared outcomes, not transactional delivery.
Traditional contracts typically say, "deliver these products, perform these services, deliver these outputs, provide these resources". They are very specific about inputs or outputs, often without defining business purpose and linking it to performance.
In contrast, by creating an outcomes-based environment, you create a sense of shared responsibility.
- You can allocate a risk to where it can be managed. Not just to the party willing to accept it for a price.
- Collaborate on risks for factors neither party fully controls. Recognise interdependencies and make provision for them.
- Reward reflects risk allocation. More risk to suppliers equals higher levels of compensation.
- Include relief mechanisms for extreme events, such as force majeure and material adverse change provisions.
After outlining the fundamentals, the audience was taken through 2 outcome-based contracting examples.
One was an education system called Educate Girls Development - Impact Bond (India). Launched in 2015, payments to investors were tied to measurable improvements in girls’ enrolment and learning outcomes. Independent evaluation found enrolment rose 92% and learning gains exceeded targets by 160%.
The other example was a prison rehabilitation programme, the Peterborough Prison Social Impact Bond in the United Kingdom. Investors funded rehabilitation services for short-term prisoners. Government repayments depended on reducing re-offending by at least 7.5%. The actual reduction achieved was 9%, triggering outcome payments and proving the model viable.
Sally and Tim then shared a blueprint on whether or not you could use an outcomes-based contract for your work, which is available in the link to the talk below. They noted that outcome-based contracting is a strategic choice, not a default.
If you would like to watch and listen to this Knowledge Hour, visit our training modules: