Office of Social Innovation and Civic Participation

Pay for Success:

An Opportunity to Find and Scale What Works 


Pay for Success (PFS):
Strategy of procuring positive social or environmental outcomes by paying, in part or in whole, for an intervention only once it produces those outcomes.

PFS Contracts:
Contracts that provide payment, in part or in whole, when an intervention achieves positive outcomes at pre-set target levels.

PFS Financing:
Mission-driven capital that covers the upfront costs of service provision and potentially other project costs.

Americans have developed programs to tackle seemingly intractable problems, from homelessness to illiteracy, to chronic disease to climate change and more.  Some of these services are already proven by rigorous evaluation to be effective; others show tremendous promise to move the needle.  But they often are not equipped to make the kind of impact that our nation needs. 

Pay for Success (PFS) can be a solution.  It tests and advances promising and proven interventions, while providing taxpayer (or other) dollars for successful outcomes for families, individuals, communities, or natural resources.

Here’s how.  Through PFS, government (or another entity) enters into a contract to pay for concrete, measurable outcomes once they are achieved for specific people or communities in need.  Instead of funding services regardless of the results, payments are made only if interventions actually achieve the outcomes agreed upon in advance.  For example, instead of paying for job training simply to be provided, a community might use PFS to pay only when individuals gain stable employment in good jobs.  Where government employs PFS strategies, taxpayers no longer bear the risk of paying for services that are ineffective because resources are not expended until the services have produced a specific benefit.

Because PFS projects often target prevention of longer-term problems, one challenge that arises is a lack of upfront resources to fund the intervention before outcomes are measured and possible outcomes payments are released. For this reason, PFS contracts often incorporate PFS financing, which covers the costs of delivering an intervention until success is achieved and payments are triggered.  Investors who provide this financing take on the risk of failure.  Where PFS financing is used, the government (or other entity) typically makes outcomes payments that cover the cost of services and also offer investors a modest return.  PFS financing is sometimes referred to as social impact bonds. 

The term Pay for Success may refer to a variety of outcomes contracting strategies that connect payment in full or in part to verified outcomes. 

Who Is Involved?

PFS contracting and financing require partnership among multiple stakeholders. Partners typically include:

  • One or more outcomes “payors,” generally local, state, tribal, or federal government entities or other entities (such as a health insurance company or a charitable foundation) that contract to pay for outcomes when achieved;
  • Service provider(s), which deliver the intervention intended to achieve the outcomes;
  • Investor(s) (if PFS financing is part of a PFS project), which cover the up-front cost of implementing the intervention and at times other associated costs (e.g., outcomes evaluation) for the PFS project; and
  • An independent evaluator, which determines, through a rigorous evaluation, whether the intervention achieved the outcome(s) sought.

Many PFS projects also include a project coordinator or intermediary, an entity that facilitates and manages the contracting process and project.

The Advantages and Potential of Pay for Success

PFS is proving to be an effective tool at unlocking solutions to community challenges.  It is both removing barriers to achieving outcomes while incentivizing newer and smarter approaches.

Overcoming barriers to outcomes:

By providing funding for outcomes rather than inputs or process compliance, PFS models help to overcome several barriers to achieving cost-effective results.  Common barriers PFS helps to overcome include:

  • Risk aversion: Government may be hesitant to innovate or since the budgetary and political risk of failure can be high. PFS mitigates these risks by shifting risk of failure to the private sector.
  • Siloed funding streams:  While individuals in need typically face multiple, inter-related and reinforcing challenges, systems of government require they navigate multiple systems.  Because programs rarely have cause or incentive interact with one another, government and service providers commonly offer fragmented and uncoordinated care. By emphasizing outcomes, PFS encourages collaboration across silos of government.
  • Prescribed services: Government contracts often prescribe precisely which services are reimbursable.  While the purpose is to align services with those most likely to get good results, the unintended result is that unique needs cannot be properly addressed.  PFS allows service providers to deliver whatever interventions are best positioned to meet needs in real time.

Enabling innovation:

PFS is the centerpiece of the president’s social innovation agenda because it is a tool that advances multiple social innovation priorities:

  • Data integration: PFS is advancing the use and integration of data across systems.  To pay for outcomes, data is necessary to target those in need, know baseline status, and track progress overtime.
  • Agile approaches and performance management: Freed from constraints on what services they can provide and empowered by up-to-date data on how clients are doing, service providers can monitor client progress, course correct where necessary, and better personalize services to support clients with what they need when they need it. 
  • Building the evidence base: Since PFS projects require rigorous evaluation, each new project adds to the larger evidence base about what works.
  • Person-centered programming: Focusing on outcomes can mean considering the holistic needs of an individual.  An unemployed single mom in unstable housing and without child care is more likely to succeed in job training when her housing and childcare needs are addressed.  Jobs-focused PFS contract might encourage addressing these barriers through such coordinated support, increasing chances of success and reducing long-term costs.  
  • Responsible experimentation: Since accountability is for outcomes rather than adherence to a particular process, PFS encourages informed innovation and rapid-cycle iteration to get to the solutions that yield the best results.
  • A focus on outcomes: Ultimately, the purpose of programming that supports people, families and communities in need is to achieve better outcomes for those who are served.  Unlike many other models, PFS aligns funding with program and policy goals.

Who Benefits?

  • People and communities in need can benefit from clear and measurable results provided through PFS projects at no risk or reduced risk to taxpayer dollars where government employs PFS.  With the backing of a contract, PFS is a tool to build more durable collective impact strategies and the best projects will engage communities in prioritizing outcomes.
  • Government or other payors can responsibly test the effectiveness of interventions – including long-standing models, promising innovations, or adaptations of existing models – or can scale proven interventions that might not otherwise be possible due to restrictions on funding or other limitations.  Further, government can do all of this while protecting the taxpayer dollar.  Government can also benefit from the cross-sector collaboration that PFS facilitates.
  • Service providers can benefit from better quality, more current data that informs performance and rigorous research measuring the impact of their interventions while also accessing a steady stream of funding for the life of the PFS project.
  • Impact investors can pursue a double bottom line, creating positive social or environmental impact and earning a return if outcomes are achieved.
  • Policymakers access results of rigorous evaluations that often would not otherwise be undertaken, thus strengthening knowledge about effective practices helping to drive better outcomes and more effective policies in the future.

Obama Administration Investment in PFS

Since our first major award of federal funds in 2012, and with bipartisan support in Congress, we’ve dedicated nearly $100 million in funding to advance PFS through eight federal agencies.  These federal dollars are leveraging at least $65 million in philanthropic, state and local funds for PFS.  Among other important priorities, the Administration’s PFS awards have been provided to help connect veterans with jobs, build brighter futures for at-risk youth, support English language learners, increase access to high-quality pre-K, reduce childhood asthma, support at-risk moms and their children, reduce homelessness and recidivism, and even promote natural resources conservation. Throughout, we've made strides to test and build the field by funding feasibility studies, transaction structuring, outcomes evaluation, outcomes payments, and field-building work like cross-system data integration.   Thanks in significant part to federal support, the U.S. is now the largest PFS market the world, with greater total outcome payment scale and impact investment dollars committed to projects than any other nation.

Additional Resources