Cities take the next step with paying for performance
Image by Cath Virginia for Bloomberg Philanthropies
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Effective city leaders look to procurement as a creative lever for delivering what people need and building trust in government. And one tool they have often used to do so is performance-based contracting. At its core, this approach—sometimes called “pay for success” or “pay for results”—amounts to paying vendors based on whether agreed-upon outcomes are achieved, rather than simply compensating them for expected activities.
Now, local governments around the world are starting to take the basic pay for-results model to the next level in an effort to better reflect how residents actually experience services and how cities routinely function. Increasingly, that means moving from using this approach on a pilot basis to embedding it as a core part of how they address entire systems of interconnected challenges and learn over time.
“What’s exciting about these cities is that they aren’t just experimenting with paying for results, but working to make it central to how they operate,” says Colin Erhardt, a director at Partners for Public Good, a mission-driven nonprofit supported by Bloomberg Philanthropies focused on government effectiveness.
In every case, these cities’ ambition is the same: to better align public spending with the outcomes that matter most to residents.
From discrete outcomes to system-level impact.
Performance-based contracting has traditionally been used to help governments incentivize clear impact on one or two priorities. Now, cities are increasingly using it to take on bundles of outcomes that span several sectors.
Take Denver, where Mayor Mike Johnston and his team are using pay for success to address chronic homelessness. The city previously employed a version of the same approach to tackle some elements of the local homelessness problem. But now, Denver’s expanded effort better reflects all the factors at play by using performance-based contracting to provide services to people experiencing homelessness who also have frequent contact with the criminal justice system and unmet health needs. By aligning not just housing and criminal justice actors but also health providers, such as hospitals, Denver is using procurement to coordinate how multiple systems work together in support of a shared population.
Structured as a social impact bond, the program draws on private capital to fund service delivery, with repayment tied to results, such as reduced time spent in jail and lower health spending. While long-term evaluation will be needed to assess sustained impact and cost-effectiveness, early results through the end of 2024 were promising, and the model reflects a shift toward using procurement to address interconnected challenges in a more strategic way.
A similar logic is playing out at a different scale in Spain’s province of Málaga.
After a sharp increase in the number of residents facing economic and social vulnerability, 103 municipalities came together in 2024 to launch the Málaga No Caduca initiative. The program simultaneously targets food insecurity, unemployment, and loneliness, three conditions that, according to diagnostic studies commissioned by local leaders, often reinforce one another.
Like Denver’s effort, it is structured as a social impact bond—the first introduced by a public entity in Spain—where external investors provide vendors with upfront financing and only get repaid if key targets are reached. Each objective has its own vendor, financial backer, and performance target. But, critically, these efforts are designed to operate in coordination around the same population, allowing the province to address social vulnerability as an interconnected system rather than through isolated interventions.
As Jorge Martínez, chief auditor of the Provincial Council of Málaga, puts it: “It’s about shifting the focus of service delivery from activities to users. Individuals are bundled, so the solutions that serve them best will be bundled, too.”
From pilots to institutional capability.
If Denver and Málaga show how cities are now using performance-based contracting to tackle several cross-cutting challenges in tandem, Bogotá illustrates that cities are also changing how these efforts are governed.
Performance-based contracting, to this day, tends to exist as a one-off pilot or standalone initiative in any given city. But Bogotá in 2024 took the next step by establishing the District Committee on Payment for Results to standardize how outcome-based contracts are designed, measured, and managed across city agencies. With this unique strategy, Bogotá is building the administrative backbone required to vet proposals, define metrics, and manage verification processes more consistently—and turning pay for results from an exception into something the city can do repeatedly and at scale.
Mayoral support has been crucial to this approach. Early in his administration, Mayor Carlos Fernando Galán—whose team has participated in the Bloomberg Philanthropies City Data Alliance—backed the creation of the new committee as a permanent institutional mechanism. In the year and a half since its creation, four new contracts have passed through the committee’s process, helping shift the internal conversation from “should we use pay for results?” to “how do we apply it consistently to fund the outcomes residents need?”
This kind of institutionalization is not without trade-offs. Standardization can introduce additional layers of process, and outcome-based contracts often require more upfront design and coordination than traditional procurement. But it also enables cities to scale these approaches more systematically and apply them across a broader range of policy areas.
Not just rewarding success, but embracing faster learning.
A third shift in how cities are using contracts to shape outcomes is less visible but equally important. Instead of focusing solely on rewarding success, they’re also embracing learning as a more central part of the procurement process, using pay-for-success contracts as feedback loops to refine services more quickly and effectively in the field.
Take, for instance, Bogotá’s employment pay-for-results program, where it pays vendors for every resident that completes job training, along with an additional fee for each trainee that secures employment. Data revealed that individuals over 50 were having a particularly tough time securing jobs, in part because digital learning curves posed additional barriers. In response, the city and its vendor introduced targeted digital-skills modules. And when data showed women were falling behind due to caregiving burdens, the program adjusted training schedules to provide greater flexibility.
“We’re not interested only in what happens in success cases—those who do find employment—but also in understanding where, and why, things are falling short,” explains María del Pilar López, the city’s economic development minister. According to her, this depends on building a shared learning relationship with providers. “They need to feel comfortable telling us when something isn’t working well, and then we step in to support them, because at the end of the day, we both want them to succeed," she says.
The lesson? Making pay for results a more routine part of how cities do business isn’t just a way to hold vendors accountable. It is also a way to generate real-time insight into what is and isn’t working, and to adapt accordingly.
Taken together, these shifts suggest that pay for results is evolving from a specialized financing tool into a more central feature of how cities work. The transition is still underway. But the direction is clear: for a growing number of local governments, paying for results is no longer an experiment at the margins. Instead, it is becoming a core way to shape systems, steer performance, and continuously improve how governments deliver.
