This paper that I wrote on performance-based contracting approaches for sanitation was developed to inform city-level grantees/ teams funded by the Bill and Melinda Gates Foundation* and UK Department of International Development that are working on various aspects of public-private partnerships in the delivery of urban sanitation services:

Title:
"Performance-based contracting in sanitation delivery"

www.susana.org/en/resources/library/details/2284


It is a result from a grant we had with the Bill & Melinda Gates Foundation in 2013/2014 entitled “Theoretical and practical advantages to applying performance-based payment structures for sanitation service delivery"

I copy here the conclusions section:

Performance based approaches are intended to play an important role in making public service delivery
more results-oriented. While they do hold promise and merit to this end within the sanitation sector,
evidence suggests the need for a measured approach in their adoption and use.

Performance approaches are likely to work better when there is: 1) clarity in service goals, 2) clear and
measurable results in line with the goals, 3) role of external factors (such as user behavior) is minimal on
results, and 4) incentive mechanisms are consistent with goals and desired results. However, empirical evidence shows that agreements are seldom that straightforward; complexities in performance
management are more the norm. Developing institutional capacities to design, procure, manage and
monitor performance agreements is an important way of managing complexities during
implementation.

This paper discusses certain key preconditions or capabilities in the institutional and
project level environment that could improve the prospects of performance agreements in achieving
sanitation service goals (Table 4). These capabilities, while not intended to guarantee desired outcomes,
offer a cohesive set of abilities and actions that can be undertaken by contracting parties in order to
accelerate results and progress in the sanitation sector.

The case discussions underscore the potential benefits and pitfalls of performance based approaches
and the challenges of private sector engagement in service delivery. Key lessons from these case
examples also corroborate the role of some or all of the above-mentioned capabilities in steering
performance contracts towards desired sector outcomes.

The Mysore-Jusco example speaks to the importance of good planning and preparation and its
implications on project outcomes and provider performance. All three examples underscore the
importance of appropriate performance measurement and management systems in influencing provider
incentives, and subsequent performance. In this context, Table 2 attempts to provide context to
appropriate indicator selection for better results and performance in sanitation delivery.

Performance based approaches in the sanitation sector particularly need to ensure that equity, public
health and environmental quality are given due attention. To this end, all three case examples
underscore the importance of governance (regulation, policy, contractual clarity) and contract design
(performance indicators, incentives, targets) in fulfilling these objectives relating to equity and
environmental protection. The Chennai-Ramky example in solid waste management has several parallels
to the sanitation sector in terms of safe collection, transport, treatment and disposal. This example flags
the need for deliberation on what are relevant environmental goals, how best to engage private sector
in achieving these goals, how to ensure compliance and what is the nature of demand side incentives
that can support the role of private providers in achieving these goals.

Equity considerations have received limited attention as well in all three examples. Contract design,
policies and regulation play a critical role in ensuring that project benefits reach the poorer sections of
the population. This might involve tailoring performance measures and targets to include low income
areas/communities, structuring incentive mechanisms that align with these targets and eliminating
policy barriers to achieving equity goals and targets.

In conclusion, introducing a performance perspective to sanitation service delivery will undoubtedly
offer good benefits in terms of improved sector results and outcomes and improved effectiveness of
public investments. The contract preconditions and principles discussed in the paper offer a framework
for better contract design and implementation and a higher probability of achieving sanitation related
goals. Taking into consideration the characteristics of the project and the demands and challenges of the
local context are critical to better application and efficacy of these features.

-- Sujatha Srinivasan

Senior Research Manager | IFMR LEAD | Leveraging Evidence for Access and Development
Chennai Office: 2nd Floor, Buhari Towers, 4, Moores, Chennai - 600006

www.ifmrlead.org


* Basic facts about the grant are available in the BMGF grant database here:
www.gatesfoundation.org/How-We-Work/Quic...s/2013/11/OPP1103492
Size: $ 38,088