Contractors as Allies: Pay for Success in Green Stormwater Infrastructure
Most people have witnessed children staring in wonder at construction equipment —frontloaders, backhoes, jackhammers—in action. Somewhere along the way, we lose our interest in how things are constructed. Yet we know that how projects are constructed is critical, affecting the cost, speed, sustainability, and performance of the project. For green stormwater infrastructure (GSI), construction comes with unique challenges. Unlike a new home built on a cleared and leveled lot, these projects are often installed within existing neighborhoods, streets, and public spaces.
GSI is often integrated into existing infrastructure: roads, sidewalks, parking lots. These projects must account for drainage areas, pollutant loads, and human use of the area. All these factors can substantially affect the efficiency and quality of the construction. Pay for Success contracts can help municipalities improve efficiency and quality in important ways.
Allowing flexibility, ensuring successful outcomes
Pay for Success (PFS) contracting was initially developed to address complex social challenges such as homelessness and recidivism, issues shaped by interrelated and difficult-to-quantify factors. Traditional contracts often proved inadequate because they prescribed rigid frameworks aimed at addressing specific factors, rather than focusing on outcomes. PFS reversed that approach. Instead of dictating how work must be done, it ties payment to clearly defined results, giving implementers flexibility to determine the most effective and cost-efficient path to success while maintaining accountability for outcomes.
This model has strong relevance for GSI and nature-based solutions (NBS). Unlike standardized infrastructure projects such as water main replacements or sidewalk construction, GSI projects are highly site-specific. Both the local ecological context and built environment influence the design and construction approach. Regulations typically do not mandate specific GSI installations in the same way that sidewalks or other public infrastructure are standardized. As a result, these projects are flexible but also vulnerable to excessive stakeholder input, extended permitting timelines, delays, and cost overruns.
PFS contracts help address these challenges and benefit local governments by shifting some project risk to contractors while granting them greater autonomy to deliver a set outcome. For GSI, PFS contracts often require the contractor to deliver an easily verified outcome such as gallons of stormwater retained or impervious area treated, but allow the contractor to decide the design and location of the project. While the design and construction of the project may be complex, the outcome can be easily verified. By releasing some control over the interim steps of a project, municipalities gain from efficiencies that contractors can realize. By withholding a majority of the funding until a third party verifies the outcome and that the project is fully functioning, local governments pay only for work that meets the agreed-upon criteria.
Municipalities are also able to save time because they only need to evaluate the finished product rather than the numerous steps leading up to that endpoint. The local government also benefits from the process by which the contractor subcontracts out certain tasks. Given that the contractor is only paid if the work is completed exactly as specified, they are not likely to use unqualified subcontractors. In short, the risk that the contractor assumes benefits the local government in multiple ways.
All parties can benefit
This approach doesn’t benefit only the local government, however. Contractors can benefit too. PFS contracts hold the bidder to specific outcomes, which can, depending upon the contract, be delivered from different types of projects in a variety of locations. Some sites are more challenging with this type of work. A PFS contract incentivizes contractors to find more straightforward sites because they know this will expedite their work. For contractors, this means they can do the work faster and get paid earlier, something appealing to any business. Local governments benefit from speedier construction and, often, more cost-effective proposals.
In effect, contractors become partners in identifying and implementing viable projects rather than simply responding to detailed government specifications. Local governments benefit from contractors’ established partnerships, familiarity with certain areas or types of projects, or existing landownership agreements that allow access to key locations on private property. These are important factors that facilitate smooth and efficient construction projects.
This approach isn’t right for every situation. Sometimes, for various reasons, it is important to install GSI in a very specific location. There may be occasions when a municipality has specific needs for a project and will want to be involved to ensure that construction goes exactly as they desire. For example, sequencing, construction windows, or specific design elements can be particularly important in high-traffic areas such as schools and public libraries. But when the desired ecological outcome is paramount, a PFS contract can deliver this outcome in a way that is beneficial to all involved. We would be wise to regain our wonder with construction and think about how different contracting approaches can both speed up the pace and improve the quality of GSI.
In a companion blog, we explain the results of a survey we conducted of contractors that have used this contracting approach.
