Pay for Success: A Cost-Effective Way to Replace Lead Pipes
The clock is ticking for water utilities to replace all lead service lines (LSLs) by 2037, as required under the Lead and Copper Rule Improvements (LCRI). At the same time, federal funding from the Infrastructure Investment and Jobs Act (IIJA) is beginning to wind down. Add rising materials and labor costs, and utilities face a difficult question: how to meet the federal deadline with available resources while avoiding passing high costs on to ratepayers.
One promising answer lies in rethinking how LSL projects are delivered. Pay for Success (PFS) contracting, a model EPIC has long advocated for, offers a way to simplify procurement, improve cost-efficiency, reduce administrative burdens, and accelerate replacements.
Here, we explain how PFS works and why it is particularly well-suited for LSL inventory and replacement projects.
Benefits of Pay for Success
Only Pay for What You Get
PFS is an outcomes-based contracting model in which contractors are paid upon delivery of a measurable outcome. Municipalities and utilities pay only when desired outcomes are achieved, such as replacing a set number of LSLs. This contrasts with traditional contracting, where payments are made based on time and materials regardless of outcomes.
For LSL projects, outcomes can include the number of service lines identified, customer agreements signed, or LSLs fully replaced.
Accountability is a core feature of PFS. A large portion of the payment is often withheld until a third-party evaluator verifies outcomes. If the contractor fails to meet performance standards, payments may be reduced or withheld altogether.
Water utilities pay for results, not effort.
Know Exactly What You Are Paying for
Under a PFS contract, all project costs—construction, outreach, program management, and others—are bundled into a single per-unit fee. This improves transparency and makes costs easier to understand. It also reduces the likelihood of change orders and cost overruns common in time-and-materials contracts.
Reduce Your Risk
PFS reduces risk for utilities and local governments by shifting responsibility for program management and outcome delivery to a third-party administrator. These administrators can handle everything from funding and financing applications, customer engagement, and contractor oversight.
This structure simplifies the procurement process. Instead of bidding and managing multiple contracts for engineering, construction, and outreach, utilities can work through a single outcomes-based agreement. This arrangement reduces staff time spent on project management.
The bottom line: utilities pay only for work completed—not hours worked—while they reduce administrative burden, streamline the procurement, and control costs more effectively.
Why PFS Makes Sense for LSL Projects
Not every water infrastructure project is a good candidate for PFS. However, LSL projects check the right boxes:
✅ Outcomes Are Easy to Measure
Unlike conservation and water quality projects where success is often modeled or estimated, LSL work is concrete and verifiable. Whether we are talking about inventories, replacements, or customer engagement, success is easily quantified through counts of lines identified, lines replaced, or customer agreements secured.
✅ Work Can Be Priced and Delivered in Units
LSL project outcomes are discrete: a service line is either identified or it isn’t, a replacement is either completed or it isn’t. This allows each positive outcome to be paid for individually, creating a direct link between payment and successful performance.
✅ Project Timelines Are Just Right
PFS is most effective for contracts lasting 5–10 years—long enough to measure outcomes, but short enough to maintain private sector engagement.
This window aligns with LCRI deadlines. Many utilities are already phasing work -by neighborhood or block, with each phase spanning 1–3 years.
✅ Flexibility Drives Better Results
PFS works best when contractors have flexibility in how they achieve desired outcomes. What works in one community or project may not work in another. Allowing a reasonable degree of discretion in customer outreach, construction, and restoration methods creates room for innovation and cost efficiency. This flexibility reduces unnecessary expenses and incentivizes contractors to deliver better results at lower cost.
Getting the Lead Out Faster: Wausau’s PFS Model
The City of Wausau, Wisconsin set the ambitious goal of removing more than 8,000 LSLs by 2028. By adopting a PFS model, the city is on track to achieve this goal.
PFS enabled Wausau to ramp up quickly, increasing replacements from 55 to 1,000 in one year. The city expects to double that pace to approximately 2,000 replacements over the coming year.
This approach has delivered measurable cost efficiencies. Wausau completed 11% more replacements than stated in the initial contract, saving approximately $600,000 through competitive bidding and fixed-price contracting.
Wausau’s experience shows that PFS can help communities move faster, control costs, and deliver LSL replacement at scale. Other Wisconsin cities like Racine are now adopting the PFS model.
What’s Next?
PFS offers a promising opportunity for more affordable and efficient LSL replacement, which will be critical as LCRI compliance ramps up and federal funding declines.
Despite its advantages, the adoption of PFS for LSL projects remains limited. Legal constraints, institutional practices, and lack of awareness continue to pose barriers. Maryland is leading the way in overcoming these barriers by rethinking government procurement. Through the Conservation Finance Act, the state enabled the use of PFS for Drinking Water State Revolving Fund projects. Other states may soon follow this example.
EPIC will continue identifying these barriers and developing solutions that make it easier for water utilities to replace LSLs faster while making the most of available resources.
