What contractors think about Pay for Success contracts
In another blog, we discuss how Pay for Success (PFS) contracts are particularly relevant to green stormwater infrastructure (GSI). Here, we discuss the results from a survey we conducted of contractors that have implemented PFS contracts. While it was challenging to get feedback on issues that are sometimes proprietary and sensitive, we received answers from five contractors who have worked on multiple PFS contracts in the Chesapeake Bay Region. These interviews revealed generally positive experiences.
Understanding contractor perspectives is essential to evaluating PFS. If contractors view the model as unfair or overly burdensome, they will not participate in future bids. When contractors can deliver high-quality work and earn reasonable profits, they are motivated collaborators in achieving water quality goals. From the community’s perspective, having more participants in the contractor pool typically means more competition and better prices. PFS offers local governments an opportunity to structure more collaborative relationships with project implementers.
What does a PFS contract for GSI look like?
GSI includes a variety of practices that manage stormwater runoff by capturing, detaining, infiltrating, and treating it close to where it falls.
GSI includes a variety of practices that manage stormwater runoff by capturing, detaining, infiltrating, and treating it close to where it falls. GSI projects can be designed to capture more or less stormwater. The volume can be assessed at the design stage and confirmed once completed. As such, the performance (or output unit) of GSI can be measured by the volume of stormwater retained. Alternatively, the amount of impervious area managed by a proposed project can be used as the output unit. Regardless of the way the output unit is defined, GSI is the perfect category of infrastructure for a PFS contract because it focuses on the outcome while allowing for the variability inherent in GSI design and construction.
A Pay for Success Request for Proposals (RFPs) asks bidders to propose projects, state the volume they can capture with these projects, and provide the price for this volume. Where applicable, projects still need to meet local design standards for GSI. In some PFS solicitations for GSI, a funder may wish to limit bids to certain practices, such as those that also provide a tree canopy (i.e., requiring trees in bioretention that would also provide shading benefits in addition to stormwater capture). Or the funder may wish to define a subwatershed or neighborhood where the practices must be installed. Though there may be important reasons to add these criteria, these limitations will likely reduce the number of bids and increase the cost. In this way, local governments can shape the types of projects that will eventually be constructed, while leaving sufficient flexibility for the contractors to achieve efficiencies.
Imagine a PFS solicitation that requested bids that specified the number of gallons of stormwater that could be retained in a specific impaired watershed for a certain cost per gallon. To help mitigate an increase in extreme heat days in this area, the municipality’s RFP has limited eligible practices to only those that will include shade trees to the maximum extent possible (i.e., bioretention cells, swales, raingardens, tree planters). The contract makes $2 million available, which can be awarded to one or multiple bidders. The local government retains the ability to not award any contracts if it deems it is not in the public interest to do so.
In Maryland, regulatory requirements under the Chesapeake Bay Total Maximum Daily Load (TMDL) framework make PFS particularly relevant. Counties are responsible for reducing pollutant loads from urban stormwater runoff under their MS4 permits, targeting total suspended solids, nitrogen, and phosphorus. Because impervious surfaces drive stormwater pollution in urban areas, counties must reduce runoff from or retrofit impervious areas through GSI and restoration practices. These quantifiable outcomes (volume of stormwater retained or impervious area managed) can be translated into modeled pollutant reductions using accepted performance criteria. This approach allows local governments to focus on the significant task of meeting retrofit requirements rather than overseeing costly and time-intensive pollutant monitoring programs.
Limited review and contractor flexibility results in faster construction
Several Maryland counties, including Anne Arundel County, have issued PFS contracts to meet stormwater retrofit requirements. In our survey, contractors reported that PFS structures produce meaningful efficiencies. Major advantages include limited review and ease of construction. Under typical contracts, a contractor may have no established relationships with the landowner. The traditional contract may specify certain processes that vary from the contractor’s normal practices, and these added steps can cause delays. In essence, the typical contract specifies not only what the contractor delivers, but how the contractor delivers it. This doesn’t always align with what the contractor knows is the most efficient way of delivering the desired outcome.
Under PFS, contractors may propose projects they have already vetted and developed, often with established landowner relationships and constructability assessments. Because they control project selection, contractors face fewer uncertainties related to site access, material sourcing, partnerships, and local conditions. As a result, they do not need to include the typical 10–20 percent contingency margins often built into conventional GSI and restoration contracts to cover unforeseen complications. These complications include the ones mentioned above, as well as weather-related delays. A PFS contract empowers a contractor to not only build a project the best way they know how, but also to schedule the timing such that it minimizes potential delays.
It might be easier, but is it worth the risk?
Contractors describe PFS as “high risk, high reward.” They bear more responsibility for delivering outcomes but also have more potential profitability. But does this translate to new and unwanted risks for local government? Importantly, contractors told us that the profit motive under a well-designed PFS contract incentivizes efficiency, not corner-cutting.
Because payment depends on long-term performance, contractors prioritize high-quality construction and trusted subcontractor relationships. Most contractors explicitly avoid low-bid subcontractors, choosing instead to work with long-standing partners whose quality they trust. Their financial returns depend on successful performance over the contract term, reinforcing incentives for durability and effectiveness. Contractors tell us that these projects can be profitable if they select them thoughtfully and do the necessary preparatory work to ensure that things go as planned.
Local governments may worry about the risk associated with this unfamiliar approach. Yet concerns that contractors might propose unnecessary or poorly conceived projects can be mitigated through specific contract requirements. Local governments define measurable performance outcomes and may include design standards or practice limitations. Most importantly, payment is contingent on verified performance. If outcomes are not achieved, local governments can require modifications or withhold payment. This structure protects public interests while maintaining contractor flexibility.
Contract size matters, but so does the type of project
Longer contract durations further strengthen outcomes. Many PFS contracts span up to five years and include maintenance obligations. GSI and nature-based projects often require post-construction adjustments to ensure performance and longevity. Because GSI practices are specifically tailored to a particular location and context, design details can significantly affect long-term success. Contractors are often best positioned to understand which methods work in practice. Longer contract terms allow them to incorporate maintenance and modifications without renegotiating with local governments, reducing administrative friction and building trust. Contractors note that including maintenance requirements discourages unrealistically low bids based on inadequate design or construction, ultimately reducing long-term costs.
Project scale also influences cost-effectiveness. GSI projects involve planning expenses such as landowner coordination, public engagement, and site access logistics. These fixed costs are more manageable when projects are consolidated at a single site or involve relatively few landowners. Larger, centralized projects, such as installations on a single corporate campus, are typically more cost-effective than numerous smaller, dispersed installations requiring multiple stakeholder negotiations. Contractors report that projects in the $2–4 million range with limited permitting uncertainty are often the most efficient.
Financing costs present another consideration. Because PFS contracts often withhold the majority of payment until outcomes are verified - sometimes three to five years after contract issuance - contractors must finance construction upfront. Some build anticipated financing costs for construction loans, often 8-10 percent, into bids. The cost of financing depends largely on the speed of construction and the timing of payments. Although PFS structures can encourage rapid implementation by reducing uncertainty, the extended payment timeline may create additional financing and cash flow challenges. While local governments should still condition most reimbursement on the delivery of a verified outcome, they may structure payment schedules to provide partial payments up front or early in a project upon the achievement of key milestones, helping to reduce financing costs. More research is needed to fully understand how these costs are typically distributed between contractors and local governments.
Consistency is key to attracting contractors to PFS contracts
A critical theme emerging from contractor feedback is the importance of consistency. PFS requires contractors to invest time and expertise in identifying viable project sites before receiving awards. Unlike traditional contracts in which local governments specify exact project types and locations, PFS requests a defined outcome, such as gallons of stormwater captured, and allows contractors to identify and design the project. This development work involves relationship-building, technical assessment, and opportunity scouting. Contractors will only invest in such efforts if they expect local governments to issue PFS contracts consistently over multiple years. Clear communication of long-term commitment encourages broader contractor participation, increases proposal diversity, and may reduce costs over time.
Summary
Overall, PFS contracting offers a mechanism for aligning incentives and building trust between local governments and contractors. For local governments, it offers an effective pathway for implementing infrastructure that does not fit traditional bid-design-build contracting models. For contractors, it provides autonomy, potential profitability, and reduced bureaucratic delay in exchange for greater responsibility and risk.
For GSI and nature-based infrastructure, there is often no direct regulatory mandate specifying where a particular project must be built. Yet these projects are essential for meeting water quality standards and delivering environmental benefits. Scaling this work requires contractors to act not merely as service providers but as development partners.
PFS contracts create a framework that shifts risk to contractors while rewarding innovation, quality construction, and long-term performance. By emphasizing outcomes rather than prescribed steps, they foster collaboration, efficiency, and alignment. When structured thoughtfully and implemented consistently, PFS contracting can transform contractors from vendors into trusted allies in advancing GSI and nature-based infrastructure goals. They can accelerate construction, improve project quality, reduce costs, and allow contractors to leverage their unique expertise.
EPIC is interested in helping municipalities and contractors explore and implement this approach. To discuss how it might apply to your projects, please reach out.
