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Innovative Contracting, Pay for Performance

Description, differences, benefits and drawbacks of Pay for Performance contracting

Orange barrels on a highway

Pay for Performance


The contractor is paid for work on a graduated scale based on the quality and longevity of the work over time.

Difference from Traditional Method

Traditional specifications prescribe the methods and/or means of producing or constructing an item.  If the contractor complies with specifications but the final outcome is not acceptable, the contractor is not responsible for corrective action.  

Pay for performance specifications rely on final outcomes that can be measured against performance criteria set forth in the contract.  If the  contractor fails to meet minimum performance criteria, payment is withheld and corrective action is required. 


  • Eliminates blame when there is a problem with the quality of a specific work item
  • Shifts risk of providing a quality product to the contractor
  • Provides higher quality products for a longer duration


  • Time needed after project completion to ensure product performance
  • Product monitoring and inspection is time-consuming
  • Contractor may be required to finance a portion of the work during the performance period