During the contracting phase, the buyer lays the groundwork necessary to focus the producer on the delivery of measurable environmental outcomes, and works to gain buy-in within its own organization for pay for performance contracting.
Step 1: Define Need for Pay for Performance and Secure Funding
Buyers should consider the benefits that pay for performance offers in achieving the program’s goals, particularly through cost-effective, outcomes-based contracting, which will in turn support efforts to secure funding.
Step 2: Select Strategy and Define Payment Terms
Defining the basics of the environmental need, such as the geographic scope of the environmental issue, stakeholder capabilities, and project risk will assist in selecting the appropriate pay for performance strategy. After selecting the strategy, the buyer works with its procurement department to define payment terms that work within the organization’s finance and legal bounds and most effectively contribute to achievement of the program’s goals.
Step 3: Solicit and Select Projects
Once payment terms are agreed upon within the buyer’s organization, the buyer solicits applications using a request for proposal. The buyer selects a short list of project applications based on the projected cost-effectiveness of environmental outcomes to be generated, site characteristics, co-benefits, the applicant’s experience, and other criteria defined in the solicitation. After the buyer has selected projects for funding, contracts are executed between the buyer and producer.