Last year, Congress voted overwhelmingly to pass the Workforce Innovation and Opportunity Act (WIOA). The moment represented a bipartisan beacon of hope on Capitol Hill. Goodwill Industries International was pleased with the overall outcome in this new Act which provides opportunities for community based organizations, like Goodwill, to do more to help people build their skills and connect with career opportunities.
Perhaps the greatest innovation in the Act is a potentially new means of doing business in the workforce system – pay for performance contracting. While many of us are familiar with performance-based contracts in which providers receive funding at certain intervals in the grant based on inputs (such as serving a specific number of participants), pay for performance contracting is a bit different. Instead of focusing on just inputs, the system allows states and local areas to negotiate with providers on select outcomes (such as placement and retention in jobs for which participants are trained) before receiving payment for their services.
This new pay for performance authority was a key approach in WIOA that was included with bipartisan support. The Act authorizes states to utilize as much of their formula funds as they choose in pay for performance. In addition, local workforce areas are allowed to use up to 10 percent of their formula funds. This “no risk” contracting is appealing to the government because providers do not get paid until they achieve their negotiated outcomes. If the provider does not perform, state or local governments can reallot funds to providers achieving targeted outcomes.
The U.S. Department of Labor’s (DOL) proposed WIOA rules would put more meat on the bones related to pay for performance provisions, allowing innovative providers – even those not on a state’s eligible training provider list – to compete for pay for performance contracts. DOL also proposes allowing performance-based contracting to continue as they were utilized in the past. Under WIOA, local areas may now use performance-based contracts with as much of its formula funding as they deem appropriate, but they may still utilize up to 10 percent of their funds for pay for performance contracting.
Pay for Performance in Practice
Here is how pay for performance would work:A local area could contract with a service provider like Goodwill to provide 500 job seekers training in high-demand health careers in their regional economy. This portion of the contract is performance-based contracting. A local area would provide the Goodwill agency with payments based on certain milestones in the grant such as the number of people served or the number of individuals who receive an industry-recognized credential.
Pay for performance contracting could be the cherry on the top of this agreement asthe local area could set a high bar outcome, on top of meeting inputs. For example, a high bar outcome could be entry and retention into employment at a defined target wage rate. Providers that achieve such high bar outcomes could therefore earn a bonus payment from pay for performance funds.
As a result of this new Act and DOL’s rulemaking, there is now a potential for interested states and locals to greatly expand their focus on performance in their contracting – something that Goodwill applauds. However, we are still hearing confusion from both our agencies and state and local workforce boards on whether and how to proceed on pay for performance contracting: they want more detailed operating guidance from DOL in order not to run afoul of procurement rules.
We encourage DOL to provide such additional guidance soon – while states and locals are developing their annual and long-term implementation plans. Let’s reshape the workforce system with a focus on return on the taxpayers’ investment and seize the opportunity to include pay for performance innovation in long-term planning.