Supplier Access to Prefinance in Payment by Results Contracts

Abstract

The use of Payment by Results (PbR) by the UK Department for International Development (DFID), and the international development sector in general, has been increasing in recent years. PbR-based contracts are seen as useful tools to improve the effectiveness and efficiency of international aid while delivering a host of other benefits. However, PbR also presents challenges. Not least of these is the requirement for delivery partners to find funding to deliver services before they are paid for results (we call this ‘pre-financing’) and to take on greater financial risks (as payments are dependent on results). The relative recency of PbR in international development means that the evidence around how to amplify its benefits and address its challenges is still limited. This paper seeks to contribute to the evidence base specifically around pre-financing for PbR by looking both at how DFID delivery partners are currently pre-financing their PbR contracts and what the opportunities and challenges are in today’s PbR pre-financing market. This study was informed by a high-level literature review, a survey of 31 delivery partners, and 10 key informant interviews with suppliers, PbR experts, and finance providers. The survey approach provides a more holistic and reliable view of the issues than casebased analysis and the key informant interviews add perspective and more nuanced insights to ensure findings well represent the overall landscape. This report was supported by DFID’s Policy Research Fund