Outcome-Based Contracting: Paying for Results, Not Just Inputs

Local governments across Western Australia are under increasing pressure to deliver greater value, efficiency, and accountability in their procurement. Traditional input-based contracts — where councils pay for time, materials, or specified outputs — often fail to incentivise performance or innovation.

Outcome-Based Contracting (OBC) offers a smarter way forward: paying for measurable results, not just activity.

From “Scope and Hope” to “Deliver and Demonstrate”

In many council projects — particularly in infrastructure, maintenance, and community services — the traditional model focuses on tightly defined scopes. Contractors deliver what’s written, but not necessarily what’s needed.

This can result in “scope and hope” contracting — councils define deliverables upfront, then hope they achieve the desired community outcomes.

Outcome-based contracts instead focus on what success looks like — and link payment to performance against those outcomes.

For example, rather than paying for the number of trees planted, payment might be tied to the survival rate and canopy coverage after 12 months.

The Benefits of Outcome-Based Contracting

1. Performance and accountability: Payments are made only when agreed results are achieved.
2. Innovation and flexibility: Contractors are empowered to determine the best method to achieve outcomes.
3. Value for money: Focus shifts from lowest cost to best long-term value.
4. Transparency: Performance metrics create clearer audit trails and community reporting.

How Councils Can Apply OBC Safely

While attractive in theory, OBC must be carefully structured to manage risk and maintain compliance with the Local Government Act 1995 (WA) and associated regulations. Councils can safely adopt outcome-based models by following several key steps:

1. Define outcomes clearly: Frame outcomes in measurable, evidence-based terms (e.g. reduced maintenance incidents, improved user satisfaction, energy savings).
2. Use balanced performance measures: Combine quantitative (e.g. uptime, costs saved) and qualitative (e.g. community satisfaction) indicators.
3. Allocate risk appropriately: The supplier should control only the risks they can influence — avoid pushing external risks (like weather or policy change) onto them.
4. Integrate with probity and governance: Engage legal and probity advisers early to ensure fairness, transparency, and compliance.
5. Pilot and scale: Test OBC on smaller projects (e.g. cleaning, maintenance, or landscaping) before scaling up.

Avoiding Legal Exposure and Administrative Burden

Councils often worry that outcome-based contracts will increase administrative overhead or create legal disputes over interpretation of results. In practice, these risks are mitigated through sound contract design, including:

• Clear performance frameworks with objective data sources
• Agreed baselines and targets
• Tiered payment mechanisms (e.g. partial payments for partial achievement)
• Early dispute resolution processes
• Use of contract management software to monitor outcomes

The Future of Procurement — Paying for Impact

Outcome-based contracting reflects a broader shift in public procurement — from compliance to value creation.

As Western Australian councils pursue strategic procurement under the State’s reform agenda, OBC provides a framework to ensure every dollar spent delivers measurable community benefit.

By moving from scope and hope to deliver and demonstrate, councils can unlock better performance from suppliers, drive innovation, and achieve outcomes that truly matter to their communities.

How Muscat Tanzer Can Help Councils Implement Outcome-Based Contracting

Muscat Tanzer assists local governments to design and implement outcome-based procurement and contracting frameworks that deliver measurable community value while maintaining full probity and compliance with the Local Government Act 1995 (WA) and associated regulations.

We provide end-to-end support to help councils transition from traditional input-based procurement to modern, performance-driven models.

Our Services Include:

• Contract Design & Drafting – Develop outcome-based contract templates and performance frameworks linking payment to measurable results.
• Governance & Compliance – Ensure compliance with procurement and tendering requirements while allowing flexibility for innovation.
• Risk Allocation & Legal Safeguards – Structure balanced risk-sharing and clear performance measures to reduce disputes.
• Market Engagement & Probity Advice – Support early supplier engagement, evaluation criteria design, and probity oversight.
• Pilot Project Support – Assist councils to trial outcome-based contracting in selected services (e.g. maintenance, waste, community programs) before wider rollout.
• Training & Capability Building – Deliver tailored workshops for procurement teams and managers on outcome-based contract management and monitoring.

The Result

A robust, legally sound approach to procurement that:

• Drives better performance and innovation from suppliers,
• Improves accountability and transparency, and
• Ensures every dollar spent delivers measurable community outcomes.