This document outlines an approach to flexible funding and outcome-based contracting called Next Generation Contracting 2.0. It allows funders and contractors to work as partners to maximize customer outcomes. Key features include establishing 3-year rolling contracts, measuring performance using standardized metrics, and allowing some flexibility to move funds between service lines or save funds to expand services. The approach also uses a "virtual funding pool" concept to manage funds across different programs and service areas as if they were pooled, while maintaining separate fund identities.

1. Next Generation Contracting 2.0
Fiscal Policy Studies Institute
Based on RBA Next Generation Contracting
and Virtual Funding Pool Principles developed by FPSI
June 2011
An Approach to Flexible Funding and
Integrated, Outcome-Based Contracting
Draft Discussion Outline

2. Next Generation Contracting 2.0
Fiscal Policy Studies Institute
An Approach to Flexible Funding and
Integrated, Outcome-Based Contracting
KEY FEATURES:
1. Allows fine tuning of the balance between control and fund flexibility.
Draft 2 June 2011
2. Provides the benefits of "traditional" fund pools for mainstream
funding, without the loss of fund identity, and with less accounting and
administrative complexity.
3. Promotes partnership/alliance working on both population quality of
life and service system performance improvement. Defines
funder/contractor partnership for maximizing customer outcomes.
4. Makes use of simplified reporting on contract performance using RBA
formats and the three RBA measurement categories: How much did we
do? How well did we do it? and Is anyone better off?
5. Establishes 3 year rolling contracting (with safeguards) that prevents
annual destabilization of service providers.
6. Institutionalizes contractor continuous improvement processes.
7. Provides funding for contractor management infrastructure.

3. Service Line Specifications
1. What is the role of the service in population quality of life?
2. Definition of the service
3. Service quality requirements
5. How many people will be served? (and relevant targets)
6. How much of what activities will be provided? (and relevant targets)
7. How well did we do it? and Is anyone better off? measures
(The 3-5 most important measures)
4. Key partners & alliance relationships
Fiscal Policy Studies Institute

4. General Contract Provisions
1. The contractor will use a continuous improvement process.
4. The funder and contractor will work as partners to maximize
customer outcomes.
5. The funder will work with the funding community to simplify
and standardize contracting and reporting requirements.
3. Targets, where used, will be set in relation to a baseline and
will be negotiated so as to be fair and useful.
6. General provisions concerning management, due diligence,
dispute resolution, termination, and other matters required by
law.
2. The contractor will report on progress quarterly using a
simplified format: Numbers, Accomplishments & Stories.
Fiscal Policy Studies Institute

5. Financial Contract Provisions
1. Standard provisions for accounting, financial reporting, audit
and general fiduciary responsibility.
4. Provide for rolling 3 year contract with new 3rd
year
amendment to be negotiated by the end of each contract year.
5. Allow contractor to move funds of less than (10%) of budget
between service lines in the interest of more effective services.
3. Provide 10% for management and infrastructure, adjusted for
economies of scale.
6. Allow contractor to retain (across contract years) savings in
medium/high intensive services to expand prevention services.
2. Specify budget by service line and fund source.
Fiscal Policy Studies Institute

6. Virtual Funding Pool
Managing "as if" funds were pooled: Accountability and flexibility without loss of fund identity
Programs
(using health examples)
1a. Health promotion
1b. Immunizations
1c. GP well visits
2a. GP sick visits
2b. Diagnostic testing
2d. Emergency room
3a. Hospital care
3b. Long term care
3c. Hospice care
4. Mgmt Infrastructure
Prevention
Low cost
Intervention
Med -High cost
Intervention
$ 1,000,000
3,000,000
4,000,000
2,000,000
1,000,000
1,000,000
10,000,000
4,000,000
5,000,000
2,000,000
10,000,000
25,000,000
50,000,000
60,000,000
5,000,000
10,000,000
11,000,000 22,000,000 160,000,000
Transferbetweenservicelinesortonewservice
Transfer savings from deep end to preventionFiscal Policy Studies Institute

7. Virtual Funding Pool
Managing "as if" funds were pooled: Accountability and flexibility without loss of fund identity
Programs
(using health examples)
1a. Health promotion
1b. Immunizations
1c. GP well visits
2a. GP sick visits
2b. Diagnostic testing
2d. Emergency room
3a. Hospital care
3b. Long term care
3c. Hospice care
4. Mgmt Infrastructure
Prevention
Low cost
Intervention
Med -High cost
Intervention
$ 1,000,000
3,000,000
4,000,000
2,000,000
1,000,000
1,000,000
10,000,000
4,000,000
5,000,000
2,000,000
10,000,000
25,000,000
50,000,000
60,000,000
5,000,000
10,000,000
11,000,000 22,000,000 160,000,000
Transferbetweenservicelinesortonewservice
Transfer savings from deep end to preventionFiscal Policy Studies Institute