New Paper: Optimizing Payment Schedules in Pay for Success Contracts

by Grace Edinger, Jake Adams, Harry Huntley, and Phoebe Higgins

A Balancing Act:

Optimizing Payment Schedules in Pay for Success Contracts

Pay for Success contracts are becoming increasingly common for environmentally beneficial projects. We applaud their use for these purposes; however, proper implementation is key to realizing the many benefits contract structures can provide. We have been tracking and analyzing emerging Pay for Success programs throughout the country, and have found that the contract’s payment schedule (also known as payment triggers or payment milestones) can strongly impact a program’s success.

This paper provides an overview of three real Pay for Success programs in existence in the United States, all with drastically different payment schedules. We standardize these examples and use financial models to illustrate the importance of using a proper payment schedule.