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Payment by results in the water sector

Published on: 14/03/2022

Lessons from Tanzania show that payment by results can help stakeholders achieve improved water point functionality.

For the past eight years, the UK Foreign Commonwealth and Development  Office (FCDO) partnered with the Ministry of Water (MoW), Local Government Authorities (LGAs) and the Rural Water Supply and Sanitation Agency (RUWASA) in Tanzania to implement a Payment by Results (PbR) scheme in the water sector, where funding is linked to clearly predefined results.

The PbR scheme is implemented by the Tanzania Government to incentivise sustainability of water schemes. Since 2014, 181 LGAs from 25 regions in Tanzania mainland have participated in the scheme. As the programme approaches closure, I want to highlight some of the lessons from the PbR scheme, which I believe would help to inform design and implementation of similar programmes in the future.

Domestic results-driven reform agenda led to the introduction of payment by results

During the first phase of the Water Sector Development Program (WSDP), most of the funding for the water sector was released upfront to fund the purchase of pipes, fittings and pay for the costs of service providers or government officials to install water systems. While this approach gave the implementers the much-needed cash to pre-finance key activities, it didn’t result in timely or quality delivery of results. Reports show that funds took longer to reach the implementing agencies with significant delays in procurement of materials and service providers. On average, implementing agencies took more than three years to construct a small-piped water scheme with most of the completed schemes failing to provide water as intended. Besides, since the majority of funds were tied to new construction, implementing agencies didn’t have any discretion to use part of the funding to maintain or repair broken infrastructures, further exacerbating the water problems.

Slow implementation and poor functionality of water schemes resulted in water problems in rural areas becoming more visible to the public. For example, during the 2013/14 budget sessions the Members of Parliament (MPs) expressed disappointment with the water sector by rejecting some of the budget proposals made by the Ministry of Water. Clearly something needed to be done to ensure efficient and effective delivery of results in the water sector.

To address these problems President Kikwete launched the Tanzanian government's Big Results Now! (BRN) programme which aimed at accelerating results and public sector reforms in key sectors, including the water sector. To ensure alignment with the government results agenda, the UK government through FCDO introduced a Payment by Results (PbR) scheme where funds to the rural water subsector were tied to functioning water points (predefined results under the BRN). Implementation of PbR relied on the funding channels and reporting systems created under the government’s led BRN initiative. This helped us rally political support and buy-in from senior government officials throughout the implementation. I cannot imagine how we would have introduced and implemented the PbR scheme so successfully if the government hadn’t prioritised the results agenda in the water sector.

Use of payment by results and adaptive programming to improve reporting and data quality  

From early on, we knew that using PbR to improve water point maintenance at scale will be a daunting task, and any solution would require a much better understanding of what works for the Tanzania Government. Also, given the complexities of the Tanzanian rural water sector, and the fact that we had limited evidence on the effectiveness of PbR approaches in improving maintenance or functionality of water points, a decision was made to use an adaptive programming approach to managing the complexity of delivery. To enable effective adaptation, the programme incorporated a rigorous evaluation and independent verification of results to feed into programme implementation on a regular basis. This helped to inform changes /adjustments to the programme during implementation.  For example, when an independent verification of the baseline data was carried out in 2014, we found that the level of reporting and data from local authorities (implementing agencies) was insufficient and of poor quality and far less reliable to use for PbR than either FCDO or the Ministry had expected. As a result, FCDO and the Ministry decided to delay the roll out of the PbR scheme for two years, to allow implementing agencies to establish a credible and verifiable baseline on which to base the PbR scheme.

To address the situation, a short-term technical assistance was brought in to support the Ministry to establish complete up-to-date baseline data, and support design and implementation of a simplified mechanism for continuous updating of water point data. This led to the establishment of the data management team at national level, responsible for ensuring effective management of data and reporting by implementing agencies

Further, to improve reporting and data quality, adjustments were made where additional Key Performance Indicator (KPIs) related to improvement in reporting and data quality (measured in terms of data completeness, correctness, and accuracy) were added into payment criteria, since reporting and data quality were fundamental for PbR to proceed, and even for future performance measurements and the related disbursements. The decision to establish the data management team and linking PbR payments to improvement in reporting and data quality led to a remarkable improvement in national data management systems. For instance, between 2014-2016, the national water points data inventory improved and recovered more than 10,000 water points which were previously unaccounted for due to lack of adequate reporting protocols. Likewise, an independent data verification of the PbR scheme shows that between 2018-2021 water point functionality and data accuracy have improved from 31% and 38 % to 51% and 52 % respectively, indicating that PbR may have some influence in improving the water point functionality and national monitoring and reporting system.

The experience of implementing PbR in the Tanzanian water sector shows that creating a rigorous baseline and a reliable monitoring system has proved very challenging, especially when the programme is implemented at scale, relying on government systems for monitoring and reporting. Moreover, alongside creating an incentive for the Government of Tanzania to improve data systems, PbR similarly created a strong incentive for the donor (in this case FCDO) to focus time and resources to genuinely track outcomes (required for adaptive programming), which involved delaying a programme for a while, whilst responding to government’s request on short term Technical Assistance to improve data systems. Both issues can be challenging to make a case for a donor organisation, given time and resource issues, and other competing pressures, but were addressed since the programme was designed with elements of adaptability from the onset.

Implications for implementing agencies

The main objective of the PbR scheme is to improve sustainability of rural water supply by providing additional financial incentives to local authorities to increase a focus on maintenance and effective delivery of water supply services. Put it simply, each year, local authorities report on the functionality status of water points in their jurisdiction. These are independently verified by a third party after which they are rewarded £300 for each water point found to be functioning. Reports shows that since 2014, about £59 million has been spent through the PbR incentive scheme.

To improve water point functionality and maximise PbR bonuses, local authorities needed to translate intentions into dedicated planning and actions that have the potential to effect change. Since the Tanzania water policy puts the responsibilities of water point maintenance under the communities, a critical feature for that to happen depends very much on the ability of local authorities to coordinate effectively with village communities to make sure water points keep functioning.

Experience from implementation thus far shows that in settings such as this, the PbR incentives may influence implementing agencies to work actively towards improving water point maintenance. For example, a survey of RUWASA’s regional and district managers which was commissioned in January 2021 showed that the majority (89%) of district officials have positive relationships with their respective communities and are willing to prioritise technical training (53%), registration and capacity building of community-based organisations (24%). This suggests that there is a sound basis for coproduction on water point maintenance. However, the officials indicated that their ability to effectively provide direct maintenance support to communities for example on spare parts acquisition and field repairs is constrained by lack of adequate budget (39%), transport (30%) and staff (24%).  These results emphasise the importance of using flexible financing mechanisms such as PbR in providing discretionary financial resources to enable service providers to provide direct and indirect maintenance support to communities.

Shifting incentives for system-wide improvements

As the PbR programme approaches the end, it is important that the water sector considers putting in place flexible financing mechanisms to enable service providers (public or private) to provide structured maintenance support to rural communities. Currently, the majority of funding from the National Water Fund (NWF) is tied to construction of new water infrastructure with limited clarity on what can be spend on rehabilitation, minor or major repairs to guarantee sustainable service provision. Allocating part of the NWF through a clearly defined performance-based payment scheme to service providers, which for example links payment to the number of days the pump or water infrastructure is in good working order, has the potential to ensure preventive maintenance occurs on a regular basis for guaranteed service provision.

Payment by results: A means to an end

The implementation of the PbR scheme is still going on until December 2022. As such, it is too early to draw conclusions on the impact the PbR has on improving sustainability of rural water supply services in Tanzania. A performance evaluation of the PbR scheme (currently implemented by the World Bank’s Development Impact Evaluation (DIME) group) will provide a holistic view of the influence of PbR in improving the functionality and sustainability of Tanzania’s communal water points.

Nevertheless, experience from the implementation of the PbR scheme in the water sector to date shows that by linking payments to expected outcomes, performance-based schemes have the potential to influence the recipient to refocus their efforts on tackling the issues which matter the most when the incentives are aligned with the direction of government policies, and implementing agencies are committed to deliver results. If designed and implemented well, PbR can help lay a strong foundation for both government and development partners to begin tackling systemic issues facing the sector.

Yet, PbR programmes implemented using government systems are less likely to be effective on their own. They are complex to manage and implement and require political support and buy-in from senior government officials, as well as flexibility and long-term commitments from the donor to support the recipients as needs arise. It is important to foster a culture of learning by doing and remain flexible so that the programme can accommodate emerging issues and changes. In the Tanzania water sector, the expectation was that PbR would help to improve water point functionality within five years, but before that is achieved, we first needed to have the foundation in place for example by ensuring there are good enough quality data and proper systems to support water point maintenance at community level. Progress indicates that so far PbR is not an end in itself but rather one of the means to helping stakeholders achieve improved water point functionality. I am pretty sure neither FCDO nor the Government of Tanzania had expected the PbR scheme to evolve the way it has when we started implementing it eight years ago.

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