Executive Summary

In stormwater management, performance-based contracting aligns private sector compensation with desired outcomes, while promoting accountability, encouraging innovation, and transferring risk to the private sector, thereby enhancing the value and effectiveness of both public and private stormwater infrastructure programs. By also incorporating financing mechanisms that (1) provide an immediate funding source to achieve long-term goals and (2) contractually tie private sector compensation to achieving measurable KPIs, such as stormwater volume reductions, flood risk reductions, regulatory compliance, maintenance standards, and/or water quality improvements, entities can:

To implement an effective performance-based program, a Stormwater Needs Assessment must be completed for a community, or for a private entity with a portfolio of properties. The Needs Assessment identifies critical issues, such as flooding, infrastructure weaknesses, water quality issues, and regulatory compliance obligations, as well as all associated costs required to resolve and manage these issues over the anticipated program lifecycle.

Based on the outcome and priorities identified in the Needs Assessment, the program owner develops a scope and contract with their partner that includes financing terms and an availability structure. In the case of Stormwater Investment Group (SIG) as a financing partner and program manager, our compensation, and the financing agreement, is based solely on our ability to ensure that the infrastructure meets the performance requirements. As part of the financing agreement, SIG provides upfront funding to address priority capital improvements. We also complete the design, construction, and ongoing/long-term maintenance and assume the project risks, all while ensuring there are no violations and all KPIs are met over a pre-established timeline.

By providing funding upfront, distributing risk, and tying financing and payments to performance, performance-based stormwater programs drive better outcomes, maximize the return on investment, and ultimately facilitate sustainable management of stormwater infrastructure programs to the benefit of human health, safety, and the environment.


Stormwater infrastructure programs can be difficult to implement and manage effectively because they address such a wide range of issues, they’re expensive to build and maintain, and it can be difficult to measure effectiveness. However, the impact of ineffective stormwater management can be considerable. Aging or failing stormwater infrastructure can lead to flooding, which causes significant damage to homes, businesses, and infrastructure. Stormwater runoff, including floodwater, carries chemical and biological contaminants that impact human and environmental health. With the typical run-to-failure model, i.e., we fix it when it’s broken, it becomes cost-prohibitive to address any of these issues programmatically and effectively.

Performance-based contracts shift the focus from reactive repairs and maintenance to proactive management and long-term sustainability. They encourage contractors and service providers to meet specific targets or KPIs, such as reduced flood risk or improved water quality. As a result, it promotes early detection and resolution of issues, thereby minimizing the risk of expensive infrastructure failures and optimizing the system’s functionality.

Taking it a step further, combining performance-based contracting with program financing allows owners to integrate availability structures into their contracts. An availability structure is a contractual arrangement that ties payment or compensation to the availability, or performance, of a stormwater asset. By integrating availability structures into financing models, performance-based contracts for stormwater management become more effective, incentivizing contractors to deliver optimal performance, share risks, and invest in long-term sustainability.

Understanding Performance-Based Contracting

Performance-based contracting refers to a procurement approach where the focus extends beyond the scope of work to include achieving desired outcomes and measurable performance targets related to stormwater management. In other words, performance-based contracting emphasizes the results and effectiveness of the program. The contractor serves as a virtual GC for the entire program, and they are typically responsible for meeting specific performance goals, such as reducing pollutant levels in stormwater runoff, improving water quality, or decreasing the volume and frequency of flooding. The contract terms often outline key performance indicators (KPIs) that must be met, allowing for objective evaluation of the contractor’s performance.

This approach encourages innovation and flexibility, because contractors are incentivized to explore and implement the most efficient and effective stormwater management practices. It shifts the focus from prescriptive processes to desired outcomes, giving contractors the freedom to employ various techniques and technologies that best fit the specific project and achieve the desired results within an established budget.

Because these contracts focus so much on the outcome of the effort, it is critical to undergo a comprehensive planning process, which involves the following:

  1. Complete a Stormwater Needs Assessment.
    Identify the specific stormwater management needs, challenges, and priorities that the contract aims to address. Conduct a comprehensive assessment of the existing conditions, environmental factors, regulatory requirements, and community concerns. This includes, at a minimum:
    • Completing an inventory and condition assessment of current stormwater assets, e.g., physical condition, estimated remaining useful life, failure history, etc. Digitizing all assets also falls under this scope.
    • Reviewing permit compliance history and any instances—and potential causes—of non-compliance.
    • Evaluating the current vs. required level of service, e.g., peak flows relative to design specifications, current and future capacity requirements, current and future regulatory requirements, etc.
    • Identifying critical assets, and once identified/prioritized, then understanding failure modes and root causes of failures, as well as determining probability and consequence of failure.
      A typical needs assessment often is developed, reviewed, approved, and left to sit on a shelf. With performance-based initiatives, these plans are continuously reviewed and updated based on work conducted.
  1. Calculate Life Cycle Costs.
    After developing an inventory and determining current condition, capacity, and criticality of the stormwater assets, the next step is to prioritize the repair, rehabilitation, and replacement of the capital assets, as well as identify new programs to help meet the level of service requirements over the lifecycle of the program. Calculating and minimizing life cycle costs often involves a balance between operations and maintenance to preserve assets that meet their level of service requirements, and capital investment in cases where existing assets cannot meet the level of service required.
  2. Develop Performance-Based Contracting Elements.
    For the purposes of the contract, we need to clearly define the scope of work and contract boundaries, including the geographical area, duration, and specific services and activities that will be included within the scope. Additionally, for any performance-based contracting agreement, the following elements must be included to ensure that all parties are aligned as far as expectations:
    • Clearly defined objectives, all of which should be measurable, realistic, and aligned with the overall stormwater management goals of the community or organization.
    • Performance metrics and indicators, all of which should be quantifiable, verifiable, and tied directly to the desired objectives.
    • Performance standards, which outline the expected level of performance and the criteria for determining whether the contractor has achieved the desired outcomes.
    • Incentives and penalties that motivate the contractor to meet or exceed performance.
    • Reporting and monitoring requirements to track performance relative to KPIs.
    • Clear roles and responsibilities, including who is responsible for specific tasks, decision-making processes, communication channels, and stakeholder coordination.
    • Flexibility and innovation: you want your contractor to get creative and to identify and implement new or innovative technologies that can achieve the desired outcomes faster or more effectively. Doing so encourages the use of new stormwater management practices, enhances efforts toward resiliency, and advances the stormwater industry.

Exploring Availability Structures in Stormwater Program Contracting

In performance-based contracting, availability structures are contractual terms that are used to ensure that the stormwater infrastructure and services specified in the contract are available and functioning as intended. Which means that the contracting elements discussed in the preceding section can be tied specifically to stormwater infrastructure performance. For example:

  • Detention basins temporarily store stormwater runoff during heavy rainfall events. The overall objective of detention basins is to reduce the risk of flooding downstream.
  • Retention ponds retain stormwater runoff for longer periods than detention basins. The objectives of retention ponds are to improve water quality via sedimentation and infiltration, provide wildlife habitat, and enhance aesthetic value in urban areas.
  • Green stormwater infrastructure utilizes natural or engineered systems to manage stormwater runoff. The objectives of green stormwater infrastructure are to reduce the load on conventional stormwater systems, minimize runoff, mitigate heat island impacts, enhance aesthetic value in urban areas, and recharge groundwater.
  • Flood control channels convey and manage high volumes of stormwater runoff. The overall objective of flood control channels is to reduce flooding by transferring stormwater away from vulnerable areas.
  • stormwater runoff into specific receiving bodies. The overall objective of pumping stations is to reduce flooding in low-lying areas.

When incorporating associated availability structures into performance-based contracts, consider the following:

Performance standards define the level of performance the contractor is expected to meet. For example, the contract may specify that stormwater pumping stations should be available and operational 99% of the time, nutrient concentrations are below TMDLs, or that detention basins should be capable of handling a certain volume of stormwater runoff within a specified time frame.

Availability metrics are used to determine whether the contractor meets the pre-established performance standards. These metrics may include parameters such as uptime, downtime, response time, maintenance intervals, and reliability factors.

Monitoring and reporting documents the availability of stormwater infrastructure or services per the pre-defined availability metrics. The contractor collects data on system availability, conducts inspections, performs maintenance tasks, and generates reports documenting the availability status.

Maintenance and repair obligations should be defined in the contract, e.g., maintenance intervals, response times for repairs, and quality of work provisions ensure the contracture maintains the availability of the stormwater infrastructure over the contract period.

By incorporating availability structures into performance-based contracts for stormwater, the program owner can effectively monitor, measure, and incentivize the contractor’s performance in delivering reliable stormwater management infrastructure or services. This approach promotes accountability and ensures that the stormwater systems function as intended to mitigate flood risks and manage stormwater runoff effectively. It also enables the program owner to audit or validate the program as needed.

However, developing effective contracts can be challenging, and it is critical that the program owner and the contractor spend sufficient time planning and outlining their respective expectations, roles, and performance requirements. Additionally, while the contractor assumes the bulk of the risk for ensuring the stormwater infrastructure performs as designed, both parties need to discuss and assign responsibility for major natural disasters, significant system failures, and associated remedies for managing both.

And finally, ensuring the availability of the stormwater infrastructure over the contract period requires ongoing maintenance and repairs, which means that the contract and the program must have adequate funding over the long term and should balance cost considerations with desired level of availability.

Designing Performance-Based Financing Programs

Despite the recent availability of infrastructure funding, government budgets for stormwater management remain constrained, especially in communities with lower incomes, no stormwater utility, or in rural areas. Likewise, managing stormwater programs at commercial entities with portfolios of properties distributed regionally and nationally can put a strain on working capital and introduce uncertainties into corporate budgets. Because large-scale and/or long-term stormwater programs often require significant investment of capital that may exceed the available public funding, and because things can—and will—go wrong, private financing can bridge the gap between available and necessary capital. In addition, private financing, especially when tied to performance-based contracts, offers the following benefits:

  • Faster program implementation. Private financing allows managers to make decisions quickly and expedite projects, which in turn reduces the risk to public safety or the environment.
  • Risk sharing & transfer. Private financing can help shift or share significant financial and operational risks, reducing the burden on the public sector.
  • Expertise & efficiency. Private financing for stormwater programs is provided by entities with the knowledge, experience, and efficient practices to manage large programs.
  • Innovation and technological advancements. Private entities often have the flexibility and expertise to introduce cutting edge solutions with multiple benefits, including green infrastructure, smart sensor/smart controls, and data-driven approaches.
  • Long-term maintenance and operation. Private financing ensures a dedicated funding source for these activities, ensuring the sustainability of stormwater infrastructure over an extended period.

Utilizing private financing in conjunction with performance-based contracting simplifies the entire process for the program owner, whether they are a public or private entity. Using the Stormwater Investment Group (SIG) as an example, SIG provides the financing (if needed), manages all contracts, oversees the entire program, from design through long-term O&M, while meeting a series of KPIs to document success.


Overcoming Challenges & Mitigating Risks

As mentioned previously, developing effecting performance-based contracting mechanisms, with or without private financing, can be challenging due to the complexity of the program and the potential difficulties developing, measuring, and documenting KPIs.

KPIs can be tied to the objectives of different types of stormwater infrastructure, e.g., detention basins or green stormwater infrastructure. Examples include:

Compliance & Water Quality

KPI: Reduced pollutant loading. Common pollutants include sediment, nutrients, heavy metals, and fecal coliform; measured via water quality sampling using automated samplers, sensors, and manual sampling via field crews or citizen scientists.

Flood Mitigation

KPI: Volume reduction. Effective monitoring requires either (1) pre- and post-construction monitoring through a variety of storm conditions, or (2) measuring flow in areas with BGI and in control areas/no BGI. Can measure aboveground and within sewer/storm systems.

Heat Island Mitigation

KPI: Surface temperature variations in areas with BGI and in control areas/locations with no BGI. Measured via temperature sensors that could be deployed as a low-cost sensor network or utilized during site inspections and maintenance visits.

Air Quality Improvements

KPI: Particulate matter (PM) reduction in areas with BGI and in control areas/locations with no BGI. Measured via a low-cost sensor network. Consider deploying local weather stations to correlate any changes in PM with weather conditions.

Recreation & Aesthetics

KPI: Community benefits. Measured via surveys that ask residents questions about community satisfaction, perceived quality of life, and utilization rates of BGI amenities, such as parks, urban forests, and community gardens.

Establishing clear performance standards and metrics in the contract, as well as a comprehensive contractual framework that incorporates requirements for contractors to provide performance bonds and guarantees, ensures that the contractor meets their obligations and, if they fail to do so, they can provide appropriate compensation and remedy. Regular performance evaluations and audits help assess contractors’ compliance with performance standards and contractual obligations, And the findings from the assessments inform contract management decisions and potential remedies for failure to comply.

Additional legal and regulatory considerations for developing and executing a performance-based contract program include compliance with the following:

  • Procurement laws, especially when working with public entities.
  • Relevant environmental regulations and permits related to stormwater discharge, water quality standards, sediment and erosion control, etc.
  • Construction codes and standards for the program region, including local building codes, health & safety, and quality control requirements.
  • Regulatory reporting and documentation requirements, from permit submittals to environmental impact assessments.
  • Insurance and liability provisions that protect all parties associated with the program.


Incorporating financing and performance-based mechanisms (1) provide an immediate funding source to achieve long-term goals and (2) contractually tie contractor compensation to achieving measurable KPIs, such as stormwater volume reductions, flood risk reductions, regulatory compliance, maintenance standards, and/or water quality improvements. As a result, performance-based contracting programs focus on achieving desired outcomes, not just completing tasks, while transferring risk to the contractor. An outcome-based approach, in combination with private financing, allows for the implementation of larger and more innovative stormwater programs, ultimately leading to cost savings and improved performance over the long term.

As stormwater management evolves as an industry, we expect to see greater collaboration between private and public entities, as well as a focus on innovative/smart technologies and multi-benefit solutions that integrate climate resilience and adaptation. Utilizing innovative contract solutions to achieve these goals is a natural next step!

For more information, contact erothman@stormwaterig.com. Stormwater Investment Group supports communities in their goals to adopt, fund, and execute innovative stormwater programs to manage urban flooding and regulatory compliance, with each solution suite tailored to your community’s specific challenges and opportunities.


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