What is the role of performance-based payments?

• A. Payments are based on supplier's marketing activities
• B. Payments are aligned with the achievement of defined results or milestones
• C. Payments are made only at contract award
• D. Payments are fixed regardless of progress

Answer: (B)

Performance-based payments are a way to compensate based on delivering defined results or reaching specific milestones. This approach creates real incentives for the supplier to achieve outcomes, since funds are released only when agreed targets are met or milestones are completed. It shifts risk toward the provider and helps the buyer ensure progress is measurable, with clear acceptance criteria or performance thresholds guiding payments. For example, payments might occur at design reviews, after delivering a functional prototype, upon meeting performance specifications, or when a project milestone is verified as complete. In contrast, paying only at contract award or paying a fixed amount regardless of progress do not encourage ongoing performance or alignment with actual results, and basing payments on marketing activities misaligns compensation with the intended outcomes.