Performance Contracts

Another way of steering institutional behaviour is through so-called performance contracts, target agreements or development contracts, whereby certain goals are agreed between public authorities and universities. These are a common feature found in 15 of the systems considered in the study. However, they are of very different nature, and only in a few cases they do have a direct and clear impact on funding. Here are a few examples to illustrate the differences:

In Austria for instance, the contract is the outcome of a budget negotiation between the ministry and each university to determine the amount of funding per institution, whereby the minimum level is prefixed by law. The achievement of the contract's objectives can have an impact on the negotiations for the next funding period.

In the Netherlands, performance contracts were introduced in 2012 and since then a set amount of the block grant (currently 7 %) is distributed on the basis of objectives agreed between the Ministry of Education and individual universities in these contracts. After three years, a review commission will assess whether these objectives have been met, however it is to be seen whether this will then really have a direct impact on funding.

In Brandenburg and Hesse, two of the three German Länder included in the study, a certain percentage (2 % and respectively 5 %) of the block grant is linked to the achievement of the objectives agreed upon in the performance contracts specific to each university. However, the assessment is not very rigorous and underperformance is rarely sanctioned by funding cuts.

In Denmark, the development contracts are on purpose not linked to funding, but they are nevertheless seen as an important steering mechanism also by university management, as they can be used in discussions on the institutional strategy and internal funding allocation. Here, the impact on institutional management very much depends on the structure and the governance model of the institution.

A performance contract may also be used as a complementary instrument to a funding formula either to align the contract's objectives with the formula, or to mitigate some of the negative effects of a formula by, for instance, setting additional objectives for the quality of teaching and research. If it is an individual contract, this is also the opportunity to create a dialogue between the ministry and the university, and it can then be used as an effective management tool even if it is not directly linked to funding.