access to earmarked competitive funding, these institutions have an opportunity to improve themselves by financing institutional restructuring. Another option would be to place funds not earned by poor performing institutions in escrow and releasing them when these institutions submit acceptable improvement plans for remediation (Burke 2001a).

Multiple-criteria funding can cater multiple objectives and can consequently be used as a driver for specific, high-priority tertiary education policy components. In contrast to simple indicator systems, multiple criteria make it easier for policy makers to ensure a balanced sector development and avoid unintended consequences. However, multiple criteria formulas may result in a complex and opaque funding system. When providing incentives to the decentralized level, simplicity may sometimes provide the greatest benefits.

# **Performance contracts**

Results-based funding based on performance contracts is a flexible design where evaluation criteria are negotiated between the supervising agency and each tertiary institution. Performance contracts are institution specific rather than system-wide in their content and application. They typically cover a period of 3-4 years.

Performance contracts have been used in **France** since 1989 – in addition to the aforementioned simple input formula – where government adopted a system of university funding through performance-centered budget dialogues. These dialogues lead to four-year contracts between the government and universities.

Universities are asked to provide a self-assessment, and to present their plans for the next four years. These plans form the basis for discussions with the Ministry of Education. In this dialogue, goals and evaluation criteria are identified and agreement is reached on how public funding will be tied to results. The contracts are not legally binding documents but “reciprocal commitments”, which serve as a reference to make decisions within the university system. In 2000, 188 institutions representing 75 percent of total tertiary enrollment were involved in contract funding (CHEPS 2001b).

## **Box 11. Results-based contracts in French tertiary education**

<mark>Results-based contracts in French tertiary education consist of a</mark> _<mark>base</mark>_ <mark>and a</mark> _<mark>strategic</mark>_ <mark>part. The base part targets long-term investments in buildings, equipment and facilities. The strategic part is an agreement on the financing of priority projects including new technology, student life and libraries.</mark> <mark>Projects suggested under the contractual budget have to be new initiatives that cannot be financed through the recurrent budget. To avoid that contractual budgets are used to fill gaps in university budgets, objectives and indicators are made very clear and the contracts tailored to each institution. The state thereby hopes to stimulate the link between objectives and resources and</mark> <u><mark>provide an incentive for universities to achieve agreed results.</mark></u> _Source: CDUS (2002)_ The contractual budget comprises on average about a third of total public subsidies for tertiary education. The impact on decision-making processes has been substantial. Notably, the contract regime has prompted the development of tools for expenditure analysis and management information systems to support institutional improvement processes and planning (Musselin and Mignot-Gerad 2002).

Performance contracts have been met with some resistance from within French universities. In part, this reflects a lack of performance dialogue with heads of faculties and departments that are responsible for delivering agreed results. Performance contracts are agreements between university presidents and the Ministry of Education (Musselin 2002). As Burke and Minassians (2002a) point out – drawing on experience from the United States – a key

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