Grants, along with contracts and cooperative agreements, are tools used by the federal government to achieve national priorities via nonfederal parties, including state and local governments, educational institutions, and nonprofit organizations. Diverse in structure and purpose, grants can be generally classified as either categorical or block, with categorical grants allowing less recipient discretion than block grants. For example, the Community Services Block Grant provides funds to states and is sometimes passed to local agencies to support a variety of efforts that reduce poverty, revitalize low-income communities, and lead to self- sufficiency among low-income families and individuals, while giving the agencies broad discretion in how the funds can be spent. In practice, the “categorical” and “block” grant labels represent the ends of a continuum and overlap considerably in its middle range. Grant funds may also be grouped by their method of allocating funds. Formula grants allocate funds based on distribution formulas prescribed by legislation or administrative regulation and often narrowly define the eligible recipients as state agencies. On the other hand, categorical grants are generally awarded on a competitive basis to applicants meeting broader eligibility requirements. Despite substantial variation among grants, grants generally follow a similar life cycle and include announcement, application, award, postaward, and closeout phases. Once established through legislation, which may specify particular objectives and eligibility and other requirements, a grant program may be further defined by grantor agency requirements. For competitive grant programs, the public is notified of the grant opportunity announcement, and potential grantees must submit their applications for agency review. In the awards stage, the agency identifies successful applicants or legislatively defined grant recipients and awards funding. The postaward stage includes payment processing, agency monitoring, and grantee reporting, which may include financial and performance information. The closeout phase includes preparation of final reports, financial reconciliation, and any required accounting for property. Traditionally, grant accountability has referred to legal or financial compliance. The Single Audit Act, for example, requires grantees to conduct an overall financial compliance audit to promote accountability. As such, at a minimum all grantees are held accountable for sound financial management and use of federal funds to support allowable activities. Beyond that, however, accountability for performance varies from grant to grant. As discussed earlier, this historical focus on financial accountability has expanded in response to increasing expectations of demonstrable performance and performance accountability for all government programs. For example, the Comptroller General’s Domestic Working Group issued its Guide to Opportunities for Improving Grant Accountability, highlighting innovative approaches and promising practices in grants management—focused both on ensuring grant funds are spent properly as well as achieving their desired results. While performance accountability in grants is a relatively new pursuit, it has been used in contracts for a number of years. To illustrate performance accountability mechanisms and the strategies that contribute to their successful design and implementation, we examined four cases: (1) the federal CSE program, (2) the federal Perkins III Career and Technical Education Program, (3) a performance-based contract between the Massachusetts DMA and MBHP, and (4) a performance-based contract between the Canadian Ontario Realty Corporation (ORC) and ProFac. The CSE program was established in 1975 by Title IV-D of the Social Security Act (Pub. L. No. 93-647). CSE functions in all states and territories through state or local social services departments, attorneys general offices, or departments of revenue in order to ensure that children are financially supported by both of their parents. State programs work toward establishing paternity, locating parents, establishing and enforcing support orders, and collecting and distributing child support payments. The federal Office of Child Support Enforcement (OCSE), an office of the Department of Health and Human Services’ Administration for Children and Families, oversees the development, management, and operation of state CSE programs and provides financial support (66 percent of total operating costs) to states. In fiscal year 2005 federal expenditures on CSE were $3.5 billion, with states spending $1.8 billion. Total collections in fiscal year 2005 were more than $23 billion. The total legally owed support for fiscal year 2005 was $29 billion, with $17.4 billion of that collected. Total arrears (past due payments) for all previous years combined was $107 billion. Over $7 billion of those past due payments were collected and distributed in fiscal year 2005. The Child Support Performance and Incentive Act of 1998 (Pub. L. No. 105- 200) linked incentive payments to performance, and in fiscal year 2005, OCSE made over $450 million in incentive payments to states. This act changed the original CSE incentive program from awarding incentives based solely on cost-effectiveness to awards based on meeting specific performance targets in five outcome areas: paternity establishment, order establishment, current collections, past due collections, and cost- effectiveness. The performance measures and targets are defined in the text of the act, which also provides a formula for determining the amount of each incentive payment. Additionally, the act established an alternative penalty system for those states not yet in compliance with the statewide automated data processing system required by Title IV-D Sec. 454(A) of the Social Security Act. The new incentive program was phased in from 2000 through 2002. Effective July 1, 1999, the Carl D. Perkins Vocational and Technical Education Act of 1998 (Perkins III, Pub. L. No. 105-332) amends earlier legislation to evaluate and improve vocational and technical education. Each year under Perkins III, Congress has appropriated more than $1.1 billion in grants to states for career and technical education. The Office of Vocational and Adult Education (OVAE), an office of the Department of Education, administers the grants established in Perkins III, a pass-through grant to states, which administer the distribution of the funds to local school districts. Perkins III defines major roles for OVAE and states in establishing performance accountability systems for vocational and technical education. States are given the responsibility for developing performance measures and data collection systems related to four required core performance indicators: academic and technical skill attainment, completion, placement and retention, and nontraditional participation and completion. OVAE negotiates these performance measures with states to ensure that they are sufficiently rigorous. States not meeting their performance levels for 1 year are required to complete a program improvement plan. States not meeting their performance levels for 2 years are subject to financial sanctions, although no state has failed to meet its overall levels for 2 consecutive years. States have also been eligible to receive incentive funds if they exceeded performance goals for the Perkins III grant as well as targets established by Title I and Title II of WIA. Title I of WIA supports workforce investment programs. Title II, also known as the Adult Education and Family Literacy Act, provides adult education funds to states. Governors have the authority to allocate the incentive funds for use in any of the three program areas. Beginning in 1996, the Massachusetts DMA entered into a 5-year contract, which was renewed in 2001, with MBHP to manage mental health and substance abuse services for roughly 300,000 people covered by the MassHealth Primary Care Clinician Plan—part of the Massachusetts Medicaid program. Of the individuals covered by the plan, more than half are children 18 or younger, including 20,000 children in the custody of the commonwealth’s Departments of Social Services and Youth Services. The structure of the contract between DMA and MBHP involves a base contract, which governs requirements related to administrative and medical operations. These requirements continue through the life of the contract, or until they are modified through amendments. In addition to the base contract, there are performance incentive projects that focus on research and development projects. The majority of earnings available to MBHP come from the organization’s successful completion of these contractually defined incentive projects, which are renegotiated annually. Earnings are achieved only after the successful completion of specified goals and objectives, as documented and reviewed by the state. ProFac, a facilities management company, was awarded a 5-year contract in 1999 (since renewed) by ORC to provide facilities management services for approximately 30 million square feet of space in 2,100 building sites owned by the Ontario government. About 280 ProFac managers, engineers, technicians, and support staff provide these services. The contract between ORC and ProFac links performance to a 10 percent quarterly management fee holdback: on a monthly basis, ORC only reimburses ProFac for 90 percent of its administrative costs, retaining the other 10 percent, a “holdback,” which ORC returns to ProFac on a quarterly basis only if ProFac obtains a sufficient level of performance. This contract also links performance to an annual share-in-savings arrangement: ORC sets a budget each year based on prior years’ actual expenditures and budget projections; if ProFac spends less than the budget, it is able to share the difference, a share in savings, only if it reaches a sufficient operational level. ProFac’s performance on 30 key performance indicators (KPI) determines its operational level. These KPIs are accumulated to determine a score in four performance objectives: management performance, financial performance, asset integrity, and customer service. The performance objectives are scored and then weighted according to ORC’s priorities to determine a total performance rating. The trade-offs and challenges associated with performance accountability in federal grants largely depend on several key aspects of grant design and implementation. As we have previously reported, performance accountability tends to be greater (and grantee flexibility lower) in programs with certain types of design features. Because design features that encourage performance accountability can limit state and local grantee flexibility, achieving these twin goals can be a delicate balancing act and has implications for the accountability relationship between levels of government and the information needed to support accountability. Even in federal grants with designs that favor performance accountability, grant implementation challenges related to developing performance goals and measures as well as collecting and reporting performance data can influence the extent of performance accountability achieved.