Performance contract agreements in HE: Why and how?

The Ethiopian Ministry of Education, at an official ceremony held at the end of 2024, signed performance contract agreements with the board chairpersons and the presidents of 47 public universities.

These agreements, which are to be revisited and implemented annually, starting at the beginning of 2025, reflect the consensus between the two parties about the aspects that should be included in the running of public universities.

The ministry considers the agreements as part of broader education-sector reforms and believes that, not only do they encourage institutions to work towards achieving their missions and strategic goals, but also to establish a transparent and accountable monitoring and evaluation system in the sector.

Given the novelty of the experience for a sector that has been functioning according to traditional higher education management practices, understanding the nature of these agreements and their purposes are far more important than the actual signing of the contracts – if these contracts are to serve their purpose in the sector at large.

International experience

Performance-based agreements entail an agreement between the government and an institution about institutional performance goals and the periodic assessment of progression towards these goals. The agreements often specify the intentions, obligations and responsibilities of each party during the contract period.

The available literature on the subject shows that performance contract agreements, which are known by various other names ranging from compacts (Australia, Ireland), target agreements (some German states), outcome agreements (Scotland) or development plans (Hong Kong, Denmark), are common practice in many developed countries, offering greater leverage to policymakers to influence institutional behaviour and priorities.

The standards expected to be met by institutions could be the result of a direct political imposition by the government, a negotiated settlement between the government and higher education institutions, or a benchmark set for institutions (where a standard means performing better than others).

Various countries have used performance agreements to achieve a variety of goals.

These include encouraging institutions to strategically position themselves (institutional profiling); establishing and/or improving the strategic dialogue between the government and institutions with the intention to align national and institutional agendas, policies and activities and improving the core activities of the institutions.

These activities and policies can relate to a higher quality of teaching, research and outreach, higher levels of productivity, or securing minimum standards (by means of weeding out underperformers); increasing the efficiency of the institution’s activity (such as the specification of targets and indicators related to completion rates, dropouts, or completion time to degrees); and informing policymakers and the public at large about the systems and the institutions’ individual performance in the return of public subsidies (accountability and transparency).

Some higher education systems attach funding incentives to specific performance criteria for universities. Countries that incorporate funding as part of their agreements with universities encourage institutions to become more productive in attaining the goals set, or otherwise risk consequences, while other systems forge the agreement simply as a ‘guide for behaviour’ without necessarily including additional repercussions.

In many instances, performance agreements serve as catalysts for strengthening the strategic orientation and steering capacity of higher education institutions, improving institutional profiling, and introducing a renewed focus on education quality.

However, increased compliance costs, administrative burdens, the reduction of inter-institutional collaboration due to competition, restrictions on admissions (in order to increase graduation rates) overlap between performance agreement contracts and institutional plans, and other related challenges have been identified in the wider literature as major shortcomings.

Even in matured systems like those of Australia and Austria, where these contracts have been implemented, they have not been without challenges, including having little positive effects on institutional behaviour.

Performance agreement contracts are rare on the African continent, except, perhaps, for South Africa, some francophone countries, and in Kenya where it is yet at its testing stage.

Background about the new scheme

The introduction of performance contract agreements in the Ethiopian higher education sector seeks to emulate traditions in the higher education systems of many countries that form part of the Organisation for Economic Co-operation and Development, or OECD, where performance agreement contracts are common.

The initiative cannot, however, be regarded as utterly new, given that it was one of the accountability schemes introduced through the 2009 higher education proclamation which outlined the responsibilities of institutions and the government in terms of implementing performance contracts as part of a five-year strategic plan.

The 2009 proclamation required universities to set out strategic objectives, academic priorities, learning outputs, and institutional and human resources development; planned research projects and programmes; the study and diversity of programmes and continuing, distance and virtual education; the number of students and the number and qualification of academic staff; social goals such as measures to enhance the nation and nationality composition of its academic staff, increase the proportion of senior positions held by women, and assistance to disadvantaged sections of its students.

On the part of the government, indicative block-grant budget commitments were promised to be offered to universities – although institutions were still able to indicate their commitment to make up, through other sources of income, the financing gap that might occur; and come up with contingency plans in the event of the non-fulfilment of the anticipated strategic plan budget.

The strategic plan universities were expected to sign with the ministry of education was expected to outline appropriate mechanisms of accounting, monitoring, evaluation and reporting, including annual audited financial and performance reports.

Institutions were further expected to furnish information to the ministry or pertinent government organs as and when required and subjected to any form of supervision the government saw fit to check their compliance with strategic plans and/or the law.

This arrangement was supposed to be renewed every five years with room for amendment during a given period of implementation and in the event of significant changes in the circumstances or assumptions on which it was based.

Although the above plans have been laid down by the act since 2009, they have never been realised in the higher education sector until now. This is notwithstanding efforts made by the government to implement a similar scheme or contract in the national public service.

Why the new scheme?

As noted earlier, performance-based agreements are introduced in the belief that they will bring desirable changes in institutional behaviour towards producing higher levels of performance, quality and efficiency.

The same intention appears to be the reason why the Ethiopian Ministry of Education has decided to implement the scheme with public universities.

The ministry believes that, in addition to enhancing the performance of universities to meet local expectations and international standards, the new scheme marks the beginning of a new era in university partnerships and addresses the ongoing challenges the education sector has been facing for a long time, and fosters accountability, transparency and quality in education, research and development.

It will help universities to develop a system that allows results-oriented management; to promote transparency and accountability; to achieve results commensurate with the resources allocated; to assess the performance capacity of higher education institutions; and to receive recognition and rewards for their success.

The ministry’s new plan seeks to attach funding to the performance agreement contract, making the arrangement more of a binding agreement. According to the ministry, budget allocation will no longer be input-based (depending on factors such as the number of instructors and students at a university), and would rather focus on meeting three key criteria: contributions to research, the quality of students the institution produces, and its overall performance, including integrity and institutional effectiveness.

After being provided with the key performance indicators by the ministry, universities were required to negotiate with the ministry about what they can achieve during the contract period. The agreements signed are being cascaded to the lower levels of the university structure so that commitments are made at all levels.

Using key performance indicators (KPIs) outlined in the agreement, institutions that perform strongly are expected to receive additional support, including budgetary allocations, while those that do not meet expectations will be held accountable.

In fact, based on the statements from the minister of education who spoke during the signing ceremony in December, universities face an uncertain future if they fail to deliver effective outcomes, including the possibility of being downgraded to technical and vocational education and training, or TVET, centres.

The performance metrics

The ministry has identified key performance indicators in five major focus areas: teaching and learning; research, innovation and technology transfer; community engagement and university social responsibility; internationalisation and global engagement; governance, leadership and management.

The specific performance indicators identified under teaching and learning comprise nine themes with specific KPIs set for each item. The major themes include access and equity, efficiency, quality and relevance, curricula revision and alignment, university-industry linkage, learning outcomes, stakeholder satisfaction, and embracing diversity.

The second area of focus, which is research, innovation and technology transfer, has eight themes to address. They include research agenda setting, graduate research and research integration, combating plagiarism/online accessibility of thesis and dissertations, research output and impact/scientific productivity and impact, research funding, research collaboration, gender in research, commercialisation of research and innovation/technology transfer.

Under community engagement and university social responsibility, which is the third area of focus, focusing on university social responsibilities and community engagement/partnership are included.

The fourth area of focus is internationalisation and global engagement with two sub-themes focusing on programme internationalisation and accreditation.

The fifth area of focus concerns governance, leadership and management with eight themes that include strategic planning and management, stewardship and financial due diligence, capital projects/implementation efficiency and transparency, infrastructure and facilities standards, automation and e-examination.

As may be seen, the list of topics included in the performance agreements is comprehensive and implies the huge responsibilities and transaction costs that must be carefully attended to, especially when such a scheme is planned to be implemented in a context like Ethiopia.

The need for careful navigation

The introduction of performance contract agreements in the Ethiopian context may be regarded as a positive development in a sector that had little appetite for accountability in the past. It is an indication of the increasing tendencies the government is adopting to hold institutions accountable for public resources.

However, equally important is the need to carefully navigate the pros and cons of this scheme, as its implementation in the higher education system of a developing country is rare. Special attention should be given to the many challenges described above and the peculiar features and specific bottlenecks the Ethiopian higher education sector is currently experiencing.

One of the most pressing challenges would be the transaction costs involved in implementing this scheme.

Performance agreements presupposes organised assessment schemes with specific periods set to check whether the contractual agreements have been met, which demands setting up a well-organised, preferably independent entity, to oversee, monitor and evaluate whether the goals in the agreement have been met. This implies an enormous administrative load by the government and institutions alike.

Not only is an efficient government bureaucracy required for monitoring and enforcing performance agreements, but it is also needed to make it difficult for institutions that wish to manipulate the system through unwanted arrangements and to stay at the top in a competitive environment.

Currently, the ministry does not seem to have this capacity and needs to develop it fast if it seeks to achieve tangible results.

The effective design and implementation of performance contract agreements also requires stakeholder participation and buy-in. This has not been always easy to achieve in the Ethiopian context where many reforms have failed due to poor stakeholder participation and buy-in.

Significant efforts are needed to create awareness and galvanise the university community at all levels to achieve the various goals set in the agreements.

Related to the above observations is the need for commitment, which is critical to implementing any reform. While the ministry is known for introducing many reforms, its capacity to see them through, as evidenced in its past performances, remains dubious.

The same is true of a significant number of public institutions that exhibit similar tendencies. Huge efforts, capacity and readiness on the part of higher education institutions are again needed to respond to the call at all levels of their operational wings.

Issues such as the impact of performance agreements on the strategic plans of individual universities, the extent that such arrangements can stifle innovation and creativity, and the schemes to be used in the appraisal of contracts are all areas that need to be carefully addressed.

Another challenge related to the implementation of performance agreements is the consequences for failure to meet the requirements of the contracts.

Introducing serious measures (such as closing or downgrading institutions and withdrawing funding) on institutions which need enough time to get acquainted with the demands of a new scheme can disturb or derail a nascent higher education system.

The foregoing suggests the need for enough preparation and careful navigation to use performance agreements as accountability tools in uncharted contexts like Ethiopia. The decision to infuse an ‘experimentation phase’ into the scheme is also evident before expecting to harness the positive impacts of performance contract agreements on institutional behaviour.

Wondwosen Tamrat (PhD) is an associate professor of higher education and founding president of St Mary’s University, Addis Ababa, Ethiopia, a collaborating scholar of the Programme for Research on Private Higher Education at the State University of New York at Albany, United States, and coordinator of the private higher education sub-cluster of the Continental Education Strategy for Africa. He may be reached at preswond@smuc.edu.et or wondwosen@gmail.com.

This article is a commentary. Commentary articles are the opinion of the author and do not necessarily reflect the views of University World News.