Study on the design of Performance-Based Financing (PBF) methodology in Twinning grants

Ecorys will be implementing a study on the design of Performance-Based Financing in Twinning grants, from May to September 2022.

Performance-Based Financing is “an umbrella term for a broad range of financing [modalities], which includes a mechanism through which a funder is willing to make payments to an agent to achieve pre-defined results. Results are defined in advance, and funding is only released upon the achievement of these results that are verified independently. The rationale behind this approach is to link financing more directly with Results (outputs and outcomes) rather than inputs, activities, and processes.

The experience on PBF in EU’s external action outside of Budget Support is limited (currently in some cases by the Directorate General for International Partnerships in grants in indirect management). PBF rules were introduced in 2018 in the Financial Regulation and thus apply to any European Union budget contribution to third parties.

For example. Budget Support (BS) is one of the EU’s means of delivering aid in external relations where financing is not linked to costs but to results. This assistance modality involves the transfer of financial resources to the national treasury of the EU’s partner country upon the achievement of reforms and development results in a specific sector. It relies on efficiency, effectiveness, transparency, accountability, policy dialogue, performance assessment, and capacity building. An advance payment is disbursed at the start of the BS, and variable tranches are released as progress is made.

The Twinning instrument was introduced as a tool to support EU enlargement, focusing on various issues related to the Acquis Communautaire, approximation of laws, and institutional capacity building. Twinning is based on a peer-to-peer approach, bringing together the public administration of a Member State (MS) with the equivalent public administration of a Beneficiary Country (BC) to cooperate on agreed and specific issues. The Twinning instrument was later introduced to other candidates and Neighbourhood countries, and recently on a pilot basis to countries beneficiaries of the EDF/DCI instruments.

The objective to apply PBF to the Twinning instrument is to increase accountability and create incentives to improve programme efficiency and effectiveness, which is in line with the Financial Regulation adopted in July 2018, to establish simpler, more transparent, and more flexible rules for EU funds. Thus, the specific objective is to set up a methodology based on PBF for the preparation and implementation of Twinning projects (including Twinning Manual and Twinning Fiche template among the main items), that is cost-efficient, fully in line with EU Financial Regulation and implements rules, as well as with the main features of the Twinning instrument.

Linking PBF to the Twinning instrument is a challenge as it will involve a change of culture and management mode of the public sector stakeholders from the Member States and Beneficiary Countries.