Performance-Based Contracts are agreements where payment is linked to the achievement of specific outcomes or results. This approach encourages service providers to focus on delivering high-quality performance rather than just completing tasks. It is commonly used in sectors like construction, healthcare, and education. In these contracts, clear metrics and goals are established upfront, allowing both parties to understand expectations. If the service provider meets or exceeds these targets, they receive full payment or bonuses. Conversely, failing to meet the agreed-upon standards may result in reduced payment or penalties, promoting accountability and efficiency.