The child care system has received an enormous influx of federal funds through the various relief packages Congress passed since the beginning of the pandemic. These funds provide challenges and opportunities to transform the child care system, address systemic inequities, and implement innovative approaches to help children, families, and providers navigate this unstable period. Contract-based financing mechanisms can drive stable and predictable resources to increase resources and improve quality for child care centers and home-based providers.

A contract-based financing approach brings some of the most complex state government systems into the policy discussion. State administrators interested in this approach are best served by developing a detailed plan before implementing contracts with providers to ensure that programs receiving a contract are not overburdened by paperwork and other requirements. We identify eight questions state administrators should consider when developing a plan for a contracted approach. We additionally outline what a successful contracting plan should consider, including timelines, needs and definitions, roles and responsibilities, transparency, capacity, performance-based contracting, targeted contracting goals, data systems, and reporting requirements. Effective contracting approaches that promote equity require states to thoughtfully consider a range of questions, include stakeholder engagement, and carefully plan how they want to proceed given their state procurement systems and goals or desired outcomes. Adopting a plan for contracts will help ensure that both states and providers benefit from the contract design.