The National Quality Improvement Center on the Privatization of Child Welfare Services selected Illinois as a demonstration site in 2007 to evaluate performance-based contracting in residential treatment services. This article discusses the first two years of project implementation including developing residential treatment performance indicators, adjusting those indicators for risk at the provider level, and setting agency-specific benchmarks, as well as the project's fiscal foundation and related systemic improvements to support policy and practice change resulting from this initiative.