Payment by Results can work – but only with impact at its heart

It was interesting to be reminded, via NCVO’s latest report, that Payment by Results (PbR) has often been sold as a way to encourage innovation in public services. It has also been explained as a way round the leaden, input-driven hand of much government commissioning, and as a way of ensuring that the taxpayer only pays for those services that produce their intended results. In an ideal world, innovation might be a by-product of either of those objectives.

The report is full of excellent observations and some inarguable recommendations, particularly where it hits its stride recommending payment tariffs that reward progress, and intermediate outcomes that are clearly linked to the desired social impact. However, the first half, which discusses the financial and governance barriers that dissuade charities from bidding for PbR contracts, avoids an elephant in the room – the performance of charities themselves, and the absence of impact-focused performance management within the sector.

The amount of upfront working capital demanded by PbR can indeed be off-putting to a charity unused to taking on debt. But this unfamiliarity with repayable finance on the part of trustees is exacerbated by the unacceptably high level of risk that comes from not knowing whether you can produce the outcomes upon which your payment depends.

I believe this lack of certainty over their organisational capability (rightly) discourages many charities from bidding for PbR contracts. It is not the kind of information that you could get from the summative evaluation which many charities these days carry out periodically. You won’t get it from a Randomised Control Trial, which is, after all, the ultimate provider of simple binary answers, yielding little information on whether clients make partial progress towards an overall goal, or what different outcomes you produce for different types of clients.

The kind of data that CEOs need to bid with confidence is small-scale, individualised, and collected day-to-day, or at least week-to-week:

  • Do you know who you’re enrolling in your programmes (i.e. you’re not working just with “low-hanging fruit”, or with people whose needs are too complex for your intervention to successfully address)?
  • Do you know which (codified) services each receives, and can you map these services to the short- and medium-term outcomes each client achieves?
  • Do your frontline staff, and their managers, track this process in real time, and use this data to identify where clients are not making expected progress (putting in danger your social impact and, now, your outcome payments), and tweak the services to try and get them back on track?

I hope it’s clear from my comment about “social impact” that this is the way all charities need to work, if they want to consistently produce meaningful change for a target group of people in need, even without the cosh of outcomes-based payments, or repayable finance. But it should absolutely be clear that without this performance management, bidding for a PbR contract is misguided. At its best, PbR allows commissioners to take a “black box” approach – if they can be assured that the right clients are going into the box, and the right outcomes for these people are coming out, they don’t need to know what happens inside. But an intervention which is a black box to the delivery organisation is an unacceptable risk to commissioners, beneficiaries, and charities themselves.

Very few social sector organisations operate this level of impact-focused performance management.  Lots of charities manage for growth, and some for funder or beneficiary satisfaction – none of the information these strategies provide will allow you to accurately assess the delivery risks presented by a specific PbR contract. NCVO are absolutely right to flag the externally-driven risks of poorly designed contracts or inappropriate payment targets, but we also need to acknowledge the internally-driven risks faced by organisations with inadequate performance management.

So let’s not reduce the pressure for better contracts, but let’s not forget about putting our own house in order. If more social sector organisation prioritised impact, and the performance management necessary for making it,  the environment for PbR  would improve – and so would the opportunities for organisations to get paid for what they are good at doing.

Impetus − The Private Equity Foundation
About The Author
Jenny North is Director of Policy and Strategy at Impetus-PEF. Jenny joined Impetus-PEF from Relate, where she served as Head of Public Policy for six years. Prior to this she held policy positions with Maternity Alliance and New Policy Institute. Her experience also includes working at the Home Office as a Crime and Policing Analyst. Jenny holds a degree in Philosophy and Theology from Oxford University. Follow Jenny on Twitter: @JayEeeEnn

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