Payment by results is central to the reform of public services. But the jury is out on how well it is going to work
One big part of the open public services white paper launched yesterday was a government commitment to increase the use of payment by results in core public services. International evidence has demonstrated that the model can work at scale.
The next step will be for departments and local authorities to build on the work of the DWP’s Work Programme to understand how the model can be applied to other areas – and here the white paper is specific: court and tribunal administration; detection and investigation of fraud; debt management and enforcement services, as well as a number of other functions, are all up for discussion.
But how can something as complex as a payment by results contract be made to work in each case? Hit the Ground Running, a report launched by Deloitte this week, looks at a series of technical challenges that surround the model. The research, which is based on feedback from senior figures across government, the voluntary sector and the business world, highlights concerns about whether public bodies will be able to manage this fundamentally different way of contracting.
A payment by results system requires technical expertise in areas like pricing and market management. Trying to create a system that is flexible, transparent and understandable will be a huge challenge for public bodies that do not always have an enviable track record on effective commissioning. More must be done to share best practice on commissioning and performance contracting in this way. Public bodies themselves need to think critically about how they can influence the behaviour of service providers.
For their part, voluntary and private service providers may have to engage markets and investors and consider their relationship with their financial backers. The lack of revenue certainty inherent to the model creates problems for lenders: the feedback that we received suggests that investors currently regard the payment by results model as an untested market with a series of risks and uncertainties. This has to change if the model is to work.
Alongside this, there is a risk of inefficiency and duplication as new programmes are deployed across traditional departmental silos. To confront this risk, government must take a wider view on how bringing public services together can drive economies of scale and bring down prices and take a whole citizen view of the delivery of services.
Until these key technical questions are answered, it is difficult to predict how successful these new delivery models will be and how favourably investors, citizens and public sector employees might respond to the new regime.
Mike Turley is public sector industry leader at Deloitte. For more information on their report go to http://www.deloitte.com
