Payment by results seems to be going out of fashion in the public sector. PbR has been vastly over-sold, but it would be a shame if were to be killed off completely
Fashions come and go, in Whitehall as well as on the catwalk. The latest example is the method of commissioning public services known as payment-by-results (PbR) which senior officials from the Cabinet Office and Treasury sounded distinctly cool about at a conference last week.
But wait! Is this the same ‘payment by results’ that was mentioned 34 times in the Cabinet Office’s Open Public Services 2012 paper published less than a year ago? The same PbR that was floated as a way of addressing some of the most pressing policy challenges from troubled families to homelessness?
Yes and yes. The tipping point seems to have been the disappointing results from the Work Programme. This is the government’s flagship PbR programme that pays providers of employment services almost exclusively for ‘results’ or ‘job outcomes’. Reporting last week, the Public Accounts Committee described the performance of the Work Programme as 'extremely poor' with increasing evidence of 'creaming and parking' – basically, providers cherry-picking the easiest cases to maximise profits.
In response, the Department for Work and Pensions argues that it is too early to draw conclusions and unpublished data show significant improvements. We will have to wait and see, but it already appears that the broader Whitehall position has shifted – with the starting assumption no longer that PbR is a panacea.
This is a good thing. The truth is that PbR was vastly oversold in the first place. Variously it has been claimed that PbR can help to reduce public expenditure, improve efficiency, transfer risk to the private sector, encourage a more ‘joined-up’ approach, and drive innovation. There is little or no evidence for any of this (yet) although I’m more willing to believe the latter items in that list.
If PbR schemes are to overcome the growing skepticism, they will need to prove their worth. It’s increasingly clear that the technical design of PbR contracts matters a great deal so I would urge that we pay attention to three prerequisites for success.
First, there must be an outcome metric that is measurable and attributable and a baseline that reflects the expected performance without PbR. Simplicity should be the watchword, so ideally technical functionality can be achieved without labyrinthine complexity.
Second, the price per outcome needs to reward providers fairly for the risks they are taking. It is a mistake to think that PbR is ‘cheap’. Commissioners are buying innovation, which presumably they value and should be willing to pay for. As I’ve argued before, because the risks in new PbR contracts can be hard to quantify, this is often a particularly difficult step.
Third, risk and reward should be apportioned fairly along the supply chain. For example, large contractors (often known as ‘primes’) shouldn’t simply pass risk through to small, voluntary sector providers less well able to hold it. Equally, voluntary sector providers must be savvy about the subcontracts they sign.
Getting all this right requires careful thought. The easy political shorthand that ‘as we are only paying for results – what could go wrong?’ should be discarded in favour of a more sophisticated understanding of the inevitable trade-offs and pitfalls. We should also admit that we are still at the beginning of a steep learning curve and don’t yet have all the answers.
It would be a mistake, however, if the cooler winds blowing through Whitehall were to kill off PbR altogether. No method of commissioning public services is perfect, and the promise of PbR is tantalising if it can be made to work. What is required are cool heads to carefully sift through the evidence from policies such as the Work Programme and use it to ensure the next generation of PbR contracts build on the lessons learned.
Adrian Brown is a principal at the Boston Consulting Group in London and is an associate of the Institute for Government. This post first appeared on the Institute for Government Blog
