By Richard Johnstone | 30 October 2013
The government lacks a coherent strategy for implementing its flagship payment-by-results system and use of the contracts so far has been seriously flawed, charities warned today.
Payment-by-results is a mechanism used to pay firms and charities that provide some public services, such as the Work Programme, and is intended to ensure the government only pays when desired outcomes have been achieved.
The use of the contracts is to be expanded to services such as probation after Prime Minister David Cameron’s pledged to place the initiative at the heart of the government’s open public services drive.
However, analysing the use of the PbR to date, a report for the National Council for Voluntary Organisations, published today, said crude implementation meant opportunities to improve public services were being missed.
The examination for the NCVO, undertaken by law firm Bates Wells Braithwaite, looked at a sample of contracts entered into by charities to run public services, alongside interviews with those responsible for delivering against them.
Although the report found there was ‘general support’ for use of PbR deals, there was a belief that their implementation was a ‘political flavour of the month’, without a plan to improve services.
The report found the agreements often included targets that were either irrelevant to, or even detrimental to, the desired outcomes, and failed to account for the complex nature of services. This meant providers could be penalised for circumstances outside their control.
In addition, some contracts had been ‘crudely converted’ from previous versions, meaning they contained unnecessary stipulations on how an activity should be delivered, which has hampered innovation.
NCVO chief executive Sir Stuart Etherington warned that excessive use of payment-by-results, with high financial risks for providers, could push some charities out of public service provision.
‘Implementing PbR effectively requires intelligent thought and carefully crafted incentives, but many PbR contracts fall well short of this,’ he added.
‘Paying public service providers for the outcomes they achieve rather than the activity they undertake is a worthwhile principle. Charities have an important role to play in improving public services, but commissioners must work with them in order to design effective contracts.’
Report author David Hunter added that Bates Wells Braithwaite had seen ‘a steady increase in charities seeking legal advice because of problems in PbR contracts’.
He added: ‘As PbR proliferates as a payment mechanism, it’s crucial that commissioners seek input from providers and service users on realistic targets and contractual terms at the very start of the process.
‘Poor contracts are detrimental to all parties, not only the service providers and service users, but the commissioners themselves ultimately.’
