PbR contracts ‘stifling innovation’, charities claim

23 Apr 14

The government’s use of payment-by-result contracts is hindering innovation that could improve public services, the National Council for Voluntary Organisations has warned today

In its latest examination of PbR deals, the NCVO said the arrangements, which only pay contractors when they reach certain targets, were making providers more risk-averse in an attempt to ensure payment.

Although Prime Minister David Cameron has said the contracts would allow both private firms and charities to innovate across a number of different services, such as back-to-work schemes and prisoner rehabilitation, NCVO said it was instead stifling reforms.

Among the flaws in the system was the use of ‘binary’ payment models, where payment is only made when a target is achieved with no funding for progress made towards the target.

These payment arrangements meant smaller and specialist organisations were unable to bid for some tenders because they do not have the necessary reserves to cover the period between starting work and receiving payment, NCVO said. 

Such cash flow worries create a major barrier to taking on contracts, even in areas where a charity could be very successful, the Payment by Results and the voluntary sector report stated.

NCVO chief executive Sir Stuart Etherington said charities wanted to play their part in public service reform and had the potential to develop innovative solutions to improve services as well as reducing costs.

‘But current PbR practice risks excluding the specialist charities we really need to involve in order to develop public services,’ he said.

‘Few people object to the principle of paying for an outcome, but putting it into practice effectively when it comes to complex services for people with multiple needs is challenging. Many of the current models of PbR still need significant development before they are truly fit for purpose.’

Today’s report urged public service commissioners to use initial up-front payments to overcome cash flow concerns, as well as paying some fees for intermediate outcomes when providers work with the most difficult cases. The government should also undertake central evaluation of different PbR models across different services to ensure good practice is shared.

The report also called on charities to improve their internal checks to ensure the contracts they were bidding for would not hinder their existing work. 

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