Payment by results implementation ‘seriously flawed’ – new report

The way a key government mechanism to improve public services has been implemented has often been ‘seriously flawed’, a report today argues.

Payment by results (PbR) has suffered from crude implementation, meaning opportunities to improve public services, such as mental health treatment or drug rehabilitation, are being missed, the report argues.

The report, for the National Council for Voluntary Organisations, finds general support for PbR as a concept. However, some charities believe PbR contracts have been brought in by commissioners as they are ‘political flavour of the month’ rather than as part of a coherent strategy to improve services.

The report is based on an analysis of a sample of contracts entered into by charities to run public services, and interviews with those responsible for delivering against them. These contracts are considered confidential and are hard to obtain. As a result, this is the only research of its kind. All participants took part on the condition of anonymity.

Among its findings:

  • contracts analysed contained targets which were either irrelevant to, or even detrimental to, the desired outcomes
  • contracts often failed to account for the complex nature of the services they were for, meaning providers could be penalised for circumstances outside their control
  • there is frequently ‘a significant and worrying gap’ between on-the-ground experience and what is reported back up the supply chain
  • some PbR contracts are crudely converted from previous payment for activity contracts, and therefore contained unnecessary clauses stipulating how the activity should be delivered that hamper innovation
  • excessive use of PbR, with its attendant high financial risks for providers, could push charities who cannot bear the risk level out of public service provision, with their expertise lost to the service users who would benefit from it.

Sir Stuart Etherington, chief executive of NCVO, said:

‘Implementing PbR effectively requires intelligent thought and carefully crafted incentives, but many PbR contracts fall well short of this. Crudely designed targets and contracts risk pushing expert voluntary sector providers out of public service provision.

‘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 is a lawyer with charity specialists Bates Wells Braithwaite and has advised dozens of charities and public sector clients on public service contracts and financing.

Commenting, David Hunter said:

‘Whilst payment by results, as an approach, has its merits the concern is that to date PbR has been used crudely, with little appreciation either of its negative impact, or of the opportunity missed.We have seen a steady increase in charities seeking legal advice because of problems in PbR contracts. 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.

‘The report suggests a number of ways to improve the contracting process, including setting appropriate targets, understanding the local market, and consultation with potential providers prior to contract design and tendering.’

Notes

‘Payment by Results contracts: a legal analysis of terms and process’ is published today by NCVO.
Researched and written by Bates Wells Braithwaite on behalf of NCVO and with support from the NCVO PbR working group, it provides a legal analysis of current and recent PbR contracts held by voluntary sector providers across public services.

The past two years have seen a proliferation of PbR contracts across public services, marking a shift towards paying providers for the outcomes they deliver in markets that have traditionally purchased activities. This centrally driven growth of PbR is a cornerstone of the Government’s ‘Open Public Services’ agenda, an agenda which also carries the significant ambition to create “a truly level playing field between the public, private and voluntary sectors.”

NCVO

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