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Payment by Results hampering public service innovation – new report

A key government mechanism to boost innovation in public services could be preventing rather than promoting new ways of working, a report today warns (1).

Payment by Results (PbR), where a contractor is paid for a successful outcome rather than for undertaking specified activity, has been seen as an important tool for public service reform. It is intended to give providers the freedom to decide how to achieve results, rather than requiring them to follow directions from government.

But the National Council for Voluntary Organisations has warned that the instability created for providers by PbR is in danger of making them more risk-averse and less inclined to experiment with new ways to achieve results.

Among the problems with typical PbR models the report identifies:

  • 'binary' payment models, where payment is only made when a target is achieved and no payment at all is made for progress towards the target
  • the potential for failings in related services outside the provider's control to reduce the chances of their targets being achieved and hence their payment
  • insufficient payments to facilitate work with the hardest to help
  • payment arrangements that mean smaller and specialist organisations are excluded because they don't have the reserves to cover the period between starting work and receiving payment.

For charities in particular, the cash flow problems that PbR contracts create can be a major barrier to taking on contracts at all, even in areas where a charity could be very successful.

A previous NCVO report analysing a selection of PbR contracts found that many contained targets that were irrelevant or even detrimental to the desired outcomes (2).

Among the recommendations in today's report:

  • Commissioners should make use of up-front payments to ease cash-flow barriers, and provide payments for intermediate outcomes to facilitate working with service users who are further from achieving end outcomes.
  • Charities should develop an internal check to ensure that contracts they are bidding for and undertaking will allow them to work to their values, and not mean harder to help clients are uneconomic to work with.
  • Government should ensure coordinated evaluation of different PbR models and sharing of good practice.

Sir Stuart Etherington, chief executive of the National Council for Voluntary Organisations, said:

'Charities want to play their part in public service reform and have great potential to develop truly innovative solutions, improving services and reducing costs. But current PbR practice risks excluding the specialist charities we really need to involve in order to develop public services.

'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.

'Commissioners and providers must take action to improve their PbR arrangements and to learn from best practice. We mustn't let a mechanism designed to drive innovation instead undermine it.'


(1) 'Payment by results and the voluntary sector' (PDF, 250KB), published today, forms part of NCVO's Future of Public Services series, using learning from NCVO members to review the role of voluntary organisations in public services.

(2) Payment by results implementation 'seriously flawed', 30 October 2013

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 represents the charity and voluntary sector, with over 10,000 members, from the biggest household name charities to the smallest community groups.

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