Why is NCVO focusing on Payment by Results?

Fiona Sheil was responsible for co-ordinating NCVO’s programme of seminars, training and advice work on public service commissioning and procurement. Fiona left NCVO in October 2013 but we have retained her blog posts for reference.

Why does payment by results bring so many fundamental arguments to the fore? And what should the voluntary sector make of it?

Payment by Results must be the most intrinsically agreeable – yet practically nightmarish – idea in the current welfare reforms. Yes, it makes sense to incentivise and reward interventions based on the impact they have on people’s lives; but no, we don’t have the tools yet to ensure the rewards (again, payments) are both right and fair.

We’ve previously explored the challenges this raises for the voluntary sector in particular. If you’re waiting for proof of result before you get payment, issues of proof, capitalisation of your work, and what happens (and why) if you just miss a result, are significant. For eighteen months we’ve been tracking how the DWP Work Programme has realised all these risks, quite horribly, in a part of the voluntary sector which is 70% reliant on state funding and therefore massively destabilised by bad procurement.

We’ve now expanded our work on Payment by Results to look at all areas where it’s been implemented. We’re interested in what models are being developed, and we’re really interested in the principles and purpose that lies behind the proliferation of payment by results procurement. Our Payment by Results Working Group unites experts from across the sector, and will consult widely as part of our evidence gathering before making recommendations next year.

From a totally dispassionate point of view, payment by results throws up some fascinating and fundamental questions about the way public services are purchased, valued, and delivered. These, the Working Group will be exploring over the coming months, and they’re what makes the study of payment by results so interesting, whether payment by results continues to spread or begins to be abandoned (either scenario could happen over the medium-term).

What is an outcome?

What you want from public services may not be what I want, may be different again from what an adult social care commissioner wants, which may be different from what an adult social care user wants, which may be again different from what their neighbour wants. Understanding where our wants and expectations converge – and where they diverge and need to be negotiated – is a challenge we need to overcome if we are to agree a ‘result’ and the value of the attached ‘reward’. We all have a different perspective – so how do we decide and deploy the ‘right’ outcome ambitions?

Evidence

Talk to any expert on PBR (there aren’t many) and the first thing they’ll emphasise is that we don’t have the right data, or data management system, to be able to effectively evidence either a flexible range of outcomes not whose intervention achieved them. Some systems are fairly easy (say, if only one provider is involved in working with an individual). But how often is that the case? Almost never.  This is the challenge of ‘attribution’.

We also need evidence about what works best, what costs are fair to providers. It’s also very clear that no one really knows how much commissioning costs – so whether the complexity of setting up PBR is even offset by the savings it’s intended to produce through better outcomes.

Integration

One of the more frustrating aspects of the Whitehall system is the separation of budgets at the frontline. It doesn’t make sense, and the repeated wail that this is terribly hard to resolve, just doesn’t wash. Yes it’s hard, but that is government: a difficult job.

PBR has the potential, almost by being so difficult, has the chance to both throw light on the need for integration. Forward thinking commissioners, like Essex, are considering SIBs and PBR explicitly to bring together local budgets around shared outcomes. The sheer cost and complexity of payment by results, and its focus on outcomes, really makes this integration necessary. Subcontracting

The Work Programme has led payment by results to be closely associated with the development of a prime contractor model, whereby a large provider holds the contract with the commissioner, and then subcontracts downwards to a supply chain of smaller, often specialist organisations.

This model, where the prime contractor becomes a proxy for the commissioner, and the subcontractor loses a direct relationship with the public sector, is becoming ever more popular with commissioning bodies. The short and long term impact is yet to be seen. So much has been wrong with public sector commissioning that this could be a significant improvement in the way markets are managed. Likely that this will sometimes be the case, and other times primes may use the opportunity to lower the bar further knowing subcontractors have little voice to complain, and commissioners don’t have the experience to do anything about it.

In either scenario, the voluntary sector is going to have to fight hard to retain a place as a prime contractor – and therefore its influence over quality and ethos in the market – as well as how to manage contracts and risks when acting as a subcontractor. Lessons learned from the Work Programme we hope will make providers more cautious when facing such contracting options.

Fair contract terms

Payment by results carries with it varying level of risk. How these are written into contracts, and surrounded with additional, sometimes nefarious protections, is going to act as a sharp wake-up call to voluntary organsiations who’ve viewed contracts as merely a variation on grants.

Our Work Programme research has pointed to the inclusion in contracts of gagging clauses as well as the deliberate threat to issue Breach of contract notices to providers. Many Work Programme subcontractors have admitted to not having contracts in place – just expectations – or to having contract terms negotiated as the risks and failure rate of the Programme climb.

Looking at the experience-level of the voluntary sector’s delivery of public services (from £4.3billion worth in 2000/1 to £10.9billion in 2010/11) it’s clear many organisations and staff are relatively new to contract management and delivery.  Therefore the need is all the more pressing for them to skill-up around negotiation and contract management skills if they’re to effectively deal with payment by results contracts.

Social investment

For an account of social value more informed and nuanced than this, see the latest blog from our Policy Manger, Char Ravenscroft. Some key themes have emerged when talking to people who know far more than me:

• One example was of a grant funder who when presented with a half-foot deep pile of paper about a SIB, thought ‘screw it’, and just continued to issue funding under grants
• It’s worth noting who is funding work like SIBs. It tends to be philanthropic bodies like the Lottery, whose social mission means they take risks where a commercial lender won’t. This tells us something about the likely expansion of the market, and the viability of rewards.

This isn’t a note of cynicism though: these are early days for social investment, and problems haven’t been worked through, nor many ‘products brought to market’ by either side. It will get better, and interesting, positive work is undoubtedly already taking shape.

What next?

NCVO’s approach to payment by results has been one of continuous engagement across Whitehall. Our approach is very clearly one based on evidence: and the Working Group is set up to oversee the collection and analysis of this evidecnce. We’ll be consulting widely in order to build up that evidence, and we’ll share information for discussion as we go along. A final report, recommendations and risk assessment tool for organisations considering payment by results contracts will be published in summer 2013.

Our next open discussion on payment by results will be with Marcus Roberts (Drugscope, and Chair of our Payment by Results Working Group) and Fraser Battye (brains behind the smoking cessation PBR pilots) and myself at the NCVO Sustainable Funding Conference (for which some places still remain) on 28th November 2012.

Papers and discussion from the Working Group will be shared as-and-when we’re able, and we’ll keep updating our webpage on payment by results with news, report and comment.