Eight ways to muck up payment by results … and a few ways to improve it

Share This Post

Share on twitter
Share on facebook
Share on linkedin
Share on email
Toby Eccles is the founder and Development Director at Social Finance.
This post originally appeared on Toby’s personal website. You can follow Toby on Twitter @tobyecc

Eight ways of mucking up outcomes based contracts

Payment by results has been getting a lot of grief recently. Some of it deserved.

The compulsion for revolution rather than evolution, and poor contracting and procurement practice have combined to create a heavily loss making industry that is not generating outcomes.

The fear is that when government doesn’t seem comfortable admitting to any previous mistake it may be in danger of repeating the mistakes it has made.

So, I thought I would help by consolidating my eight best ways of mucking up outcomes based contracts.

1)    Set the maximum outcome payment at or below the value of the previous revenue contract

This way providers will be nervously trying to retain revenue, rather than innovating to improve outcomes.

2)    Set outcome measures and values without engaging the marketplace

Measures take a while to achieve buy-in, and to motivate change, they need it…

3)    Run a price focused rather than quality focused procurement process

This favours naive or optimistic bidders over competent ones.

4)    Transfer risks that the bidder is in no position to control

It may make you feel better, but it increases cost disproportionately, or ensures you only get naïve bidders through who haven’t thoughts about it.

 

Make a mess

 

5)    Provide detailed information only after bidders have been asked their price, and then offer them only the option to continue or withdraw.

 This is simply a way of ensuring poor services by desperate bidders.

6)    Seek to control interventions, inputs and processes as well as outcomes

Again tempting, but not leaving room for innovation takes away much of  the point of PbR.

7)    Maximise proportion paid on outcomes on principle

This just restricts bidders and increases cost. There are times when a full outcomes model is a good idea, but it shouldn’t be the default.

8)    Don’t test or learn by staggering your start.

Doing everything when you know least is simply irrational…

And two ways for improving them

And a few ideas for doing it well, which I may expand on another time:

1) Have a way to alter prices over time to allow for learning

For example, you could have a maximum and minimum outcomes pot that would be distributed to providers according to level of outcomes achieved.

This would still reward quality and improvement but would limit downside and upside risk.

2) Manage your market more aggressively

If you are creating a new market, you should decide what you are looking for and create it.

I would intentionally create a mixed economy, reserving some slots for say mutuals or social enterprises. That way you ensure diversity, avoid oligopoly and maximise learning and innovation.

Anyone like to add or amend any of the above?

 

 

Share This Post

Share on twitter
Share on facebook
Share on linkedin
Share on email

Related posts

Payment by Results
Social Impact Bonds: The early years

New report from Social Finance looks at the spread of social impact bonds across the globe and expects their development to become less complex.

Payment by Results
Can payment by results improve outcomes?

The idea is that by commissioning outcomes rather than outputs, commissioners allow provider to work in any way they see fit, safe in the knowledge that if the outcomes are not achieved, they do not have to make payment. But do PbR schemes achieve better outcomes?

Commissioning
It’s time we did something about commissioning

Reform argues that the current system does not encourage innovation or quality. Whether provision is public or private it is typically a local monopoly with limited or no incentives to improve performance. Too often national and local commissioners prioritise price over effectiveness.

Payment by Results
The risky business of Social Impact Bonds

Will SIBs become a mainstream way of funding public services? My take on new Social Market Foundation report. “Effective transfer of financial accountability is the holy grail of public service reform” The main mechanism for this has been payment by results with which Social Impact Bonds are closely associated. Social Impact Bonds and PbR appear to be a good fit:

Payment by Results
The 2nd Commandment of payment by results: Thy outcomes shall be few

Most payment by results pilot schemes are targeted at entrenched social problems. These problems – troubled families, long term unemployment, re-offending and drug dependency – are complex by nature. They require a coordinated response which addresses a wide range of issues. PbR funded interventions are a natural commissioning approach to tackle complex problems. However, PbR schemes quickly run into trouble when the outcomes themselves become complex.

Leave a Reply

Your email address will not be published.

keep informed

One email every day at noon