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Government co-ordination of payment by results (NAO 1)

PbR schemes are typically targeted at intractable, multi-faceted social problems with the hope that an outcome-focused approach will encourage innovation and more holistic responses. If government departments cannot even co-ordinate their commissioning around PbR, it will be very difficult for providers to design and deliver new solutions.

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This is the first in a series of posts on the National Audit Office’s recent report: Outcome-based payment schemes: government’s use of payment by results. The report’s overall conclusion is that because of the lack of a clear evidence base, the PbR approach is currently laden with risk.

The nature of outcome-based payment schemes

The NAO embraces the common meaning of payment by results – where payment is largely contingent on the provider delivering an outcome – getting people into work – rather than an output – providing them with a CV and interviewing skills. It notes that some schemes, like the large NHS one which sets tariffs for clinical procedures, are labelled PbR even though they commission outputs and others are not described as PbR, even though they deliver outcomes (such as the DCLG’s Home Bonus scheme).


The PbR schemes considered

For this report, the NAO  looked at 6 central government departments known to be using PbR, and identified 52 schemes containing an element of PbR which were worth a total of at least £15 billion of public money. Details are in the graphic below (to enhance readability, click it to make it go full screen or right click it and save it to your computer/tablet/phone).

NAO PbR schemes

As you can see, the main schemes are:

  • The Work Programme (DWP) worth £3.3bn over 9 years
  • Transforming Rehabilitation (MoJ) worth £3.15bn over 7 years
  • New Homes (DCLG) £3.4 bn over 5 years
  • Troubled Families (DCLG) worth £448m over 3 years (and now extended for a further £200m over 5 years)
  • A large number of international aid projects (DFID) worth over £2bn

The proportion of PbR payment varies between schemes. Under MoJ’s Peterborough offender rehabilitation pilot, 100% of payments are outcome-based; whereas the PbR component of DFID’s Rwanda education sector programme is only 9%.


The lack of co-ordination

The NAO’s focus is always on effective use of public money and so it investigated why government was so keen on PbR and if and how it knew the approach was effective.

In the first four years of the last government (2010-2014), there was an informal cross-government PbR group which sought to share lessons and to identify public services where government could make further use of PbR based on its perceived suitability and feasibility in different circumstances.

The group stopped meeting in March 2014 and the NAO found that there is no-one or no agency accountable for PbR in government:

  • Neither the Cabinet Office nor HM Treasury monitors how PbR is operating across  departments.
  • Individual spending teams within HM Treasury monitor some PbR schemes, but there is no systematic collection of lessons from using PbR or evaluation of information about whether it is delivering its claimed benefits
  • Individual commissioners therefore have no central source of comparative evidence about past PbR schemes to inform their choice of delivery mechanism.

The NAO concluded that this lack of co-ordination increases the likelihood of commissioners using PbR inappropriately.

For instance, the NAO identified  overlap between programmes that could lead to duplication and confusion. Their reports on two family support programmes led respectively by DCLG and DWP found them to be poorly integrated, despite funding services for a similar group of people.

Although the two departments sought to coordinate their efforts after both schemes were set up, the existence of two separate programmes addressing one issue caused confusion, low referral rates and poor performance.

The NAO concludes this first chapter of their report with a plea for central oversight and coordination of data on the use of PbR in order to:

  • Ensure consistency across government’s portfolio of PbR schemes, and identify risks of overlap between schemes;
  • Gather evidence to identify whether, and in what circumstances, PbR offers value for money as a delivery mechanism;
  • Monitor and evaluate how effectively PbR is working across government; and
  • Facilitate the sharing of good practice among commissioners about the design, implementation and evaluation of PbR schemes.



PbR schemes are typically targeted at intractable, multi-faceted social problems with the hope that an outcome-focused approach will encourage innovation and more holistic responses. If government departments cannot even co-ordinate their commissioning around PbR, it will be very difficult for providers to design and deliver new solutions.

Next week’s post looks at the NAO’s advice on whether to use payment by results.


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An analytical framework for payment by results (NAO 6)

Like many of us, the NAO is in a slightly awkward position in regards to payment by results. On the one hand, it is reluctant to recommend that any public programme adopts a PbR approach because there does not, as yet, exist an evidence base that suggests it is an effective commissioning approach.

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Monitoring & evaluating payment by results (NAO 5)

The NAO makes a very strong recommendation not only that all government payment by results schemes should be evaluated but that these evaluations should be shared across government in order to develop a more robust evidence base for PbR; indicating whether and how this commissioning model should be utilised.

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Designing payment by results schemes (NAO 4)

The NAO cautions that in designing PbR schemes, commissioners need to get the balance between pure PbR and non PbR payments right. Where a scheme is financed by a Social Impact Bond, it may be possible – and indeed appropriate – to stipulate that 100% income is dependent on achieving the specified outcomes.

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Does payment by results work? (NAO 3)

To date, government has mainly used payment by results as a cost-cutting exercise with PbR focusing attention on the bottom line rather than on achieving more sustainable outcomes which benefit society and bring long term savings to the public purse.

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Whether to use payment by results? (NAO 2)

Are the NAO’s features a copper-bottomed guarantee of an effective PbR scheme? Or are you more in agreement with me that the attraction of PbR is the chance to move away from the straight-jacket of contemporary procurement and stimulate fresh approaches, under-written by the knowledge that if a provider fails, the commissioner doesn’t have to pay?

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Payment by Results not value for money?

PbR schemes now account for at least £15 billion of public spending in the UK including the Work Programme, the new private probation contracts and numerous homelessness and substance misuse schemes. Despite extensive negative media coverage, neither the Cabinet Office nor the Treasury currently monitors how PbR is operating across government.

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