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Payment by results contracts must be awarded on quality not price

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Price is what you pay, value is what you get

There is a consensus that the Work Programme contracts were primarily awarded on price with the consequence that, so far at least, all providers are under-performing – to say the least.

The other main consequence was that a number of voluntary sector providers either went out of business or withdrew from the programme.

This is something that the Justice Secretary Chris Grayling, architect of the Work Programme, acknowledges himself; although he puts it slightly differently, saying that voluntary sector organisations should never have signed the contracts with Prime Providers and that they need to get more commercial savvy.

Mucking up PbR

Toby Eccles, who knows a thing about payment by results, recently blogged about eight ways in which different government departments are currently mucking up outcomes-based contracts.

Two of these eight were:

  1. Set the maximum outcome payment at or below the value of the previous revenue contract
  2. On a price focus rather than quality focus procurement process

I’ve recently heard MoJ officials talk about the impending procurement process for the outsourcing of the probation service in a way that seems to make it clear that they are expecting price to be a significant factor in the decision to award contracts.


Price is right


The price is right?

To my mind, this is overambitious to say the least.

The new reducing reoffending contracts will be very demanding on new providers for a number of fairly obvious reasons:

  • The overall MoJ budget will be substantially cut in order to meet the deficit reduction targets.
  • This budget will also have to allow for the new mentoring service to be delivered to more than 50,000 short term prisoners per year.
  • The contracts will be awarded on a least a partial payment by results basis, transferring risk and impacting on cash flow.
  • There will be inevitable start-up costs for providers with no history of working in this area.

Even private providers with global reach and very big pockets are biding their time, waiting to see whether the contract details are financially viable.

The prospect of contracts being awarded to organisations offering a discount of a few million pounds within this incredibly tight budget makes me very concerned that we may be heading for the worst sort of rehabilitation revolution.


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4 Responses

  1. Absolutely agree. The strategy could have been designed to suit the big prime providers with working capital reserves and the advantage of scale.

    After a year of “tender hoop-jumping” we were in the last two reducing re-offending “innovation pilot” suppliers for the last re-offending revolution.

    Then … dropped like a stone by the MoJ, with many other hard-working, smaller scale social businesses, having invested months of effort at own risk – even some of those that had theoretically “won” their funding.

    The new Grayling version revolution means we now reapply and go through the same procurement hoops again – if we can summon up the energy and no-cost time.

    Here’s another example. The “flexible” support fund for pre-employability programmes in London. This process demands TEN TIMES current work programme results before payment (40% must be in employment and 60% in vol placements) for “hard-to-reach” ex-offenders and unemployed 18 – 24 year olds.

    So the lag time from recruiting candidates to evidencing sustainable work to DWP and eventually being paid will equate to 3 – 6 months (we are at month 2 currently).

    For all this lag time our highly qualified coaching staff are operating at their own risk – without even expenses covered despite a 60% positive record in other regional projects completed.

    Not good for our team morale is an understatement. So far, in six weeks, our team have recruited over 150 young adults face-to-face for an actual turn-out of around 30 at the programme. We spend three days a week phoning to attempt to reengage those who forget or change their mind about attending. At this stage we have about 10 we consider suitable for interview. The work continues. Should we be grateful that a result and achieving our metrics will allow us to be noticed for similar hair-greying projects in the future?

    A cynical, objective observer might suggest these government approaches are merely “lip service” to so-called reducing re-offending revolutions or to achieving an actual, real return from young people in sustainable employment with direct income and indirect life-long economic contributions for the exchequer.

    Right – must get back to the project now!

  2. I’m a long way from being an expert on employment programmes but there clearly are all sorts of issues both with the design of the Work Programme payment structure and the performance of the primes in delivering on their contracts – a headline performance less than the assumed deadweight is, on the face of it, quite dreadful. However one feature of PbR that I’ve not seen elaborated on anywhere in this context is that the amount of money paid to the primes must be far less than it would have been had the primes been more effective (the contracts after all had up to 80% PbR component). In other words PbR has not incentivised better outcomes as was hoped but it has meant that the state has not borne the full cost of service failure. This is the other side of the risk transfer issue and whilst it is a small mercy ( we would all much rather see the primes being effective and getting people into work after all) it can be seen as part-vindication of the PbR approach – the programmes failed but at least we didn’t have to pay their full cost

    In this context it seems to me that the critical issue in whether or not the approach being adopted with probation will work is how much it is possible to improve on current probation performance. There is a widespread, if largely implicit view, that is not possible to significantly improve compliance/re-offending rates. if this is true then any organisation would be foolish to commit to a contract with a significant PbR component because the likelihood of failure is pretty high; if it is not true (ie it is possible to significantly improve performance) then a contract with a significant PbR component may be attractive (provided the metrics are right etc). In reality this is very difficult to know with confidence: therefore given the likely focus on price within the process the safest strategy for a contractor to adopt is to aim to deliver the same outcomes (or even maybe worse outcomes) at much less cost – anything else is too risky. in this scenario the state ends up paying less money for the same or worse outcomes (which is what seems to have happened with the Work Programme) which can still be viewed, I suppose, as a positive outcome for the state. However for those who believe that PbR has the potential to drive major improvements in reducing recidivism this outcome would be a grave disappointment

  3. Thanks Frank. Personally, I think that a considerable improvement in re-offending rates is possible – but only with an approach that enables an end-to-end co-ordinated service in prison and on release. The prison estate would need to be more closely matched with local areas with offenders at the very least being released from local prisons for this to be realistic.

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