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Stop commissioning, start licensing public services

The idea is to let public services work like any other market with consumer choice meaning that the best services get to be market leaders and the market changes over time. To achieve this, Reform suggest doing away with the cumbersome procurement approach and introduce a licensing approach with these key features:

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The commissioning system is broken

This is the sixth in a series of posts on the challenges of modern commissioning stimulated by a recent report from the Reform think tank called “Markets for good: the Next Generation of public service reform”.

The last five posts has set out a litany of reasons why the current approach to commissioning public services isn’t working:

  • Small providers struggle to get a meaningful slice of the action;
  • Big providers risk their reputations at the hands of a critical media, and the prospect of losing half their businesses overnight if key bids do not go their way; and
  • Most importantly, governments have to put up with time consuming, expensive processes, a gaming relationship with providers, and unpopular contracting models that attract political criticism.

All of which adds up to a system which often delivers poor quality services to some of the most vulnerable people in society.

This post looks at Reform’s solution to these problems.


Stop contracting, start licensing

Reform claims to be non-party political, but is mainly staffed by people with strong links to  the Conservative party, so it won’t surprise you that their proposed solution for overhauling commissioning is a market-based approach.

In a nutshell, the idea is to let public services work like any other market with consumer choice meaning that the best services get to be market leaders and the market changes over time. To achieve this, Reform suggest doing away with the cumbersome procurement approach and introduce a licensing approach with these key features:

  • Instead of bid rounds and time-limited contracts, any organisation would be free to provide social public services so long as it possesses a licence to operate.
  • To gain the licence, providers would have to show they passed certain standards of managerial, operational, and financial competency.
  • Licences would not expire, and there would be no limit to the number of licences granted. Licences would only be revoked if there was cause for concern due to underperformance on outcomes or customer experience.
  • Licences would not be limited to a certain geographic area.
  • Licences would be almost free, costing only a small administrative fee for processing.
    There would be no  single start date to a contract. Providers could enter the market at any time, not just in the brief gaps between old-style contract cycles.
  • An independent Regulator would award licences, not a ministry. Separating the awarding function from the policymaking function allows a freer conversation between policymakers and providers about what is and is not working.
  • Licence holders would be subject to inspection, in the manner of care homes or schools today. Providers could lose their licence if the Regulator uncovers malpractice, poor customer service, or on-going poor performance.

Reform argues that this model already exists in the way that GPs and dentists operate.

It argues that there are three main advantages to this approach:

  1. The market is open, allowing new providers with innovative approaches to start up and prove whether their model is effective.
  2. There would be one public service licence so organisations could deliver services in a number of different sectors, effectively developing a co-ordinated approach to, for example, offending, drug dependency and homelessness.
  3. Members of the public could choose which provider they want to get help from.

Other features of the licencing approach (all of which I like) are:

  • Payment by Results on an outcome basis (in other words, providers would be paid for finding someone work, not getting them “job ready”)
  • Make 10 percent of payments contingent on good quality customer experience (which would, for example, address the bullying approach of some employment schemes)
  • Inspect services via the mystery shopper approach
  • Prices would be set on an individual basis rather than large cohorts (the mechanism suggested for this is that the sort of GP, Job Centre or prison pre-release assessment which already takes place would translate into a budget built on a person’s needs with payments tied to outcomes).


Would licensing work?

Described in these overall terms, I think the licensing approach is very attractive. But would it work in practice? And, in particular, would it work with drug dependent offenders who are not straightforward consumers of services in the way that we are when we are patients or students?

Next week, I’m going to explain how Reform envisages the licensing system in practice and share my views on whether it could work via an imaginary case study.

In the meantime, I’m very interested in your views on whether this market-based licensing approach is worth developing in more detail.

Please use the comments section below.


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Payment by Results
Can the new Work Programme succeed?

Reform report says new Work and Health Programme should level the playing field for possible providers but still recommends heavy PbR approach.

Can we change public service markets for good?

We have to join up commissioning much better for this last group of people. So, should a homeless, unemployed drug dependent offender have one provider to deal with all their problems in the round, or separate providers (all specialists) responsible for each End Result? Reform suggests two possible solutions:

An inflexible commissioning system

Another consequence of these lengthy monolithic contracts is that it is very difficult for governments to change policy direction. Reform makes the point that to implement change a new government will often have to compensate existing providers and institute new, lengthy and expensive procurement processes. Although old providers may get some compensation, all potential

Price setting in public markets

Reform argues that there is a bell curve to innovation. When prices are set too high, providers make easy profits and public money is wasted. But setting prices aggressively low means that new providers are unable to innovate and tend to focus on easy to achieve results, which might not even have required a government funded intervention in the first place.

There’s not enough choice in public services

This then creates the problem of a provider who is ‘too big to fail’. If a provider under-performs, the government may not be able to remove them due to the difficulty of replacing lost capacity, undermining the threat of sanctions written into contracts.

2 responses

  1. This solution does not solve anything. The fundamental problem structurally is government silos with ivory towers on top. Services are not joined up and key workers are disempowered from making the right decisions with their clients, patients, learners and customers. Devolution to the English regions would be a great start rather than lip service to localism. Whole system local approaches are much more likely to solve the commissioning nightmare.

  2. Thanks for your comment, Richard. I’m very interested to see how the Greater Manchester NHS experiment works out, although I do have concerns about an eventual 2-tier health service.

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