Warm the market to avoid getting your fingers burnt

Ten things I learnt from the CBI Payment by Results Conference

I thought readers might be interested in what I gleaned from the PbR event hosted by the CBI this Monday (14 January 2013).

There was an interesting line up of speakers including:

• Senior figures from large private sector providers who make much of their income from delivering public services (G4S, Interserve, Ingeus)
• Senior civil servants – Will Cavendish from the Cabinet Office; Ian Poree, Director of Transforming Rehabilitation at the MoJ; and Julia Sweeney, responsible for the Work Programme at the DWP
• David Hutchison, Chief Exec of Social Finance
• Think Tankers such as Tom Gash from the Institute of Government (well worth a follow on Twitter @TGCrime)
• Chris Grayling, the Justice Secretary

The quality of debate was high and ranged across a wide range of issues, so I thought I’d do a list of the ten things that caught my attention:

1.  The “Black Box” isn’t black, it’s grey and should get more transparent over time.

“Black Box” is PbR jargon for providers being able to deliver the service any way they want without commissioner interference – after all, they only get paid if they achieve results.

But Will Cavendish said that the reality is that government has to be more explicit about how much it wants innovation and define the parameters of what is allowable.

2. Getting a fair system of supply chain management isn’t easy

Fiona Sheil, NCVO lead on PbR, (@FionaJSheil) raised the issue of fairness in supply chains – many voluntary sector providers complained about contract conditions and payment scales as sub-contractors to big private sector Prime Providers in the Work Programme.

Civil Servants acknowledged this as an issue but said that government couldn’t be “over-prescriptive.”

3. Outcome measurements determine service delivery not just payments

David Hutchison said that if the Peterborough prison re-offending scheme was paid on a binary, rather than frequency measure (on the number of people who re-offend as opposed to the number of crimes they commit), then the programme itself would be designed and run quite differently.

4. Outcome measures need to be quick as well as robust

James Kelly of Ingeus said that there needs to be a trade-off between a measurement system which is comprehensive and one that gives quick and easy results. It’s important to get intelligence on performance fast so that the programme can be refined and improved.

5. Finding the tariff “Sweet Spot”

Ian Poree said that there would need to be extensive consultation around the PbR payment levels for the “rehabilitation revolution” to find the tariff which made incentives as great as possible whilst maximising the transfer of risk away from the public purse – the right balance between risk and reward was how Julia Sweeney put it.

6. Beware the fetishisation of PbR

Tom Gash cautioned seeing PbR as a panacea for perceived under-performance in the public sector. PbR is only a payment mechanism and can’t resolve every problem.

7. Warm the market

Mr Gash also said that preparation was key to effective PbR commissioning.

Commissioners must take responsibility for stewarding the market, educating service users about new choices and providers must build their capacity to work within different financial and contractual models.

On this note, it was good to see that the London Borough of  Havering is holding a “Market Warming Event” on 24 January to set out its vision for a new local substance misuse treatment system commissioned on a PbR basis.

8. Justice PbR contracts will be lengthy

Chris Grayling didn’t specify how long the reducing re-offending contracts would be but said they would be over a “longer term, offering security as reward for investment and performance.”

9. The Justice PbR model will be significantly different from the Work Programme one

The Work Programme contracts are moving towards a 100% PbR model – where all payments are made on the basis of successful outcomes.

This won’t be the case with the MoJ. Again, Mr Grayling wasn’t specific, saying only that providers would have “to risk more than 5% of their money”.

10. Reputation management ability will be a selection criterion for Justice PbR contracts

Mr Grayling spent a surprising amount of his speech talking about reputation management.

Specifically, he felt that the Work Programme providers (Mr Grayling was the architect of the Work Programme before moving to the MoJ) had managed both their own reputations and those of the Programme itself poorly in the face of media criticism.

He stated that he would expect those bidding for MoJ contracts to demonstrate good reputation management skills.

By the end of the event, it seemed clear that payment by results is here to stay and that we are at a very early stage in the learning curve of knowing how to do it well.