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Government departments are 'cooling' on payment-by-results, conference participants suggest

Finance | Vibeka Mair | 6 Mar 2013

Whitehall is becoming less enthusiastic about payment-by-results, suggests Adrian Brown, an associate at charity think tank Institute of Government.

Brown, who is also a principal at Boston Consulting Group, airs his views in a blog on the Institute of Government’s website. He says senior Whitehall officials sounded “distinctly cool” about payment-by-results at the National Audit Office’s annual conference last month.

The conference, on performance measurement, heard from representatives from the Cabinet Office and Treasury.

According to publicservice.co.uk, Katharine Davidson, executive director for strategy at the Cabinet Office’s Efficiency and Reform Group (ERG), told delegates that her department was taking a more “measured view” of payment-by-results.

“We were very bullish on payment-by-results contracts at the start, the more we know about the quality of the input information and the inability to link it to outcomes, we in the ERG have taken a more measured view of them.”

Publicservice.co.uk also quotes a senior Treasury official expressing doubts about payment-by-results. Sharon White, the director general for public services at the Treasury, said: "We take a pragmatic view of whether payment-by-results works. It is quite hard to get a firm handle on the numbers.

"We have now got a situation at the Ministry of Justice where Chris Grayling… is going to take a payment-by-results approach to almost the whole of probation. But some of us who have been around a long time get very nervous about panaceas."

She added: "We're taking a very cautious approach on whether this is going to deliver better value for money compared to direct public spending intervention."

Payment-by-results oversold

Brown, in his blog, says the move in Whitehall is a good thing: “The truth is that payment-by-results was vastly oversold in the first place. Variously it has been claimed that payment-by-results can help to reduce public expenditure, improve efficiency, transfer risk to the private sector, encourage a more joined-up approach, and drive innovation. There is little or no evidence of any of this (yet) although I’m more willing to believe the latter items in that list.”

Brown continues that if payment-by-results schemes are to overcome the growing scepticism, they will need to prove their worth. He says outcome metrics must be measurable and attributable with a baseline that reflects the expected performance without payment-by-results.

He adds that providers must be fairly rewarded for the risks they are taking within payment-by-results contracts and that risk and reward should be fairly apportioned along the supply chain.

“Large contractors shouldn’t simply pass risk through to small, voluntary sector providers less well able to hold it," he says. “Equally, voluntary sector providers must be savvy about the subcontracts they sign.”

Voluntary sector groups have long voiced concerns that payment-by-results government schemes, such as the Work Programme, are stifling the charity sector with risk and additional burdens such as cash flow problems.

Last year, 25-year-old charity, Red Kite Learning closed. At the time it said government payment-by-results programmes such as the Work Programme had made its future untenable.

The latest payment-by-results initiative to be announced by government are plans to to contract out probation services for low and medium-risk offenders to the private and voluntary sector.