The Audit Commission has released its findings on the merits of local service providers taking on payment-by-results (PbR) contracts, stating that it is too early to draw firm conclusions about the method’s effectiveness.

The Commission reviewed both UK and international research evidence for Local Payment by Results Briefing: Payment by Results for Local Services. It found that  because they are still at an early stage, schemes that are results-based are “for the most part, untested” and there has been no overarching analysis of their value.

Rather than categorically advising for or against PbR, the Commission instead sets out the issues for commissioners so that they can use the technique efficiently, should they decide to go down that route. It also points out that “PbR is not the only contract type that rewards good performance, and commissioners should always consider other options alongside PbR to choose the most suitable approach”.    

The report aims to assist commissioners' understanding of what PbR involves; to decide whether it is right for their particular situation and whether it will provide what they want, and to advise how to steer clear of pitfalls.

Pros and cons

The briefing recommends five principles that any PbR scheme needs to meet if it is to be successful: a clear purpose; a full understanding of the risks; a well-designed payment and reward structure; sound financing; and effective management and evaluation.

On one hand, the Commission outlines the “significant benefits” of using PbR effectively. These include:

• PbR can save money and open up new resources in a climate where budgets are under extreme strain.
• The nature of PbR pushes the focus onto outcomes, meaning charities sometimes become more creative in their approach. It also increases accountability for outcomes.
• PbR can transfer financial and operational risks away from the commissioner, and onto the provider or funding bodies.

But the report also warns of risks, such as:

• Schemes that are results-based are “for the most part, untested”.
• Securing value for money from PbR can require a higher level of commissioning skill than other methods.
• The organisation that pays is not always the one that benefits.

The full report can be found on the Audit Commission’s website.