In the past few weeks MPs have been criticizing the seemingly slow progress of the Work Programme, and laying some of the blame at the door of its Payment by Results model. Margaret Hodge, Chairwoman of the Public Accounts Committee has said that the mechanisms which were supposed to prevent providers from concentrating on the easiest cases do not appear to be working, and that there is increasing evidence of ‘creaming and parking’, where providers focus on the easier to help customers and avoid working with the more challenging cases.
In parallel, the National Audit Office and Treasury have both appeared to cast doubt on the wisdom of Chris Grayling’s vision of rolling out Payment by Results on a large scale in the probation service. Sharon White, director general for public services at the Treasury, said “We’re taking a very cautious approach on whether this is going to deliver better value for money compared to direct public spending intervention.”
Meanwhile in local government, Payment by Results continues to develop on a smaller scale, for example, through the Children’s Centre pilots, which are due to end on the 31st of March, with an evaluation to be published in the summer. It’s too early to reflect on results but as with other service areas, there have been challenges in the development of measures, tracking of impact and transfer of risk.
The objectives underlying Payment by Results are not inherently ill-founded, in that it seeks to incentivise performance and reward providers for impact rather than wheel spinning. In so-far as it focuses our attention on the outcomes public services achieve, it’s a good thing. However, these and other examples demonstrate that it can be extremely challenging to implement on a practical basis.
A full PbR model is at one end of the spectrum of public sector contracting. Yet traditionally performance management of public services has focused on activity and process and in my experience, this is still the case for the majority of contracts awarded in local government. Undoubtedly that is partly a consequence of the difficulties of measuring the impact of certain services. However, as budgets continue to shrink, those services which struggle to demonstrate their impact will become increasingly vulnerable as they struggle to make the case for their own existence. This is particularly the case for services which provide a preventative or early intervention function, which are often regarded (wrongly, in my view) as ‘nice to have’ rather than essential.
Performance measurement in any field has inherent risks as it can create perverse incentives or create a focus on what is easy to measure rather than what is really important. ‘Parking and creaming’ on the Work Programme is one example, while many will also be aware anecdotally of the distortions created by the “5A* to C” GCSE measure against which schools are judged. Additionally, many services provide long term benefits which will not be measurable in the lifetime of a two or three year contract.
However, you cannot manage what you do not measure. In my view local authority commissioners can and should be moving along the spectrum of measuring and rewarding impact, while being extremely vigilant about the risks involved. So are there any other ways of incentivising a focus on outcomes without going through the pain and complexity of implementing a full Payment by Results programme analogous to the Work Programme? I believe there are.
Firstly, even without linking payment to impact, there is still considerable room for an improved focus on outcomes in contracting in local government. Most providers are eager to demonstrate that they have achieved what the commissioner wants, but at present it is frequently unclear what exactly that is, beyond providing a specified service at a specified time and place. Simply articulating the outcomes to be achieved could make a significant difference in ensuring providers are focused on the right objectives and are doing everything they can to achieve them.
Secondly, service commissioners and providers need to work towards a shared understanding of the outcomes to be achieved and shared methods for measuring them. The variety of different methods used by different funders to measure impact is a source of frustration to providers. This could be mitigated by commissioners taking a more collaborative approach prior to procuring services and working with providers to develop suitable measures that are focused on the right things but minimise the risk of distortion through measurement.
Thirdly, an increasing focus on evidence based practice and measurement would allow the development of shorter term measures which would enable providers to demonstrate their impact within the lifetime of a contract but which would also have causal links to the long term outcomes services are seeking to achieve. Careful choice of measures, the use of initial assessments, and a focus on distance travelled could help mitigate against cherry picking the ‘easy to work with’ at the expense of those with the greatest needs.
Finally, Payment by Results need not necessarily place the entire risk on the contractor. There is also the option of adopting PbR as an add-on to a contracting model which still ensures that providers are paid for the work they have actually done. This could be particularly valuable in the context of contracting with the third sector where organisations may be forced out of the market due to the untenable level of risk full PbR would entail.