The use of contracts based on payment by results is stifling innovation in public services, according to a report.
Rather than promoting new ways of working – as the government originally intended – PbR makes contractors more risk averse.
The study by the National Council for Voluntary Organisations (NCVO) also found such contracts fail to create the level playing field between private, public and voluntary sector organisations promised by the government’s ‘open public services’ agenda.
Many charities – particularly smaller, specialist organisations – struggle to take on contracts because payment is not made until targets are reached and this creates cash flow problems. Commissioners should instead offer up-front payments to prevent PbR from excluding organisations whose skills and expertise could help reshape services, said the NCVO.
Contracts relating to work with the hardest to reach brought ‘insufficient’ payments, it said.
The report called on the government to ensure different PbR models are evaluated and that good practice is shared.
‘Charities want to play their part in public service reform and have great potential to develop truly innovative solutions, improving services and reducing costs,’ said Sir Stuart Etherington, chief executive of the NCVO. ‘But current PbR practice risks excluding the specialist charities we really need to involve in order to develop public services.
‘Few people object to the principle of paying for an outcome, but putting it into practice effectively when it comes to complex services for people with multiple needs is challenging. Many of the current models of PbR still need significant development before they are truly fit for purpose.
‘Commissioners and providers must take action to improve their PbR arrangements and to learn from best practice. We mustn’t let a mechanism designed to drive innovation instead undermine it.’
