1E. Can payment by results open up markets?
A core objective of some payment by results scheme is the desire to create a new market, or open up an existing market to new providers.
Transforming Rehabilitation (TR) was a Ministry of Justice (MoJ) initiative which restructured the existing public sector probation service into two segments between 2013-2015. While the National Probation Service was created as a public body to work with high-risk offenders, 21 local Community Rehabilitation Companies were formed to work with low and medium risk offenders with PbR-based contracts for these CRCs put out to competition. Although voluntary sector providers were encouraged to compete, 20 of the 21 contracts were awarded to private sector prime providers, with voluntary sector partners apparently in quite subsidiary roles.
Conversely, the Children’s Centres PbR pilot scheme did aim specifically to open up this market to more voluntary sector providers.
However, a number of commentators have noted that, in practice, a number of PbR contracts have not succeeded in attracting the number of new providers anticipated. This is frequently related to the amount of risk that providers are required to entertain in order to provide services under a PbR contract. The National Audit Office reports that the MoJ tendered contracts for a pilot offender rehabilitation programme at Leeds prison but closed the competition without a successful bid after five of the six potential providers decided not to compete on the basis that they assessed the contract to be unworkable.
A number of studies report that the pressure on cash flow which frequently attends PbR contracts (because providers typically do not get paid until they have achieved the stipulated outcome targets) makes it difficult for smaller private and third sector organisations to compete effectively.
Other commentators raise concerns that this sort of competition may not only reduce the diversity of potential providers, but can potentially also inhibit open relationships and learning between erstwhile partners who have become competitors.
Conclusions
Commissioners are advised to take the time to understand the provider markets, the landscape of provision and providers’ appetite for the risk inherent in payment by results before deciding to use a PbR approach.
Smaller providers who are entering into partnerships or sub-contractor agreements with larger organisations should do their own risk assessment first and seek to get guarantees about workloads and/or negotiate payment on a non-PbR basis to minimise the risk to the financial security of their organisation.