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1F. Can payment by results reduce commissioning costs?

What is sometimes seen as the pure form of payment by results involves a very reduced role for commissioners who stipulate outcomes and allow providers to seek to meet them in any way they see fit. Since payment is dependent on achieving these outcomes, in theory commissioners do not need to invest the same level of time and resources in performance and contract management.

However, this approach has been very rare in practice. Very many commentators caution about the amount of initial work required of commissioners in designing outcomes and the mechanisms for measuring, verifying and auditing them.

The research notes that there is a tendency for bureaucratic systems to develop in order to manage PbR contracts, a finding echoed by an NCVO study reviewing a number of PbR contracts which reported over-intrusive monitoring by commissioners and recommended that duplicating existing contract stipulations often runs counter to the purpose of a given PbR scheme.

In similar vein, the National Audit Office commented that:

“PbR is particularly resource-intensive because of the technical challenges of setting the right payment mechanism.”

The scale of the problem is helpfully summarised by another review of payment for performance/PbR schemes:

“The jury is still out on whether the benefits of P4P schemes in public services exceed their costs.”

However, it should be pointed out that the Work Programme performed at a similar level to past welfare-to-work schemes but at a cost lower by £41 million.

Conclusions

Where commissioners and providers have jointly agreed and are satisfied with outcome measures and related payments, it may be to the benefit of both parties for commissioners to reduce their level of contract oversight. Relying on the achievement of outcomes can reduce commissioning costs and enable providers to invest more time and money into services and less in reporting mechanisms.

Commissioners should seek to anticipate the resources involved in designing outcome measures and any role they intend to take in verifying and/or auditing these.

Providers will want to reassure themselves that their outcome reporting system is robust and timely in order to identify quickly any difficulties which need addressing in order for them to meet outcome targets and receive fully payment.

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