By Ed Shepherd

The increasing readiness for Government to turn towards Payment by Results (PbR) contracts was outlined by the Justice Secretary Chris Grayling, during his speech at the Conservative Conference recently. The interest in PbR contract reflects the growing political pressure to use PbR as a means to achieve both costs savings as well as to drive innovation and results. The mechanism has the opportunity to have a real impact on people’s lives, but presents many challenges for government, social investors and delivery organisations.

One challenge for social investors is that many of the organisations delivering payment by results contracts lack a track record of data that is comparable to the target outcomes in the contract. Building an investment case on patchy data presents many challenges, and it highlights the need for charities and social enterprises to ensure their impact measurement framework is thorough.

A further challenge of the mechanism is understanding the most effective and cost appropriate way to performance manage these bonds. Operationally a large amount of data management is often needed to record and track beneficiaries, with resources also needed to register and prove the outcomes within often bureaucratic government systems. IT systems can help this, yet it is often those on the front line that need to input information which can reduce their focus on creating impact with the beneficiaries.

Health secretary Andrew Lansley is intent on rolling out payment by results to services, potentially including social care. Credit: Jake Abrams

From a government perspective, these contracts lead theoretically to future cost savings for the department, for example on the cost of prison sentences for the Ministry of Justice (MoJ), or of unemployment benefit for the Department of Work and Pensions. But how many of these government departments will be able to realise actual cashable savings from the projects? Should the MoJ continue to fill its prison spaces regardless, the cashable savings will not be realised and there could be a shift in government policy away from payment by results as an effective cost saving mechanism.

Despite the challenges, there are many areas for possible future growth for PbR. Health is one possible area for development as it meets the requirements of being under one government department and there are known outcomes metrics that can be used, albeit often on a longer term basis. Could a PbR contract be designed to reduce smoking or obesity through better targeted education? International Development is a further area that could benefit from the targeted prescribed approach of PbR.

The jury is still very much out on PbR, yet the mechanism offers a unique opportunity to innovate within public services that cannot be missed. A collaborative approach between government, social investors and delivery organisations is key to ensure the true social impact of these contracts are realised. A key concern is the weight of political pressure currently being exerted on the PbR space, which may end up skewing the metrics used within contracts, resulting in a lower social impact than could potentially have been achieved. PbR was designed to address a huge social need, and this must not be forgotten amid the political commotion.