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Payment by results

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Payment by results (PbR) is the practice of paying providers for delivering services after agreed results have been achieved.

The advantage for a commissioner of this model is that public money is only spent when the results are achieved, so money isn’t spent on unproductive services. However, PbR schemes have proven to be complex and costly to set up, and often mean providers taking a very high level of risk.

Voluntary sector providers, particularly smaller organisations, usually need start-up and revenue funding to enable them to deliver a service. In PbR contracts, this funding can be provided by a prime contractor or by a social investor in the form of a loan or a social impact bond.

Models of PbR

Payment by Results includes a variety of funding models, including the following.

Binary model

The provider must achieve an absolute target. The model is binary in the sense that there is an absolute yes/no distinction as to whether they receive payment; payment is not graded for achieving lesser results.

An example is the Work Programme where service users needed to return to work for a fixed period or no result is funded.

Frequency scheme

As opposed to the binary model, rewards are staggered along agreed frequency of results, with payments increasing as results increase.

This was the model used in Ministry of Justice pilots to address reconviction numbers.

Hybrid grant and payment by results model

This is a mixed model where the cost of delivering a service is funded, but additional payments are rewarded as bonuses if additional impacts are demonstrated at the end of a programme.

Challenges facing voluntary organisations

Challenges for charities in delivering payment by Results (PbR) contracts include the following.

Governance and risk

Boards of trustees might not have experience of PbR and are likely to be risk averse, or not have the skills to analyse and plan for the risks associated with PbR.

There is also the potential for failings in related services outside the provider's control to reduce the chances of their targets being achieved and hence their payment.

Cashflow

This is perhaps the biggest barrier to charities, particularly smaller organisations, taking on PbR contracts. Most charities do not have reserves or working capital to be able to invest in delivering a service prior to receiving the funding. This means that they’re either dependent on social investment, or on being part of a supply chain (where a larger organisation takes the risk and subcontracts delivery), or they’re excluded from the market.

Business and contract skills

As this is a new way of working, charities may not have the financial expertise or financial monitoring systems that are required to, for example, enable production of service deliverables to trigger requests for payments.

Increased monitoring

The level of monitoring required might be higher than for regular contracts, and so the cost of this needs to be factored in, and data management systems might need to be adapted, which again is an additional cost.

More information about payment by results

Page last edited Oct 25, 2018

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