Councils have been given the go ahead to adopt payment by results to service contractors. The Audit Commission has produced an ‘how to do it’ guide explaining how to go about it.

Payment by results is a key element of the Open Public Services white paper published last year. It creates a tough financial incentive for providers to deliver good services throughout the term of the contract. The aim is to make savings or improvements by focusing on rewarding particular outcomes in these areas.
It is seen as a measure that can deliver savings and bring in new resources at a time when budgets are under great pressure.

Payment by results schemes are already in use in different parts of the public sector. They include reducing reoffending; diverting young offenders from custodial sentences; helping the unemployed to find work; preventing children from being taken into care; keeping frail older people in their own homes; and improving the management of chronic health conditions.

Payment by results is also being used in the troubled families initiative where councils will receive a payment from Communities and Local Government based on the level of their performance.

What sets payment by results apart from other contract types is that a significant amount of payment is withheld until the results are delivered. The payment is directly related to the level of success. It is a key element of the government’s policy for achieving better services at a lower cost.

It also defers costs to commissioners to allow time to realise the benefits of change and preventative work. It is also claimed that it provides sustained incentives for providers to improve outcomes, and to find new ways of doing so. In addition it can encourage new ideas, new forms of service delivery and new entrants to
service provision.

The take up of payments by results is likely to be greatest where social investment bonds, or some other form of social investment is involved. In all cases the level of dividend payment will depend on the outcome achieved.