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Government payment by results schemes are ‘risky’, says NAO

Payment by results (PbR) schemes are “hard to get right, risky and costly for commissioners”, the National Audit Office (NAO) has warned.

The NAO estimates that the government’s PbR schemes now account for at least £15bn of public spending, however it found that neither the Cabinet Office nor the Treasury currently monitors how PbR is operating across government.

Under PbR, scheme payment depends, at least in part, on the provider achieving outcomes specified by the commissioner. A new NAO report looked at a number of areas where PbR is now used, including welfare to work, family support, offender rehabilitation, and international aid.

The spending watchdog found that, without a common source of shared expertise and a strong evidence base, PbR schemes may be poorly designed and implemented, and commissioners are in danger of “reinventing the wheel” for each new scheme.

According to the report the government’s experience to date has shown that PbR is a technically challenging form of contracting, not suited to all public services, but commissioners have often failed to explain why they have chosen to use PbR rather than alternatives.

The PbR mechanism carries costs and risks that government has often underestimated, the report added. A poorly designed scheme may create perverse incentives which lead providers to prioritise people who are easier to help and neglect those who are harder to help.

Amongst the NAO’s recommendations is that the Cabinet Office and Treasury identify a part of the government to be the repository of information and expertise about public sector use of PbR.

Amyas Morse, head of the NAO, said: “While its supporters argue that, by its nature, payment by results offers value for money, these contracts are hard to get right, which generates risk and cost for commissioners.

“Payment by results potentially offers benefits such as innovative solutions to intractable problems. If it can deliver these benefits, then the increased risk and cost may be justified, but this requires credible evidence.

“Without such evidence, commissioners may be using this mechanism in circumstances to which it is ill-suited, to the detriment of value for money.”

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