The implementation of payment by results contracts in the voluntary sector has often been "seriously flawed", the National Council for Voluntary Organisations and the sector law firm Bates Wells Braithwaite have said in a joint report.
The report, called Payment By Results Contracts: a Legal Analysis of Terms and Process, is based on a review of a number of PBR contracts, as well as interviews with service providers from the voluntary, community and social enterprise sectors.
The report says that public bodies often enter into PBR contracts without a clear idea of why they are doing so, and simply duplicate terms from non-PBR contracts.
It says that many contracts continue to specify how a provider will deliver a service, rather than give charities the freedom to deliver the service as they want. In other cases, they specify so many targets they cannot effectively measure them, or insist that they will pay only for outcomes that are beyond the provider’s control.
According to the report, there is often no consideration of the effect that PBR might have on the cash flow and viability of service providers, and there is little attempt to measure whether PBR is effective.
"There appears to be a significant and worrying gap between parties’ experience on the ground delivering the service and what is being reported back up the management chain," the report says. "Even though there is a recognition that contracts are not working, there is huge political pressure to declare the contracts a success."
The report says there is "widespread concern" that "the manner in which PBR has been executed to date has been seriously flawed and measures are not in place to learn from, and address, these problems".
Karl Wilding, director of public policy at the NCVO, said it supported the use of PBR because it encouraged commissioners to focus on procuring for good outcomes, rather than services, but at present there was a lot of poor commissioning.
"The fears voiced by our members are that PBR contracts being offered to the sector are poorly constructed, do not incentivise the right outcomes and do not enable the improvement of services that we all agree are so necessary," he said.
The report says it is not surprising that PBR faces problems, because it is a new type of contracting with potential teething problems. But the problems encountered arise from inflexibility on the part of the public sector, it says.
"It is noticeable that many of these problems are inherited from previous poor contracting practice," says the report. "They suggest a fundamental failure to accept as essential the involvement of providers, in particular VCSE providers, at the design, commissioning and negotiation stages of contracting, and to prioritise the need to be flexible and proportionate to the strengths and requirements of a diverse provider market. These behaviours and values should, by this advanced stage of public service commissioning, be well understood and universally practised."