More youth charities should take on payment-by-results contracts, new guidance suggests

But the report by Social Finance warns that outcomes-based contracts might not be appropriate for some services such as policing or child welfare

Nick Clegg, the Deputy Prime Minister, sees how the government’s Youth Contract is helping to employ young people
Nick Clegg, the Deputy Prime Minister, sees how the government’s Youth Contract is helping to employ young people

More youth charities should consider taking on payment-by-results contracts, according to a report by the social lender Social Finance.

The report, Youth Outcomes: A Guide for Service Providers and Commissioners, looked at how PBR contracts are currently used to fund programmes for young people in care, youth employment schemes such as the government’s Youth Contract and youth justice programmes. It examines what lessons have been learned so far and outlines the key considerations for both large and small youth sector service providers as well as commissioners.

The report states that PBR contracts give service providers "the freedom to decide how best to deliver outcomes that could significantly improve the impact of current public sector spending".

It adds that because PBR contracts might also be awarded for longer periods than traditional contracts, they might "give successful bidders a more secure financial future".

But the guidance warns that commissioners of services need to think carefully before deciding to use PBR contracts. "Despite the potential attractions for commissioners, service providers and investors, outcomes-based contracts may not always be an appropriate means of addressing a particular social need.

"If services are heavily regulated – for instance policing or child welfare – there may not be enough room for innovation to warrant an outcomes-based contract."

The report has been produced on behalf of Catalyst, a consortium of youth charities led by National Council for Voluntary Youth Services.

Beth Parker, director of service development at NCVYS, said: "Given the nature of PBR contracts at the moment, there’s an assumption that only large organisations are able to take them on board and successfully compete for work. We hope the report successfully shows considerations that organisations of all sizes must demonstrate to take on outcomes-based contracts."

Louise Savell, a director at Social Finance and one of the authors of the report, said: "As governments increasingly look to use outcomes-based contracts to deliver more for young people, it’s important that service providers can assess whether and how to participate. Social impact bonds and other outcomes-based financing mechanisms can facilitate such participation. We hope this guide will help demystify and empower the sector."

- Read our analysis to find out if payment by results works for charities

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