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This piece of writing is part of a series of blogs designed to stimulate discussion around the five key elements of the ERSA Manifesto: commissioning, complex needs, skills, employer needs, youth employment. Any opinions represented within this blog are the authors and do not represent the views of ERSA.

Employment support providers know – sometimes all too well – that the commissioning structure behind our services makes a huge difference. Several discussions at ERSA’s conference last December highlighted the huge impact that commissioning structures and mechanisms can have: ultimately affecting the way in which providers’ can work with jobseekers. This is felt particularly strongly when it comes to working with people who face the most complex barriers to the labour market. Given the importance that commissioning models can have on driving providers’ behaviour, it is good that ERSA have made this a key area of their 2015 Manifesto.

Payment by Results – the means of commissioning in which providers compete to deliver services, bearing the risk and upfront cost instead of the taxpayer – has grown hugely in importance over the last few years. Their use is now particularly notable in the employment support sector, to the extent that Iain Duncan Smith recently described their rise as a “revolution in this Parliament”.

As an organisation with a long history of successfully delivering Payment by Results (PbR) contracts, as well as engaging with the social finance policy behind these schemes, Community Links has a good understanding of what this “revolution” can mean to small voluntary sector providers. Our experience working with PbR has taught us several key lessons, which we set out in a policy briefing . Our experience with PbR has been very varied – from the New Deal programmes to the Work Programme, today our £5.4m PbR portfolio includes eight different contracts which range from 50% to 85% payment on results.

Alongside our delivery experience, Community Links has for many years been involved in the thinking behind social impact bonds (SIBs). As part of Community Links’ work running the Prime Minister’s Council on Social Action in 2008 we proposed SIBs as a means of providing finance for voluntary sector organisations to deliver PbR contracts. This idea has taken on somewhat, being trialled at Peterborough prison in a scheme that may be rolled out as part of the Transforming Rehabilitation programme launched last month.

PbR as a means of commissioning has several attractive features. In our experience, PbR can work particularly well when the contracts are small scale (resulting in a closer link between providers and the commissioner) and when the outcomes are simple, for example when only one outcome is required. When PbR works, it should enable us to deliver our services innovatively, drawing on our local knowledge and experience.
But PbR also brings certain challenges, and is definitely not without controversy. Prison reform campaigners have warned that the introduction of PbR into rehabilitation work will be a ‘disaster’. Certainly, by passing risk from the government to private or voluntary sector providers, these contracts change the relationship between these organisations and the state. We think three main issues need to be addressed in order to ensure that PbR contracts work well:

  1. Contract financing needs to be carefully addressed. A blended funding model, with some ‘up-front’ or grant-based elements is useful; and PbR should not be the default way of contracting. This is particularly the case when working with people whose situations are most complex.
  2. The size and structure of PbR contracts can determine the role that different organisations play. Smaller PbR contracts would increase the number of small voluntary sector organisations able to become prime contractors. Supply chain issues – such as the extent to which risk is passed down from prime to sub-contractors – should also be addressed.
  3. PbR contracts risk forcing providers to focus on a narrow range of outcomes rather than working holistically. A greater proportion of up-front payments can enable providers to work more holistically. For groups that have the most complex issues, PbR contracts should be designed to incentivise the achievement of intermediate steps and ‘soft outcomes’.

Many of the points in ERSA’s manifesto mirror these principles. It’s crucial that the pricing model within PbR contracts truly reflects the costs of supporting jobseekers; and that PbR programmes can be designed in a way that allows join-up of outcomes with those sought by other providers, such as housing associations. It’s also important that these contracts are designed in a way that supports smaller organisations to be able to entre and thrive in the market.

Whatever the result of the election in May – Payment by Results is now a fixture in the employment support funding landscape. We hope these principles can help to make sure it works for all jobseekers including those facing the most complex barriers to the labour market.