- July 22, 2014
When you are as old as I am, certain things start to come around again, and I am reminded how little there is that is genuinely new or untried in the realm of public sector service provision.
For example, as ATQ has blogged about before, Payment by Results was first tried in schools during Victorian times, which is before even my grandparent’s era.
My latest sense of déjà vu came this weekend when I read how Labour is likely to propose that public sector organisations should be allowed to freely compete and bid to deliver services – taking the model of the East Coast mainline train operator as an exemplar.
This reminded me of compulsory and voluntary competitive tendering (in local government) and market testing (in central government) which were used in the late 1980s/early 1990s as a way of using a competitive tender process to try and drive efficiencies and reform. The idea was for in-house teams to compete for the services that they were currently delivering. In this way, it forced an assessment of inputs vs outputs, how costs of services were made up and where changes could be made in working patterns and processes and so forth.
In local government competitive tendering was often a Thatcherite stick with which to beat left-wing Councils; while in many central government Departments, market testing was often a somewhat artificial process where the in-house team was never going to be replaced by a new provider and little benefit was derived. However, in some Departments and particularly in local government white and blue collar services, these processes led to noted improvements in in-house provision, and/or the outsourcing of services including through privatisation following management buy-outs. As a result, competitive tendering and market testing in many ways, set the public services industry ball rolling.
The world has moved on since then but similar exercises have taken place and are still underway. In 2010 and 2011, the NHS ‘right to request’ and ‘right to provide’ processes created new social enterprises for delivery of health services by previously in-house teams – which will have to compete for their ‘dowry’ contracts after five years. According to the Department of Health some 40 services and 20,000 staff are now operating in such social enterprises. The creation of these new providers was highlighted as a factor in the growing proportion of services provided by non-NHS organisations in Nuffield Trusts recent (July 2014) report. http://www.nuffieldtrust.org.uk/publications/red-state-nhs-finances
The political philosophy arguments about use of non-public sector organisations in the delivery of public services remains a constant and has, over time, clearly influenced what type of organisation will win a contract award e.g. the increasing desire to make full use of the VCSE provider base. However, the underlying idea of ‘market testing’ is the same as it ever was.
- June 12, 2013
I attended an interesting breakfast seminar organised by my business school, IESE, yesterday entitled “The Challenge of Sustainable Social Investment” with panelists Prof. Heinrich Liechtenstein, Deirdre Davies of Deutsche Asset Management Group, Oliver Karius of LGT Venture Philanthropy, and Nick O’Donohue of Big Society Capital.
Interestingly, the Dormant Accounts Act defines quite carefully what social impact means for Big Society Capital by laying down what organisations its co-funded intermediary investment managers can put money to work with. These are defined as third sector organisations that are delivering a “social gain”. As a result, BSC has identified Community Development Finance Institutions (CDFIs), charities, social enterprises and organisations addressing financial inclusion as fitting this criteria.
For others, social impact is defined by the outcome sought and it matters not whether the organisation delivering the outcome is for profit, a social enterprise or a charity. A good example backed by LGT is a for profit private education business filling a gap in the market in Kenya based on a business model that charges $4 per child per month. Another example given was of a branded leather goods company that was bought out by private equity backers who then invested heavily in both ensuring that its supply chain eliminated any use of child labour and that its tanning processes were clean. It did this to create value for itself on exit by creating a sound organisation that could, therefore, be bought by others.
Clearly, an investor can decide what social impact it wants to support and also how it will measure the outcome to its satisfaction. Similarly, an organisation can decide how to include and measure social impact in its own mission statement and values no matter what its financing structure i.e. for profit or not for profit.
One other point emerged clearly for all those attending, which is that whatever the social impact arguments and story, social investors are just that – investors and they will always be looking for a return on their capital. Any organisation seeking social investment will need to understand this fully. Many social enterprises are expressly established as not-for-profit which is a decision that can be taken and is fine in and of itself. What it means though, is that only a more narrow and smaller set of potential funding is available and without “equity” risk capital, the ability to grow and deliver greater social impact will be constrained.
In my view, if social impact ends up being defined as only being delivered by not-for-profit organisations, then this will slow the growth in the social impact investment market and improved social outcomes. I, for one, believe that any investor and organisation can define for itself what social impact means and then go about delivering it.
- May 9, 2013
Today, 9th May 2013, sees the Ministry of Justice (MoJ) publish its rehabilitation revolution consultation response in “Transforming Rehabilitation – A Strategy for Reform”. See press release and links to MoJ publications here https://www.gov.uk/government/news/12-months-supervision-for-all-prisoners-on-release
ATQ submitted a response confined to the consultation’s Payment by Results (PbR) questions, as this is the main area where we are well qualified to comment.
While clearly attractive in terms of political presentation, we felt strongly that the proposed binary measure where outcome related payments were triggered only for total desistance would not work well. If a provider is paid only for offenders that desist totally for 12 months, then as soon as a person has re-offended there would be no further incentive to work with them. If the most prolific offenders are the ones more likely to re-offend, then such a binary measure could be almost counter-productive.
We suggested that PbR payments be linked to reductions in a total measure of offending across a cohort. In this way, providers would be incentivised to work consistently with all offenders in their cohort and especially those most likely to re-offend. This suggestion, no doubt also put forward by others, has been accepted as a component of the payment mechanism in a blended approach that retains the politically important success payments for total desistance.
“We have refined our ‘payment by results’ approach in response. Our payment mechanism will incentivise providers to focus resources on all offenders, including the most prolific and the hardest to help, and will ensure that they are not able to ‘game’ the system. Providers will be rewarded with success payments primarily when they achieve an offender’s complete desistance from crime for a 12 month period. However, our payment mechanism will also take into account the total number of re-offences committed by the cohort of offenders providers are responsible for rehabilitating, so that providers are incentivised not to neglect the most difficult offenders and those who have already reoffended. Every victim of crime matters and we need to ensure this is reflected in providers’ payments.”
- March 7, 2013
Last Monday the Cabinet Office launched “What Works” a new initiative to improve evidence-based policy development. The Cabinet Office Press Release, with detailed documents attached, is here. A useful summary from the Guardian is here.
As the press release explains “The What Works Network, a key action in the Civil Service reform plan, will consist of two existing centres of excellence – the National Institute for Health and Clinical Excellence (NICE) and the Educational Endowment Foundation – plus four new independent institutions responsible for gathering, assessing and sharing the most robust evidence to inform policy and service delivery in tackling crime, promoting active and independent ageing, effective early intervention, and fostering local economic growth.”
In simple terms, the aim is to do for evidence-based programmes and interventions, what NICE does for drugs. If NICE approves a drug or treatment, the NHS will prescribe it (provided local commissioners can afford it). If an intervention has a similar seal of approval, commissioners and others are more likely to use it.
As the Guardian observes, this has been something of a pet project for the Cabinet Secretary, Sir Jeremy Heywood, since he was merely head of the Cabinet Office. It is an important element in payment by results and social impact bonds, where it is hard to design such schemes (and especially assess the risk for providers and investors) if you do not have a reasonable confidence that the interventions proposed will improve outcomes and achieve the results required.
But it seems to me that this has much wider implications. First, as critics have already observed, it should make it harder for ministers to base policy on whim or ideology. There is a long standing joke among Whitehall watchers that Ministers prefer policy-based evidence making to evidence-based policy-making – i.e. getting the facts to fit the policy rather than the other way round. If the new policy centres do start to become as established as NICE, this will probably be harder to do.
But something else that intrigues me is whether it will become much more the norm to attach a monetary value to social policy. This is very much the way that NICE works – which leads to increasing controversy when it rules against the use of an expensive drug that might extend the life of a loved one for a few weeks or months, on the grounds that it is not worth the money.
In social policy, there is still a strong view among many providers that we should not concern ourselves with whether something works in financial terms, but should intervene simply because it is “a good thing” or “the right thing to do”.
I have always found this a difficult argument to sustain if the thing that is being done requires public money. There are only two reasons for any intervention which requires investment by the state. It achieves a better result – for the person themselves and/or for society as a whole – than doing nothing. This requires measurement against what would have happened without the intervention, through some form of control or baselining.
The other is that doing something costs less than doing nothing, usually because it avoids higher costs later. On almost a daily basis, it seems that we have a new study or report which argues the case for public investment on these grounds. Yet many of those who advocate such policies seem reluctant to go the extra mile and resist attempts to properly measure the value that they add in financial terms.
But if “What Works” mirrors existing, similar work in the US – notably by Washington State Institute for Public Policy – it will become very much about this intervention costs X and saves Y, that intervention costs A and saves B – as well as about whether it is effective in reducing or solving a social problem.
No, we cannot reduce everything to pounds and pence. But if the public sector is being asked to put money to work to make things happen, It seems reasonable to ask for some evidence that those things add value.
- February 13, 2013
There is a famous, almost certainly apocryphal, story about a 19th century recipe for cooking jugged hare. Before getting into the detail of how to cook it, the recipe advises the reader: “First, catch your hare”
I’m reminded of this when I read some of the advice that is starting to become widely available on how to build a case for investing in better social outcomes. The advice usually relates to social impact bonds (SIBs) or payment by results (PbR) – but it also comes up in the wider context of making the case for any early or preventative intervention which reduces service demand.
Some of this advice is excellent, and nearly all of it is useful. But what most of it has in common – and why it reminds me of the challenge of catching a hare before you can cook it – is that it tells you what to do but is often short on detail of how to do it. For example, there is advice to collect data on costs and benefits, undertake cost benefit appraisal, build a financial model, estimate whether savings are cashable, etc. But more detailed guidance on how you do these things is thin on the ground. Basically, much of the guidance is saying “First, build your business case”
At ATQ we have been through this pain. In a previous life we worked alongside the Cabinet Office with four local authorities on the feasibility of using payment by results or social impact bonds to fund interventions for troubled families. The effort involved in testing the feasibility of intervention – and whether it was wholly or partly self-funding as result of future savings – was, to put it mildly, significant. And at every stage of the process, we kept saying to ourselves – we must make sure we record how we did this, so that others can benefit from what we have learnt and do not have to do the same things from scratch.
So last week (somewhat later than we had originally intended) we published a joint Cabinet Office/ATQ guide to building a business case for intervention which improves outcomes. You will find this on the Cabinet Office website as a How to Guide for commissioners of Social Impact Bonds, and on our website as a Payment by Results Toolkit. But both these short titles are somewhat misleading. The methodology and tools we used do not work only in a PbR or SIB context. They can also be used whenever a public sector body wants to know whether and how costs will change if it takes action which addresses a social problem and ultimately reduces service demand. They should help anyone facing these challenges to:
- identify what data they need to undertake a cost appraisal;
- collect that data in a structured way; and
- model and analyse the data once they have it (especially if they use the financial model we are making available).
We are not saying that the methodology we worked out is the only one available, or that we have all the answers. Much good work is being done by many public sector bodies, such as local authorities which have been involved in Whole Place Community Budget pilots or are at the forefront of work with troubled families. And the tools do not solve the basic challenge of collecting good data – though the Cabinet Office and others are working on making better data available
But, hopefully, they will help at least some of those who are grappling with these challenges and finding it a bit like chasing a hare round a field.
- February 12, 2013
The Ministry of Justice consultation on the Rehabilitation Revolution – https://consult.justice.gov.uk/digital-communications/transforming-rehabilitation – closes on 22nd February.
The MoJ’s self-set conundrum is an interesting one – how to design a PbR mechanism that rewards providers who succeed in getting offenders to desist totally whilst at the same time encouraging providers to work with those most likely to re-offend and so reduce their chances of receiving successful outcomes payments.
Colleagues at ATQ have submitted a consultation response and have suggested a route through the conundrum.
It proposes a ‘before’ and ‘after’ scoring mechanism where values are linked to the offences committed and providers are targeted to achieve an overall reduction. A minimum threshold maintains a ‘binary’ reward mechanism that the MoJ is seeking and it positively encourages providers to deal with the most prolific offenders as their highest priority.
The consultation response can be found at http://www.atqconsultants.co.uk/images/uploads/VF%20ATQ%20MoJ%20Rehabilitation%20of%20Offenders%20Consultation%20response.pdf
- January 14, 2013
The CBI put on an interesting conference on 14 January on payment by results in public services. The Public Services team at the CBI should be congratulated for organising such an interesting event, which had strong presentations from a range of practitioners in the PbR space, top and tailed by two major attractions – Will Cavendish from the Cabinet Office public sector reform implementation team and no less than the Secretary of State for Justice, Chris Grayling.
As noted in our last blog the proposals in Transforming Rehabilitation will have a major impact on the sector and it was fascinating to hear about them direct from the Secretary of State. He made a number of points but two – which were not explicit in the consultation paper – stood out.
The first was about reputation management. Mr Grayling made it clear that he expected bidders for the new PbR contracts to be fully aware of the damage they could cause to themselves and to the programme as a whole if their performance or practices led to criticism and bad publicity in this very sensitive area of public policy. It would thus be an explicit requirement for bidders to demonstrate how they would manage reputational issues. This will no doubt be a challenge for all bidders and especially for some public service providers who have been in the public eye for the wrong reasons in the last few months.
However I think Mr Grayling and his officials will also have an important role to play. He made the very valid point that prisoners who are being managed by the probation service today, sometimes commit serious crimes, and that this will still happen when they are managed by external providers. The key question is: will such an event be reported – or scrutinised – differently than it would be today – because different standards apply when services are contracted out? If it were (and we strongly suspect it would be) then one hopes Ministers and officials will not leave it entirely to providers to defend the policy
The second was about delivery and contract structures. Mr Grayling made clear that he was not wedded to the prime contractor model, and especially would not be impressed by bidders who relied wholly or almost entirely on specialist sub-contractors to deliver the service. This seemed to me to be a clear warning that the managing agent model adopted by some primes to deliver the Work Programme would not be looked on favourably – and that bidders would have to be delivering at least some of the services directly – using in-house as well as third party expertise.
- January 9, 2013
Today sees the launch of the new Justice Secretary’s plans for a substantial expansion in the use of payment by results (PBR) for the management and rehabilitation of offenders. These have been eagerly awaited and much anticipated since the Ministry of Justice (MoJ) paused previous plans to pilot PBR in a number of areas in last November.
The plans are, as always promised, subject to consultation (though only for six weeks!) and much detail has still to emerge. But it is clear that the proposals will be radical and will have huge implications for both Probation Trusts and for third and private sector providers of rehabilitation services.
The plans deserve careful analysis once more detail emerges but my initial reaction – as when the plans were first trailed in November – is that there is risk in such a radical change. Some have welcomed the new Justice Secretary’s clear desire to “get on with it”, but there were good reasons for the pilot-based approach which the MoJ was previously taking. This was not so much because otherwise the government would be taking “a reckless gamble with public safety” as the Labour Party has already alleged, but because the evidence base for the effectiveness of intervention in reducing re-offending was, and remains, poor. Without better evidence (which the pilots aimed to capture), it may be very hard to persuade many providers – already bruised by their experience of the Work Programme – to take part.
There are also many major challenges ahead for Probation Trusts – who will need to radically reorganise, and possibly mutualise or form joint ventures so they can bid for contracts; and for the MoJ commissioning team – who need to decide how they measure success in reducing reoffending, and for example whether they use “binary” or more complex measures which take account of success in reducing the severity or frequency of offences.
It’s going to be an interesting few weeks and then many months in the Justice sector!
- November 28, 2012
On November 23rd the Cabinet Office launched two initiatives designed to stimulate the market in social impact bonds (SIBs) and similar payment by results (PBR) schemes: the Centre for Social Impact Bonds (an online resource for those considering how to do this stuff); and the Social Outcomes Fund – which may be of more interest to commissioners and others since it involves government putting up some money to stimulate the market in SIBs.
We played a small part in the development of the Social Outcomes Fund, since it was one of the recommendations made in the report we co-authored with the Cabinet Office (in a previous life) on the feasibility of applying SIBs/PBR to troubled families. The principle of a SIB is that interventions to solve a social problem are funded from future savings to the commissioner and others. One of our findings was that it is difficult to persuade those who benefit from a successful SIB or PBR scheme and are not the main commissioner to make a contribution.
This was also the experience of Essex County Council when trying to get contributions to its SIB aimed at keeping older children out of care or custody (the launch of which, along with another SIB aimed at homeless rough sleepers in London, was also announced at the same event)
So the purpose of the fund – as made clear by Ministers at the launch event – is to enable those wanting to set up a SIB to apply for the fund if they cannot get contributions direct from other bodies. The Cabinet Office also hope that the Fund will help grow the market for SIBs and similar schemes – which have been slower to take off than many hoped Other sources of funding are starting to emerge which have similar aims – such as the impending Results Fund being set up by Big Society Capital.
In our view (we could hardly say otherwise) the Social Outcomes Fund is undoubtedly a good thing. The developing debate is whether SIBs and similar schemes will ever get to the sort of scale where they can make a real difference to social outcomes and – by extension – start to really impact on the costs of social problems. The general view at the launch from all sides (investors, commissioners and policy makers) seemed to be that things have moved on a good deal over the past couple of years, but there is still a way to go.