Responses to ‘Paying for Results?’

Richard Johnson, former Managing Director of Serco Welfare to Work and now consultant on procurement and service delivery

“The Social Market Foundation offer their customary thoughtful and in-depth analysis of the Ministry of Justice’s forthcoming reform of probation services. I am not sure contractors will frame their own modeling in the same terms or language, but their conclusions will be the same as the SMF. The contracts, as currently proposed, will not incentivise investment in the extension/transformation of services to reduce reoffending. At best, they will maintain current levels – assuming it can be decided what measure of reoffending to apply, based on what geographies, tracked in what way.  If a contractor takes over a probation area that is currently very successful, how can they be rewarded for performance improvement, when compared with a contractor taking over an area that is currently failing? I do not believe contractors will cynically plan for an increase in recidivism, but they will not perceive these contracts as a ‘rehabilitation revolution’ – they are simply about the outsourcing of probation, with an emphasis on price competition. If there is any ‘value for money’ in the contracts, it will be derived from short-term savings at the risk of long-term rises in reoffending (and all the costs associated with that). There had been a hope that social investment might fund a new focus on rehabilitation. The SMF report clearly demonstrates that there is inadequate potential reward to attract such investment. There is also a paucity of robust statistical data on which any business case to investors could be constructed. A small number of pilots might have provided such data, instead of this rapid national rollout. The MoJ must seriously consider this SMF modeling and their suggestions for changes to the payment structure. There is no denying the need to tackle recidivism rates, but hasty, commercially naïve contracting will have the opposite effect.”

The Probation Association

“The independent think tank, the Social Market Foundation, has published a critical analysis of the Payment by Results (PbR) element of the Government’s proposed reforms to the probation service. The analysis, Paying For Results? Rethinking probation reform, underlines the long-standing view of the Probation Association and the Probation Chiefs Association that PbR on this scale is both too complicated and insufficiently piloted to form the basis of such rapid and large-scale reforms. We have argued for a phased introduction. The report’s author, SMF Director Ian Mulheirn, a former economic advisor to HM Treasury, said that, while PbR made sense in principle, elements of the Ministry of Justice’s model would have the effect of turning incentives for providers upside-down. The result, he said, would be strong perverse incentives that could leave providers who spent money on reducing reoffending worse off than if they had spent nothing at all. Mr Mulheirn said: “The Ministry of Justice has effectively made it all but impossible for providers to achieve results good enough to get paid, without investors taking on impossibly high financial risks. The result will be that they simply won’t try.

 On these plans providers face incentives to cut frontline costs and allow reoffending rates to creep up.  If they are implemented the scheme will reward failure and penalise success. Doing so would be setting the scheme up to fail for victims, taxpayers and offenders.” In our formal response to the Transforming Rehabilitation consultation paper we said: “The PbR approach is not sufficiently tested in the criminal justice area to form the basis of such a radical change. Experience in other parts of government points to the complexity and difficulty of successful delivery of services organised in this way.” We urged the Government to initially restrict PbR to contracts for services to offenders released from prison sentences of less than 12 months, to then develop PbR schemes for interventions and only expand PbR once solutions had been identified to the significant problems in contracting out probation business.”

Russell Webster, Independent consultant and PbR expert


“Today’s paper by Ian Mulheirn of the Social Market Foundation criticising the Ministry of Justice’s proposed payment mechanism for the new reducing reoffending contracts about to be tendered under the Transforming Rehabilitation project is all the more powerful because it comes from someone (like myself) who is a proponent of Payment by Results. With PbR the devil is notoriously in the detail. In his trenchant analysis, Mulheirn points out that the current payment mechanism would actually reward a provider who spent less on services and didn’t invest in new approaches to reduce reoffending. The MoJ is current revising its payment mechanism and the second version has been due out for a couple of weeks. It will be interesting to see if they incorporate any of Mr Mulheirn’s suggestions in the final version.”

Dan Corry, Chief Executive, New Philanthropy Capital


“This SMF paper by outgoing Director Ian Mulheirn makes some very important and cogent points, particularly about statistical uncertainty and its interaction with payment by results schemes.  In so doing it raises questions   surrounding the design of the major programme in the criminal justice system that is due to be implemented in 2014. At NPC we have done a great deal of work trying to help charities understand the proposed system, bringing them together with potential primes and policy makers and I can certainly say that many of these points echo some of our concerns. Justice Secretary Chris Grayling wants to make sure that all those released from prison having had less than 12 months sentences are supported – a worthy idea but on the face of it a very expensive one. In the long run reducing re-offending may reduce prison spending but in the shorter term he needs to save money from elsewhere. So it is perhaps not surprising that, as SMF have discovered, the incentives look more likely to push cost reduction   than reduction in re-offending. SMF reckon that any rational for-profit prime will not put much effort into reducing reoffending. Many of their suggestions make sense and I am sure that the sensible folk at MoJ will look at them carefully. I am pleased that Ian did not conclude from the analysis that shows that bigger areas (CPAs) reduce statistical uncertainty, that a solution is to have fewer, larger contracts. Such a move would be very bad for the voluntary sector providers and I think we should always be looking for more decentralised, closer to the ground, commissioning. SMF are too pessimistic in places. The fee for service will for instance include some payment for activities that should help enhance rehabilitation. The statistical debate – and the idea of a range of ‘statistical uncertainty’ – is part of a wider issue that will affect payment by results contracts in all service areas. In truth we do not quite know what a ‘good’ performance will be – such that a better one should secure financial rewards. Work with things like NPC’s initiative, the MoJ’s Justice Data Lab , which helps charities understand what impact they are having will help us understand what we are achieving at present and so help build a sensible base line, but there is a long way to go.  The SMF idea of therefore suspending the ‘incentive’ payments for a couple of years so we start to understand what is possible does make some sense. The worry, on the other hand, of such a policy change is firstly that it might encourage primes to do a bad job so as to lower the baseline; and secondly that it makes some of the voluntary sector players less likely to get access to contracts since they are better at reducing reoffending than just being cost cutters. Ian talks about the dangers of flat payment schedules encouraging providers to go essentially for low hanging fruit. A good point – often a problem in payment by results contracts. We have another, linked, concern. There is a danger in all payment by results worlds that the incentives push providers towards making small incremental change with little risk rather than going for major innovation that might move the dial a lot. It might be good therefore if the payments schedule rewarded differentially really major improvements – although it has to be said that such approaches have not got anyone very far in other areas; risk aversion not innovation still tends to rule. A final point is that, as the SMF paper makes clear, with a lot of this we are plunging into the unknown. Ideal policy making would have seen things move a bit slower, be piloted and then amended. As I know from my own experience in government in the real word this often does not happen. But policy makers at MoJ and the Treasury (who are surely monitoring this risky project pretty hard) must be open to amending the rules as we go along as we discover what does and does not work.  The work SMF has done in this area – and other aspects of contracts for public services – has been very important. We need organisations with no vested commercial interest really interrogating policies as we go along, because these are difficult and new issues. I hope very much that Ian continues to take an interest in this area in his new career and that SMF continue to focus in this complex but vital issue.”


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