Government ‘must pay only for service outcomes’

2 December 2009

2 December 2009 | Jake Kanter

UK public sector buyers must pay for “outcomes not inputs” to save money and improve services, think tank 2020 Public Services Trust has said.

Its report Better Outcomes, launched in London yesterday, calls on the government to overhaul its contracting processes by introducing payment on performance for suppliers, rather than focusing on how contracts are delivered.

It said outcome-based commissioning should be applied wherever possible to minimise the risk of cuts to frontline services as future spending is constrained by the budget deficit.

Paying suppliers when a service has been delivered could “bring about a revolution” in the delivery of contracts, the report argued. This would mean the government pays only for what it needs and transfers risk to service providers. Outcome-based agreements would also provide suppliers with an incentive to succeed and innovate.

The study recognised that the shift would not be easy, but said buyers should introduce a standard process for purchasing services. Recommended steps include designing outcomes, establishing a delivery baseline and managing the process over the life of a deal. Strong political and managerial leadership will be key to spearheading this model, the report added.

It also noted that there are already examples of outcome-based contracts in existence in the public sector but believes this approach should happen across the board.

Speaking at the launch, Lord Geoffrey Filkin, chair of the trust and honorary CIPS fellow, said: “We have to create very strong incentives for innovation to reduce costs and improve outcomes. This can happen if we switch wherever possible to paying for outcomes or outputs and stop paying for inputs.”

Responding to the report, Francis Maude, shadow minister for the Cabinet Office, said: “The taxpayer is not getting fantastically good value for every pound the government spends. Specifying [contracts] by outcomes is absolutely crucial and the Conservative party’s thinking will go down this path. Outcome commissioning is the direction in which procurement should be headed.”


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