Buyers back payment by results

2 September 2013

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3 September 2013 | Will Green


More than two thirds of buyers support the use of payment by results (PBR) in managing contracts, according to the latest SM100 survey.


An overwhelming 68 per cent of respondents in the poll supported the use of PBR, compared with 32 per cent who were against it.


The findings comes despite concerns raised by a think tank over the proposed use of PBR to manage Ministry of Justice (MoJ) contracts to reduce reoffending.


The Social Market Foundation claimed the proposed mechanism – involving a ‘margin of error' where payments or penalties were not triggered for performance 3 per cent above or below a baseline –could “reward failure”.


This was because weaker providers that doubted their ability to cut reoffending by more than 3 per cent would be tempted to reduce their efforts in order to trigger enhanced payments as reoffending would have to increase by 3 per cent before penalties kicked in.


Martin Blake, head of corporate procurement at the London Probation Trust, supported PBR but said “excessive” clawback and reconciliation clauses would “undermine any good intent” and he cautioned against service commissioners “outcome re-profiling” and reducing targets due to “mitigating factors”.


Blake said: “In service contracts, a flexible yet realistic contract complemented by regular outcome reconciliation and contract management is essential to ensure that the contract performs as intended and is being managed on an ongoing basis.


“That way, if the contract isn't working out for either party as expected, alternative arrangements or business continuity measures can be instigated appropriately.”


Dan Ware, procurement business partner at the National Trust, backed PBR, but said: “It is essential to reach such a deal by agreement, not through imposition, so that all parties involved are genuinely incentivised and also to ensure that the results can be accurately measured so there would be no need for a tolerance as in the MoJ deal that has been reported.”


But Richard Gane, supply chain specialist at Vendigital, voted no.


He said: “Problems arise because the objectives of the supplier and customer become conflicting. The customer tries to minimise the price and the supplier tries to preserve the value of the contract and/or maximise profit.”

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