The role of procurement in (not) reshaping public services

Below is a paper I used as an intro to a working group looking at issues around procurement and its role in holding back service improvement. We’ll be writing up some conclusions or ideas next, so all thoughts gratefully received.

Put yourself in the place of a Director of Adults or Children’s Services in a Local Authority in the UK. In both areas you have rising demand for services. In adults services an ageing population and more disabled children surviving to adulthood are long term trends adding to the numbers. In children’s services the Southwark Judgement and the recent increase to the fostering age to 21 are creating upward pressures on demand without significant funding to support them. Each awful childcare case we read about, whether Baby Peter or Victoria Climbie, puts further pressure on the service, as social workers seek placements for more children who are cause for concern.

Into this context you have demands for cash savings of 20% or more over the next few years. So what can you do?

Traditional belt tightening

You can tighten access to services and ensure that significant cost decisions, to take a child into care for example, are not taken by individual social workers but go through resource panels that look at the case in comparison with others.

You can cut any non-essential or non-statutory services, those that you don’t have a legal obligation to provide. These are often the “softer” services, those that may prevent cases from occurring in the future. Their effectiveness is often uncertain, in part because the cases they have supported are not effectively monitored for long periods afterwards so the data on what happens next is not available. So the services are vulnerable.

Both of these have already been done in many places.

Wider reshaping

Or you could try something more radical. You could invest more, not less, in prevention or “demand management”. By providing more support for families earlier, you could keep more of them together, providing children with a home to go to in the long term. Or you could develop new models of care, such as the shared lives model in adult services, or supported living in the community rather than institutional care. These types of changes have the potential to create a more sustainable, lower cost model with better outcomes for everybody.

So how would you go about it? As an example here are some of the challenges in putting in place a preventative programme in children’s services:

  • Finance departments are wary of “invest to save” arguments. They know they will see the “invest”, but will they receive the “save”? They will need some convincing.
  • How would you target your potential families to support? How many families are in trouble, in comparison to how many end up in such trouble that children need to come into care? If you don’t get your referral criteria right, you’ll be supporting a bunch of families who may benefit, but who wouldn’t have cost you money down the line. You’d just be spending money.
  • What support programmes or interventions would you use? Which ones work? What evidence do you have that they do?
  • Who would provide the support? Should you build an in house team, or find a charity, social or commercial enterprise to fill the role?
  • If you do free up placements, will worried social workers start referring other children, knowing there are now other places available?
  • How would you know if you were being successful? Can you monitor those you have worked with for long enough to know what happened? Do you need to not work with some, to see what happened to them, and determine what might have been, and therefore whether you are working with the right families or not
  • Having established what services would make a difference, you find that they aren’t available locally. How do you enable the internal or external investment required to set them up?
  • How do you set up your new system flexibly enough that you can learn and adapt as you go, shifting resources to where the work seems most effective?

Most of the issues outlined above are soluble. Effective analysis of the population, intervention evidence and available market of providers will provide a strong starting point for version one of the change programme. Monitoring systems can be set up to provide the feedback loops needed, and outcome oriented contracts can enable the flexibility to end up with a system that can adapt and learn.

One of the trickiest issues left is procurement. To build a new system as outlined above requires partnership between government, private and civil society sectors, use of feedback, adaptation and learning in order to get to the right answer over time. Procurement models therefore start with a set of implicit assumptions that reliably get in the way of developing the right answer. Here are some of them:

  • We can with enough thought, plan out a complete answer at the beginning and then procure it.
  • The commissioner knows enough about what it needs to specify it in the procurement process
  • We can effectively split the design phase and the implementation phase
  • There is an effective market of provision available for whatever I want to procure
  • Service providers will be willing to contribute all their ideas, and invest considerably in the process, before we run an exercise where we may have to exclude them if they have any perceived advantage from the investment they put into the design phase.
  • Contracts should specify exactly what is to be done and for how much, and can’t be adapted based on the learning thereafter, particularly if that adaptation may mean that in retrospect another provider should have won the competition for the service.

In other words procurement is stuck in a world of linear strategic planning, while services exist in a complex environment with a variety of interdependencies and unexpected shocks. Redesign needs reasonably rapid iteration, feedback, and adaptation in order to be effective. If one of the reasons for government to outsource is to enable innovation and wider development of the provider market, then it seems a pity if the method for doing so leads to a rigid, unadaptable supply chain which has little ability or incentive to innovate in order to generate social outcomes more effectively.

There may be good news. New European procurement directives may help. As I said at the top, we’re writing on this over the next few weeks so should be back soon.

Social Enterprise and Social Change

I’m thinking quite a lot at the moment about the barriers to social enterprises being successful and the barriers to social change. I aim to write a series of blogs on the subject to get feedback from the marketplace and to try to sort out my own thinking. The topics I have in the pipeline so far are:

  • Why social change and social enterprise matter 
  • What is a social enterprise anyway?
  • Why is making social change so challenging?
  • The difficulty of compromise: mixing grant and revenue incomes
  • Funding social enterprise – is it a problem of culture?
  • The dangerous idea of market building
  • The delusion of fairness and transparency

Looking at the list, it comes across as a little negative! So I’ll try and write about some answers as well. Any other suggestions?

Eight ways to muck up PbR … and a few ways to improve it

Payment by results has been getting a lot of grief recently. Some of it deserved. The compulsion for revolution rather than evolution, and poor contracting and procurement practice have combined to create a heavily loss making industry that is not generating outcomes. The fear is that when government doesn’t seem comfortable admitting to any previous mistake it may be in danger of repeating the mistakes it has made. So as a source of Friday entertainment, I thought I would help by consolidating my eight best ways of mucking up outcomes based contracts. 

1)    Set the maximum outcome payment at or below the value of the previous revenue contract: This way providers will be nervously trying to retain revenue, rather than innovating to improve outcomes

2)    Set outcome measures and values without engaging the marketplace: Measures take a while to achieve buy-in, and to motivate change, they need it…

3)    Run a price focused rather than quality focused procurement process: This favours naive or optimistic bidders over competent ones

4)    Transfer risks that the bidder is in no position to control: It may make you feel better, but it increases cost disproportionately, or ensures you only get naïve bidders through who haven’t thoughts about it

5)    Provide detailed information only after bidders have been asked their price, and then offer them only the option to continue or withdraw: This is simply a way of ensuring poor services by desperate bidders

6)    Seek to control interventions, inputs and processes as well as outcomes: Again tempting, but not leaving room for innovation takes away much of the point

7)    Maximise proportion paid on outcomes on principle: This just restricts bidders and increases cost. There are times when a full outcomes model is a good idea, but it shouldn’t be the default.

8)    Don’t test or learn by staggering your start: Doing everything when you know least is simply irrational…

And a few ideas for doing it well, which I may expand on another time:

1) Have a way to alter prices over time to allow for learning: for example you could have a maximum and minimum outcomes pot that would be distributed to providers according to level of outcomes achieved. This would still reward quality and improvement but would limit downside and upside risk.

2) Manage your market more aggressively: If you are creating a new market, you should decide what you are looking for and create it. I would intentionally create a mixed economy, reserving some slots for say mutuals or social enterprises. That way you ensure diversity, avoid oligopoly and maximise learning and innovation.

Anyone like to add or amend any of the above?

Payment by results is not the same as performance-related pay


I have reproduced a response I wrote to another article as it sets out the arguments on payment by results. Next I will have a go at when and how to use different types of PbR…

Zoe Williams wrote on 2 May that “payment by results and performance-related pay differ structurally but amount to the same thing: the belief that everybody works harder when there’s a bonus in it.”

This premise is flawed. Performance related pay and payment by results are not based on the same assumptions, and are not used to solve the same issues.

I agree that performance related pay in social contexts is typically counterproductive. Research indicates that work motivation has little to do with money, instead being focused around a sense of autonomy, the potential to grow in competence and master ones chosen field, and a sense of purpose in what one is doing. Teachers, firemen, social workers and therapists are all people who we hope are doing a good job because they care about the people they are supporting or providing a service to. Performance related pay can add stress and tends to motivate those motivated by financial reward, in other words, not the people you want doing the job

This has nothing to do with payment by results or Social Impact Bonds, the model that Social Finance developed and is pioneering in Peterborough. Social Impact Bonds are not built around the simple assumption that economic incentives will boost performance. They focus instead on the idea that government is paying for desired outcomes which are agreed upfront. This allows providers greater flexibility to innovate and develop more effective solutions. It also means that government can take greater risks, trying things to see if they will work, and only paying if they do. By delivering pre-agreed and clearly defined outcomes, there is a powerful alignment among those responsible for delivering the interventions.

In this they acknowledge that many government contracts had in an effort to ensure accountability, become bureaucratic, providing detailed input and process targets that over time ensured service providers were focused on the needs of their paymasters, not their service users. This is an opportunity to move things back the other way.

We developed the Social Impact Bond to encourage more preventative, positive interventions commissioned by governments that historically have struggled in this area. It is still early days, but judging by the wide scale interest in the model from across the political spectrum there is potential for it to do just that. This would enable significant improvements to many people’s lives, particularly those at the margins of society.

There will be both effective and ineffective payment by results programmes developed over the next period. It is in many of its incarnations an emerging field. But using accurate concerns about performance related pay to make sweeping generalisations about payment by results runs the risk of marginalising a model that is key to enabling social innovation and positive social change. 

Setting management targets to avoid bad results

In my previous blog I responded to an article defending the unfortunate need for management targets. Having done so, I feel compelled to have a go at some brief thoughts on how to set good ones rather than those that lead to the disaster that we have seen recently so carefully set out in the Francis Report.

Management targets come in two varieties, inward looking ones such as financial or budget targets, and outward looking ones such as service waiting times. In other words some are used to manage the allocation of resources and others are used to test the quality of service provided.

 So here is my list of five Dos and Don’ts in setting up management targets.

  1. it is essential to be managing to both inward and outward looking targets. Running a public service only looking at the cost numbers is going to go badly.
  2. Service user feedback needs to gained from as many different sources as possible and checked against outward looking targets to test, are they telling us the same thing? If not, what should we change in what we measure to better capture what our service users are telling us? Effective measures provide clear information on how ones organisation is performing, poor ones get you to focus on things less important to those you are serving.
  3. Try to avoid revolutions. In other words bring in change incrementally, explaining where it is going and moving towards it over time.
  4. Avoid targets that are black or white, rather than incremental. Where there are significant consequences for a small shift in one number or action, the potential for gaming and perverse incentives becomes particularly acute.
  5. Implement reasonable data systems so that the pain of gathering the data does not get in the way of the day job.

I would welcome thoughts from others who have more experience in implementing these things than I do.

 Next up … Payment by Results

I wrote on this to a different Guardian article comparing Payment by Results and performance related pay by Zoe Williams. I have reproduced it in my next blog. I have thoughts swimming around my head about the Dos and Don’ts of implementing PbR, so will have a go at that in a few days.

Are Payment by Results and Management Targets dangerously idiotic?

Occasionally one reads an article and feels compelled to respond. Today was such a day when I read Payment by Results – a ‘dangerous idiocy’ that makes staff tell lies by Toby Lowe. It’s not the criticism of PbR or targets I dislike, there are plenty of concerns that need to be thought through in that area and I start on some of those in the next few blogs. It’s the lack of presented alternative that bothers me. Payment by results gets muddled up with management targets, with a sense that if all of this went away and you relied on frontline staff to do the right thing all would be well. This sentimental harking to a golden age before management and targets is magical thinking.

There are two reasons it is dangerous. Firstly it fails to acknowledge that we live in a resource constrained system. We don’t have infinite money, so we have to make choices. Choices exclude and we have to have some way of making them and some people to make them. Managers are typically rationers. Not an easy or popular task so one that we should support rather than seek to undermine.

Secondly it presumes that front-line staff invariably does the right thing by service users, patients or customers. While I have huge regard for people’s basic ethic to each other, moral compass and sense of decency, this is a sentimental and paternalistic view that we can’t run our public services on. Professions and professionals get inured and set into defined practice. When working for a foundation, I had the disturbing role of going round orphanages in Romania being told by professionals within them why they should stay open and how the alternatives we were proposing were dangerous. In South Africa there were separate cases of wards filled with crying abandoned AIDS orphans and nurses sitting in their station beside them doing nothing. It requires management at certain times to ensure focus on patients, end users, to ensure a lack of institutional bias, to ensure people aren’t forgotten or lost.

So the article attempts to unseat the unpopular but important act of putting in place targets and management to benefit service users. In the end, most of us don’t like to be managed. Few people like being told what to do, so it is always tempting to bash management. But services need to be adapted and resources need to be allocated. Better decisions are taken on the basis of data, not anecdote, intuition and here say. So information needs to be gleaned, measures used and targets set.

There are two serious issues that need to be thought through. What are good management vs bad management targets, and when if ever does PbR help? I will address those in my next blogs.


Childcare costs more in tax than childcare!

I’m interested in whether anyone else thinks this is strange. Let’s consider a professional woman (or man, but this happens more to women), we’ll call her Sarah, who decides she wants to continue her career after having children and work five days a week. Sometimes she’ll have to leave early, come home late and so on, so she is likely to need serious childcare support. The option that most seem to go for in these circumstances is a nanny. Not cheap, but if you have two children it is not that much more than nursery plus attendant pieces, and significantly more reliable. Suppose Sarah is earning £75,000 per year. Respectable, but may go up in many professions as she gains in seniority if she stays working. So, my question is, how much money does she end up with per year, how much goes to the nanny and how much to the tax man?

The answer is as follows:

  • Nanny                   £26,000
  • Tax man               £36,941
  • Sarah                     £12,059
  • Total                      £75,000

Does it make economic sense to make it so difficult for professional women to continue their careers after having children? I’m sure that lots of people will tell me that there are cheaper childcare options – there are, but most can’t cope with the demands of a professional career. If we wonder what keeps women out of many of the “top jobs”, maybe the breakdown above is part of the answer.

Background analysis

  • Nanny wage taken as £10 per hour net, thus £500 per week for 8.00am – 6.00pm, which is fairly standard. Thus Nanny total is £500 x 52 = £26,000
  • Employer and employee taxes on top of the Nanny wage are £235 per week = £12,220 per year.
  • Thus £38,220 total cost of nanny needs to be paid from net earnings of £50,279 (taken from one of the net pay estimating websites), leaving Sarah with £12,059.