Payment-by-results: the elixir or the poison?
January 06, 2015
As the concept of Payment-by-Results (PbR) gains momentum in the international development sector, it hasn’t taken long for it to turn into somewhat of a ‘dirty’ word – particularly among not-for-profits. In some ways, its reputation can be justified but not entirely. PbR is a payment mechanism where delivery organisations will only get all or part of their payment upon the delivery of some form of ‘result’. This differs from other payment mechanisms where payments may be made upfront or on the delivery of inputs or intermediate outputs rather than results. As such, it is much more controversial.
Taking the approach of trying to improve value-for-money during times of belt-tightening on government spend makes sense. We’ve seen this in other public sectors such as healthcare and criminal justice – both of which have experimented with forms of PbR. However, in healthcare, this led to a scenario where incentives to focus on preventative care were eroded, as payments would be made based on results in the form of curing illness. To be fair, it’s much easier to measure illness cured as opposed to illness prevented. In criminal justice, PbR was trialled in offender rehabilitation programmes. It was found that this led providers to ‘cherry-pick’ clients that would be easier to rehabilitate – leaving out potentially those most in need of services, but who would be more difficult to rehabilitate.
The provision of core public services such as health, education and justice faces many challenges in a developed-country context. It’s usually even more complex in developing countries. Unwieldy PbR contracts could potentially further complicate matters, and place pressure on implementing organisations to spend more time focussing on reporting burdens as opposed to implementation. This is at odds with using PbR to improve value-for-money by shifting the focus to results. But in order to financially penalise a delivery organisation with the PbR stick it is necessary to have solid evidence underpinning the decision to do so (or risk being sued). Whilst this will (hopefully) drive improvements in the quality of monitoring and evaluation we see in international development projects, some results are much harder to measure than others. The costs of measuring tricky outcomes (like measuring improved community attitudes towards injecting drug users in rural Kenya), and attributing these to one particular programme, could often outweigh the benefits of a PbR contract. However, it could be argued that in the context of poor information and difficult measurement, there is even more risk of money being misspent or results not being achieved.
Other PbR challenges relate to the assumption that not-for-profits respond to financial incentives the same way for-profits would. The potential for cherry-picking and avoiding the most marginalised individuals, and the possibility that by focussing on narrowly-defined results, valuable but hard-to-measure activities might not take place (such as community advocacy).
PbR does have the potential for benefits – but only if implemented in a very careful manner on carefully selected projects. In such cases, it has the potential to align incentives between funders and implementers to focus on core results rather than inputs, incentivise greater focus on refining theories of change to suit clear goals, improve transparency and accountability, weed out wasteful activities, and drive greater professionalism in the sector. But as a sector, we need to stop thinking that PbR is a panacea or that it’s going to solve many of the inherent problems in the aid sector. PbR isn’t going to disappear, but I’m convinced that over time we will realise that it is only suited to certain development sectors where measurement of results is not overly contentious (such as infrastructure projects). Rather than thinking PbR will solve all our issues, we should be focussing on improving the way we undertake evaluations and make use of the results: shifting them away from being ‘tick-box’ exercises, to making them true lesson-learning tools that don’t end up gathering dust on a shelf at the donor office.
As a sector, we’ve catapulted ourselves high in our ambitions regarding PbR and value-for-money. Only time will tell where we land.