The presentation was part of the Funding Conference in London on Monday 23 February 2015. The presentation was on the systems you need to put in place to manage PBR contracts.. Find out more about the Funding Conference from NCVO: https://www.ncvo.org.uk/training-and-events/funding-conference/workshops Find out more about NCVO's practical support on funding: https://www.ncvo.org.uk/practical-support/funding

1. AM2: Payment by results –
is it right for you?
Jim Clifford, Partner and Head of Advisory and
Impact team, BWB
Carla Ross, Senior Research Manager, BWB
Liz Rutherford, CEO, Single Homeless Project
Liam Crosby, Policy and Public Affairs Officer
Community Links

2. Payment by results:
Is it right for you?
Jim Clifford OBE
Head of Advisory & Impact, BWB
j.clifford@bwbllp.com
+44 (0)20 7551 7860
Carla Ross
Senior Research Manager, BWB Impact
c.ross@bwbllp.com
+44 (0)20 7551 7862 Image by European Parliament under a creative commons license

3. What is PbR?
• Results – which may be differently defined by
different parties, but should not be “outputs”
except if as informed proxies for outcomes
• Payment for those results by any commissioner
type

4. Risk management
The core element of risk transfer is key:
• Risk arbitrage – the best person to carry a risk is the one who
can manage it best
• Provided they are solid enough to handle the risk
• The provider can then be paid for carrying a risk which is a
lesser risk to them than to the payor, for example;
– IAAM the adoption bond for placing children
– Transforming rehabilitation on rehabilitating offenders
Image by European Parliament under a creative commons license

5. Outcomes to performance indicators:
finding “informed outputs”
Inputs Activities Outputs Outcomes Impacts
Desirable
outcome
How it is
caused
Assess
timescales
Determine
milestones
Reporting
and
behaviours
Good PIs are:
• Simple
• Natural
• Certain
• Arising from
the flow of
activity to
outcome
Think:
• Behaviours
needed
• Perverse
incentives
• Improvement
• Change
5© Clifford 2013

6. Weighing up PbR: Pro’s
1. Getting paid for a risk you can manage easily, so making
more for services
2. Developing an income stream (paying for an outcome)
where none existed before
3. Developing a way of improving service delivery and
innovating in a way that’s properly paid-for
4. Can encourage a more flexible commissioning
environment where the commissioner asks for the
outcome, not the service

7. Weighing up PbR: Con’s
1. Provider takes on too much risk:
• Financial, management, social
2. Provider doesn’t have the balance sheet strength to cope
3. Feeling forced into a form of service delivery the provider believes
won’t work
4. Payment milestones may fail through uncertainty
5. Payment milestones may be too complicated or may be disputed at
the outset
6. Commissioner only refers the most difficult cases
7. Provider “parks” or ignores the harder cases (and takes the loss in the
averaging)
8. Commissioner reneging on the agreement

8. Good PbR
1. Structured to drive behaviours towards effective
delivery
2. With 60% at least of the total payment for service
rather than by results
3. Priced to allow for the risk being taken
4. Priced to make it both viable and effective
Image by juerjen_nl under a creative commons license

9. Good PbR
5. With the results based on relevant outcomes, and not
random outputs – think about the “any three of five”
type measures used in complex interventions
6. With the setting and measurement of these originating
from the intervention, and not the policy-makers
7. Flexible as social needs and other factors change

10. Managing PbR
• Assess properly in the first place: risk, effectiveness,
deliverability of the outcomes, key success factors
• Partner where appropriate for risk sharing, or better delivery
• Set payment triggers carefully and ensure you have means to
enforce them
• Monitor carefully and take quick action on:
I. KSFs
II. Commissioner compliance

11. Provider led development:
Key principles
Image by European Parliament under a creative commons license

12. Experience
Credibility
and Brand
Evidence
Resource
12
Service
Providers
1.
Focus
and
Issue
2.
Approach
to the
Solution
3.
Measuring
Outcomes
4. Delivery
and
Business
Model
• Identify the issue
• Area needs
• Identify outcomes
Provider-led development : Focus and issue

13. IAAM - What’s the issue ?
• Not enough parents
• Increasing numbers of
children on NAR seeking
adoption
• As many as 80% don’t find
places
• Parenting them
therapeutically to meet
their needs:
– Attachment
– Development
– Beliefs
– Trauma
13

14. Experience
Credibility
and Brand
Evidence
Resource
14
Service
Providers
1. Focus
and Issue
2.
Approach
to the
Solution
3.
Measuring
Outcomes
4. Delivery
and
Business
Model
• Services
• Resources
• Markets
• Behaviours in
delivery chain
Provider-led development : Solution approach

15. What’s the solution ?
• More parents
• Sourced UK-wide
• Willing to take harder
to place children
• Therapeutically trained
• With funded
appropriate support
• With LAs still able to
decide when it’s
needed
15

16. Investors
1st Close £2M
IAAM Fund
(LLP)
£ £
Network of
VAAs
Service Providers
LAs
The Local Authorities
SLAM
Psychiatric Assessment
Service Provider
IAAM Service
Co (Ltd)
IAAM Sharing
Ltd
(Profit Co.)
CVAA
The Consortium for
Voluntary Adoption
Agencies
Profit Share
Admin
Fee &
SLAM
Adoption
Register
SOF
£1M
Investors
1st Close £2M
IAAM Fund
(LLP)
£ £
Outcome
based
payments
Return of funds +
min 4% profit
share
IAAM - Funding & Relationship flows
Local Authority:
• Pays £54,000 in four stages
• Saves £50,000+ p.a.
• Comparator: Standard Inter-agency fee
£27,000
16
It’s All About Me SIB Structure

17. Experience
Credibility
and Brand
Evidence
Resource
17
Service
Providers
1. Focus
and Issue
2.
Approach
to the
Solution
3. Measuring
Outcomes
4. Delivery
and
Business
Model
• Relevant outcomes
• Informed outputs as proxies
• Think: incentives and
behaviours
Provider-led development : Measuring outcomes

18. Experience
Credibility
and Brand
Evidence
Resource
18
Service
Providers
1. Focus
and Issue
2.
Approach
to the
Solution
3.
Measuring
Outcomes
4. Delivery
and
Business
Model
• Management
• Finance
• Risk
• Partners
• Documentation
and structures
Provider-led development : Delivery & Business model

19. Investors
1st Close £2M
IAAM Fund
(LLP)
£ £
Network of
VAAs
Service Providers
LAs
The Local Authorities
SLAM
Psychiatric Assessment
Service Provider
IAAM Service
Co (Ltd)
IAAM Sharing
Ltd
(Profit Co.)
CVAA
The Consortium for
Voluntary Adoption
Agencies
Profit Share
Admin
Fee &
SLAM
Adoption
Register
SOF
£1M
Investors
1st Close £2M
IAAM Fund
(LLP)
£ £
Outcome
based
payments
Outcome
based
payments
Return of funds +
min 4% profit
share
IAAM - Funding &
Relationship flows
19
IAAM Fund
• Advances £46,500 in
same four stages
• Recovers that from LA
payments.
• Takes risk up to first 10%
of breakdowns
• Funds IAAM Service Co
as the “referee” of the
scheme
Provider VAA:
• Takes excess risk over
10%
It’s All About Me SIB Structure

20. Investors
1st Close £2M
IAAM Fund
(LLP)
£ £
Network of
VAAs
Service Providers
LAs
The Local Authorities
SLAM
Psychiatric Assessment
Service Provider
IAAM Service
Co (Ltd)
IAAM Sharing
Ltd
(Profit Co.)
CVAA
The Consortium for
Voluntary Adoption
Agencies
Profit Share
Admin
Fee &
SLAM
Adoption
Register
SOF
£1M
Investors
1st Close £2M
IAAM Fund
(LLP)
£ £
Outcome
based
payments
Outcome
based
payments
Return of funds +
min 4% profit
share
Investors:
• Fund £2m
• Get a return of 4% p.a. plus
a “with profits” element
from the surplus
• Capital repaid at year 10
Cabinet Office
• Top up funding for first 100
children
CVAA:
• Gets the first £1m surplus
plus half the remaining
surplus
• Recapitalises the scheme at
year 10
• Saves £50,000+ p.a.
20
IAAM - Funding & Relationship flows

21. IAAM – some key innovations
21
• Based on behavioural drivers to correct market
failure
• Spot purchase
• Commissioner choice
• Networked delivery
• Risk sharing: risk arbitrage – providers backing
their own expertise
• Use of fund as revolving credit facility
• Yields match capital risk, making it possible to
access normal financial markets

22. How’s it doing….eleven months in?
• Network is working and developing
• First registrations after 6 weeks
• Psych/medical reports delivered within 6
weeks
• Engaged with 60+ of a target 75 (50%) local
authorities
• 60 children referred; 20 registered; 12 being
considered
• 1 placed in new homes
• LAs decision-making changing
• Wider VCS discussions about what’s
possible
• Interest from wider finance markets…….and
individuals
22

23. Good PbR: Where is the benefit?
• Additionality:
• Do what otherwise wouldn’t happen
• Do good things on a greater scale
• Manage risk better
• Organise complex programme delivery
• Focus on real outcomes
• Use resources better
• Enable smaller providers to work together
• Manage behaviours to deliver success
• Create and manage markets
• Scale up good services
• Innovate23

24. Impact Investment: where next ?
Opportunities
• Moving away from public
service revenue into market
revenues
• Re-engineering markets and
behaviours
• Stretching the boundaries to
self-investment and profit-
with-purpose
• Joining up conventional and
social markets in a continuum
• Ideas incubation – funding it
and driving it
Pitfalls
• Co-leadership and energy
turning to isolated arrogance
from social investors
• Measurement and reporting
requirements leading to a
two-tier investee market
• Reliance on public service
revenues leads to (political)
instability
• Not embracing risk and risk
management positively as a
value-driver
24

25. Alternative Delivery Models giving scale-ability
• If a fund is to be proposed, these
run to a Venture Philanthropy
Model
1. Investor
a) Equity
b) Debt
c) Grant
d) Guarantee
e) Investment in kind
2. Instigator
1. Co-developing ideas
2. Priming and delivering research
and new thought
3. Hub and coordinator
1. Developing networks
2. Providing coordination for
partnered activity
3. Planning the full effectiveness of
multiple interventions
SOLUTIONS
Single
outcomes-based
interventions
(e.g. Peterborough
Prisons)
Multi-faceted
outcomes-based
interventions
(e.g. Adoption Bond)
Multi-intervention
Social Change Funds
Focused on
outcomes, but
largely delivering
through a single
service, focused on a
single cohort or a
single aspect of a
wider community
need
Focused on
outcomes again, but
delivering through a
blend of co-
ordinated multiple
services, but again
focused on a single
cohort or a single
aspect of a wider
community need
Focused on
outcomes, but
through leading the
development and
funding of a range of
independently
operating and
delivered
interventions to
multiple cohorts
25