The paybacks and pains of Payment by Results (Part 2)

Our series of reflections on WASH Results’ learning continues by exploring value and costs in a Payment by Results (PBR) programme.

DFID has been clear from the outset about what it wants from the Water, Sanitation and Hygiene (WASH) Results Programme: WASH interventions delivered at scale within a short time-frame and confidence in the results being reported to the UK taxpayer. DFID got what it wanted, but at what cost? In this post we build on discussions at the WASH Results Programme’s learning event held earlier this year which looked beyond the numbers of people reached with interventions to explore some of the challenges faced in implementing the programme.

Can PBR frameworks be designed to incentivise suppliers to focus on the “harder to reach”

A central theme in the workshop was the ongoing puzzle of how to place value (both in commercial/financial and Value for Money terms) on intangible aspirations and benefits, such as reaching the most vulnerable and investing in the processes and social capital that underpin effective programming. So, does the importance placed by a donor on achieving clearly costed, verified results risk squeezing out other values and principles that are central to development programming? Which values might end up being pushed aside and could this be mitigated through better design?

1. High quality programming

Suppliers hit a major challenge during tendering when DFID asked them to provide a price per beneficiary that reflected the cost to the suppliers of reaching that beneficiary. But calculating this cost is complex. Potential suppliers have to think about what kind of costs they should fold into that price per beneficiary when bidding: the more the costs, the higher the bid. During the workshop one Supplier asked rhetorically “Should we say $20 with alignment and $23 without?”

There is some apprehensiveness within the NGO sector about competing with the private sector in this commercial context and they are often advised to be cautious. Will they be undercut by commercial organisations submitting more attractive (read cheaper) bids that lack the added benefits that NGOs can bring: the social capital and ways of working that are difficult to put a commercial value on but will affect the quality of the programming?

DFID has been clear that it does not equate Value for Money (VfM) with “cheap” and it is willing to pay for quality programming, whoever is best placed to deliver it. One improvement to the tendering process would be to articulate some of these added benefits (such as existing relationships and social capital in a programme area) as requirements for bidders. Potential suppliers would thus need to provide evidence within the bidding process.

2. Reaching the hardest to reach 

A criticism levelled at PBR is that by using a fixed “price per beneficiary” approach, it encourages suppliers to focus on people who are easier to reach, a practice sometimes described as “creaming” or “cherry picking”. Stakeholders in the WASH Results Programme are firmly committed to inclusion and during the workshop investigated how that could be incentivised better within a PBR framework. Options explored included multi-tiered price per beneficiary frameworks (as used in drug and alcohol recovery programmes in the UK) although these carry the risk of increasing complexity and reducing flexibility. Another suggestion for incentivising inclusion was careful selection and wording of the objectives and appropriate verification processes in the tender document, however this may risk compromising the flexibility to negotiate targets and verification approaches in response to different contexts.

3. Investing for the future

One related but different challenge that emerged during the workshop was that of placing commercial value on activities that invest for future work in the sector. This includes building the social capital to work with local stakeholders and investing in programmatic innovation (which some suppliers suggested had not been possible under the WASH Results Programme). Do the practical implications of PBR risk capitalising on previous investment made by suppliers, without contributing to it in turn? This is perhaps not an issue while PBR contracts constitute a small proportion of aid financing but would become more so if PBR contracts started to dominate. On the other hand, the benefits that suppliers report, particularly in terms of strengthening monitoring and reporting systems to enable more rigorous real-time results tracking may also spill over into other programmes, benefitting them in turn. It is too early to draw conclusions but it may be the case that a range of different aid mechanisms are required, with the benefits and limitations of each clearly identified.

4. Confidence in results

Finally, it is worth observing the possible trade-off between the value placed by DFID on confidence in results that is so important for communicating with taxpayers, and the effectiveness of aid spending that can be achieved through PBR and the nature of the results it produces. Verification is undoubtedly costly (someone paid you to come here just to look at that toilet?” a baffled resident of a beneficiary village is reported to have asked of a verification team member).

But there is another aspect of effectiveness: if PBR prompts suppliers to focus their efforts on what can be counted (i.e. what can be verified at scale without incurring prohibitive expense), this may shift their efforts away from development programming with longer-term and more uncertain outcomes. Put simply, this could equate to building toilets rather than working on sanitation behaviour change interventions, that are considered to generate more sustainable positive outcomes. Of course there is no guarantee other forms of aid financing will generate these results and as there is likely to be less focus on measuring those results, comparison would be difficult.

Advice for PBR commissioners

What might this mean for those considering PBR modalities and designing PBR programmes? The experience of WASH Results so far suggests that when designing a PBR programme, commissioners need to:

  • be clear on the value implied in “value for money” – consider all of the “values” that are important, including the value of donor confidence in results;
  • strike a balance between clearly specifying expected results (particularly for more vulnerable people) and being flexible to the contexts in which suppliers are operating;
  • think creatively and collaboratively about how long-term outcomes can be measured;
  • explore hybrid funding models but avoid creating the “worst of all worlds” that lacks the flexibility of PBR, increases complexity and imposes multiple reporting frameworks;
  • consider whether PBR is the right funding mechanism for the kinds of results you wish to achieve (tools are emerging that can help) ;
  • view the PBR component in the context of the broad spectrum of funding to the sector – seek to maximise linkages and mutual value across the sector.

Catherine Fisher, Learning Advisor, WASH Results MVE Team

The report from the WASH Results learning workshop is available to download from DFID’s Research for Development website. 

As always, if you have any ideas or observations about this topic, we encourage you to Leave A Reply (below), or email us.

2 responses to “The paybacks and pains of Payment by Results (Part 2)

  1. Excellent article which highlights the balancing act that PbR frequently is, particularly around verification costs. Another key point you pick up on is that commissioners need to be aware that the flip side of clarity on outcome measures is that work which is not specifically linked to an outcome measure may be deprioritised. As always, the key to negotiating the pitfalls of PbR is extensive dialogue between commissioners and potential providers and the ability and willingness to refine and modify contracts in the light of real world experience.
    Thanks for mention of the new PbR tool intended to help all stakeholders think through these issues. The final version is now live at: http://www.PbR.russellwebster.com

    Like

  2. Pingback: Measuring WASH sustainability in a payment by results context | Learning about Payment by Results in Water, Sanitation & Hygiene (WASH)

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