based commissioning describes an approach to public service management that
seeks to improve value and impact.
there is no single definition of outcome based commissioning per se, its most
frequent application is in the form of payment by results contracting,
including social impact bonds. The National
Audit Office defines outcome
based commissioning as a way to deliver
services where all or part of the payment is contingent on achieving specified
The payment mechanism
in an outcome based contract can vary, and many schemes include a proportion of
upfront payment that is not contingent on the achievement of a specified
outcome. Some form of upfront payment or ‘fee for service’ can make the scheme
more attractive to potential providers and investors, especially those in the
voluntary and community sector, by easing their cash flow and reducing the risk
they take on in agreeing to the contract.
The UK government has increasingly been using outcome based
commissioning to deliver public services that address complex social challenges
where traditional ways of paying for services might have proven ineffective.
Major UK payment by results programmes include:
Work Programme, Department
for Work & Pensions
Department for Communities and Local Government
Rehabilitation, Ministry of Justice
Payment by Results Aid
Projects, Department for International Development
Drug and Alcohol Recovery
Pilots, Department of Health
In the public sector, PbR tends to be used to address complex social issues for which there are no straightforward solutions: for example, getting people on benefits back into work, and reducing reoffending.
National Audit Office, 2015
Note on terminology
Outcome based payment schemes in the UK public sector are
often referred to as Payment by Results (PbR) contracts, but the term is
inconsistently used. Some schemes are called PbR, but are not outcome based.
For example, some NHS tariffs to pay hospitals for clinical procedures are
called PbR, even though the payment is for outputs rather than outcomes. We use the term PbR to mean outcome based
Some key terms
Definitions of some key terms, as
understood by the UK Government, are included below and are based on the Magenta
Book published by HM Treasury:
Public sector resources required to achieve the policy objectives.
Resources used to deliver the policy.
What is delivered on behalf of the public sector to the recipient.
Provision of seminars, training events, consultations etc.
What the recipient does with the resources, advice/ training received, or intervention relevant to them.
The number of completed training courses.
The change experienced by the recipient as a result of the service/ intervention received.
Move to sustained employment and improved financial stability.
Wider economic and social outcomes.
Number, range and salaries of employment opportunities in a local area improve.
contracting seeks to improve the productivity of public spending by paying only
when specific outcomes are achieved by service provider(s). This is attractive
to commissioners as it shifts to providers the responsibility for determining
which inputs will lead to the desired outcomes and it transfers financial risk
to providers, as they are required to put in upfront financial investment to
deliver services with no, or limited, guaranteed reward if they fail to achieve
outcomes. In exchange, providers are granted additional freedoms to operate.
Some of the principal
rationales for using outcome based commissioning approaches include:
Uncertainty around delivery of outcomes
One of the reasons for using an outcome based approach is linked to the uncertainty around the ability of new or innovative services to deliver the desired outcomes. Where there is a lack of an evidence base for the intervention in a comparable context and/or uncertainty around service providers’ ability to deliver improved outcomes, it might be imprudent or unaffordable to risk public funding by using a fee-for-service approach, and in this case outcome based commissioning can help mitigate the risk of under-performance.
A galvanising force for change in practice
Defining a single set of outcomes for practitioners can be an important agent for change where commissioners are looking to integrate practice around a defined cohort and build the evidence base for the alternative practice. This can be particularly significant where the contract has several commissioner parties and includes the transfer of staff to the new provider.
Lack of effective internal capacity to deliver change
A service provider brings the expertise and management capacity to deliver the changes that will underpin the improvement of outcomes.
An important problem to solve
The outcome is a key priority for commissioners, justifying the investment of time to design, procure and manage a new contract and form of service intervention.
Significant risk around delivery
Commissioners consider that there are risks associated with delivery, whether related, for example, to cost, method or ability to resource. These risks might make it preferable for the commissioner to pay for outcomes, even if it includes a premium to reflect the risk the provider takes on.
When is it suitable to use outcome based commissioning?
When is it suitable to use outcome based commissioning?
1 min read
based commissioning is not suited to all public services, and commissioners
should carefully consider all their options and be able to justify their
selection of an outcome based approach over alternative service provision
While the feasibility of an outcome
based approach should be assessed on a case by case basis, broadly speaking
outcome based commissioning is appropriate when:
There is a well-defined collective outcome
relevant to a defined cohort of service users.
Payment is made either wholly or in
significant part on the basis of results achieved and the results being
paid for can be clearly attributed to the impact of the service.
The value of the payment, adjusted for performance,
is sufficient to reward the provider and investors for the cost and risk
of providing the service/intervention to the whole cohort of service users.
The value of the outcome to the
commissioner is equal to or greater than the cost of the payment to the
provider or intermediary or generates some alternative qualitative benefit
(e.g. community benefit or research and learning).
It is appropriate to give service
providers the freedom to deliver the service in accordance with the
provider’s own methods (because they are taking the primary risk on
Any risk of the payment scheme creating
perverse incentives for the provider e.g. opportunities to unfairly select
service users or otherwise to game the system, can be managed or designed
The service can be contracted to a external
party without breaching statutory public sector obligations.
The service delivered through outcomes
based contracting provides better value and impact than alternative fee for service
To read more about the difference between payment by results and social impact bonds, and when it might be suitable to commission a social impact bond please see our Social impact bonds (SIBs): the basics guide. Detailed guidance about assessing the feasibility of an outcome based project is available here.
Outcome based commissioning: top tips from a local commissioner