How payment by results can achieve change

The increasing popularity of payment by results commissioning has been examined in a new report.

Social and Sustainable Capital’s (SASC) 2018 Impact Report contains a number of lessons learnt from its investment portfolio of charities and social enterprises, including using payment by results, as opposed to commissioning a service for a flat fee.

According to the report, SASC believes payment by results or outcomes can play a ’valuable role in social investment’ and help to define ‘what successful service delivery should mean for an individual’.

The report highlights the work done with the charity, Family Action who had developed a new way of working with highly vulnerable young people in care, called the Safe Haven project.

The Safe Haven project was designed to offer one-to-one and round the clock support to a group of vulnerable young people in care.

‘Given Family Action’s finite resources of its own, the charity believed it was prudent to find an investor that would share the economic risk of piloting such a bold new service,’ the report states.

Safe Haven operated for about twelve months off a 100% payment by results model which placed all of the delivery risk on the provider and investor.

According to the report, the intervention was successful in the sense that two external evaluations showed that it saved double what it cost.

Unfortunately, despite this evidence, the commissioners involved decided not to renew the intervention after its first year.

The report notes that given the positive feedback from the young people, birth families and professionals involved in the project and the evidenced savings generated, this suggests the commissioners may have looked at the savings in a different way.

Key lessons

‘The key lesson from this project is how vulnerable a new payment by results project can be to relationships with local authority commissioners and procurement departments, tight budgets and any changes in senior local authority buying,’ said SASC’s co-founder and managing director, Ben Rick.

‘Payment by results projects are complex and involve many parties, and embedding a new payment by results approach into an established public sector system brings its own challenges.’

The importance of blended finance

The report also highlights the vital role of using a blended finance approach, particularly in light of the financial constraints faced by many third sector organisations.

‘We would like to inspire funders whose capital is more flexible than ours to work with us in a complementary way,’ added Mr Rick.

‘We’ve seen how such partnerships make possible transactions that otherwise would never happen – enabling more disadvantaged people to access the support they need to improve their lives.’

The 2018 Impact report also shows that SASC has invested in eight charities and social enterprises over the last year, doubling its portfolio to just over £11m.

‘Our overall portfolio has grown substantially this year and we made our largest investment yet of £6.2m to Heart of England Community Energy, a group of community interest companies in Warwickshire,’ added Mr Rick.

‘Our latest Impact Report details how our investments are helping some of the most vulnerable people in the UK and key lessons we learned along the way.

‘As our portfolio evolves, positive results from our investments are materialising – allowing us to refine our impact framework to reflect how we hope to achieve our mission.’

To read the full 2018 Impact Report, click here.