Then the ante got upped some more. In 2014, DFID released its Payment by Results strategy, through which the government states it will only pay if the results it said it would buy get delivered. Which seems entirely reasonable until you start factoring in problems such as conflict, which could derail a good project, or that if there is an economic shock, parents might deprioritise a girl's education project, or even that some projects might be hard to measure. If I think I ran a brilliant training course and you thought it was lousy, how does the person paying decide who's right? And if a charity or social enterprise has paid up front for the costs of a programme in good faith and then war breaks out, is it fair to make their existence even more precarious?
The answers are presumably in a more sophisticated understanding of risk and sharper monitoring.
Risk: Most funders would probably say that the internal risks should be in the supplier's control, so the discussion revolves around what risks you can own around external factors. in the case of a sudden emergency affecting the results, a good solution could be that the supplier gets paid but everyone works quickly to adapt to the new situation to get the most possible out of the work already done. However, in a slow onset emergency, say if, for example, a provider can see a year off that crops are failing and inflation is sky rocketing, then they should probably start talking about adapting their services as hunger looks likely. Just carrying on doing something that was designed for a different set of circumstances is unlikely to work. Perhaps it would be fair to penalise, somewhat, a service provider who just didn't pay attention to what was going on around them. At sufficient scale, and with the right programme resources, it should be possible to mitigate such risks. A lot of NGOs don't demonstrate how much they already know - I think they should be rewarded for reducing risks due to their understanding of factors such as local politics, or the micro-level impact on households of seasonality.
However, staffing up to do this level of environment scanning and more agile programme management - asking people to be reflective in real-time - takes resource. And my examples above were relatively simple ones, and we already have some models there for how to manage those situations, others may be more complex and the negotiations more involved. Payment by Results could remove some of the financial and reputational risk for donors associated with delivery risk from suppliers. However, if that's how they want to buy, they may need to accept not just a higher risk premium but a higher risk management cost on the overhead. Otherwise they may find that the market of suppliers is limited to those who have deep pockets but are not always the technically best or socially most credible organisation to do the work, or organisations who are 'buying work' by ignoring or wishing away the costs and risks of doing business. You wouldn't buy a house that couldn't keep its roof on, so why an education programme?
The plus side is that donors making it interesting by linking payment to results could lead to better conversations about risk and more sophisticated delivery management. But we as a sector are still in a learning phase and need to decide what direction to go in with this. Some organisations may simply be too small or lack the cash flow to accept PBR but they should still keep it on their policy radar. PBR could distort the market and limit the scope for broader participation from small enterprises and reduce a diversity of approaches, and government might accept this outcome as the cost of reducing risk for the tax-payer. Payment by Results will have to evolve so that the cure doesn't kill the patient but it has the potential to make the sector stronger by driving up rigorous thinking about delivery and performance risk from both sides of the financing deal.