A results driven business?

More perhaps than at other times, during austerity the competing claims of principle and pragmatism often hang discomfortingly in the balance. In such circumstances there are no easy answers but we should try to be honest about dilemmas and invite thoughtful debate.

Over recent years the RSA has aimed to increase its impact by engaging in direct service provision. 2011 has seen substantial progress. Most of our research projects have some element of on-the-ground experimentation. We now have two excellent RSA Academies with hopefully two others on their way. Our Opening Minds charity is seeking to strengthen practice in, and collaboration between, the many schools teaching our capabilities-based curriculum.

Then, a few weeks ago, we heard that we had been successful in our bid to be a provider of drug and alcohol rehabilitation services in West Kent based on our innovative ‘whole person recovery’ model. The work has been allocated under a payment by results (PBR) contract and it has been the experience of negotiating PBR which has thrown up a dilemma.

The contract is for two years research and service delivery that will cost the RSA around £250,000 to undertake. Most of that cost is met by the commissioner channelled through the prime provider. Part of the contract is funded through PBR and in theory it should be possible to make ‘a profit’. However, this would require performance at an unprecedented level. Even if our work is much more successful than existing practice (and, of course, we hope it will be) it is a question not of whether but of how much we are likely to lose.

When we explained to the RSA Trustees the financial implications of winning a contract they were understandable surprised. In the end they backed the bid because seeing it as a relatively cheap way for us to undertake a major pilot study of a methodology the RDA has been developing for several years. In essence this means that we as a charity stand ready to subsidise public provision.

Because our work is experimental, innovative and is the practical expression of core contemporary RSA values I have no difficulty justifying the bid and risk of some losses. But similar dilemmas about PBR are being faced across the sector and in some cases the argument may be much more finely balanced.

It seems that in many areas where PBR is becoming the dominant form of contract (for example, rehabilitation and employment) third sector service providers face a dilemma. Because the results targets for PBR are set so punishingly high these organisations are having to bid for contract in which there is a high degree of risk that the services they provide will cost more than the fee the charity receives. In order to continue to provide a service, perhaps even to survive as an organisation, the charity has no choice but to use its charitable funds to subsidise projected losses on the contract. To an extent this can be disguised by charities crossing their fingers and hoping to perform exceptionally well, but while this might work for the lucky few many other providers know they are set to lose.

The difficult issues raised are not new to any service providing charity but they are exacerbated by the swingeing terms of PBR. First, should charities be reduced to running like hamsters in a treadmill trying to meet targets set by government; targets which the charity may believe are not only unrealistic but too narrow. Second, is it acceptable to use charitable funds to subsidise state contracts? Would all those who have donated to the charity be happy to see their money being spent to help ministers and public servants deliver Government policies? Also while larger charities may have the funds to cross-subsidise PBR contracts, smaller organisations are being outbid and facing closure.

None of which is to say that charities should boycott PBR. The RSA is going ahead because it is worth the risk of manageable losses to test out ideas, which we hope might ultimately influence practice across the sector. Other charities can make similar calculations; perhaps they too think their form of delivery adds something distinctive over and above meeting the targets. And, of course, charities will want to win contracts so they don't have to shrink or lose staff. Furthermore, when resources are shrinking and needs growing is there anything wrong with charities subsidising state services even on government's terms? Perhaps it's just a different way of thinking about the Big Society?

Managers and Trustees of many large charities will recognsie and be wrestling with these issues. Perhaps as cuts bite deeper and more services are subject to PBR the debate needs to be opened up to the wider public.