Reality trumps ambition in contracting

In recent years, the UK Government has shown tremendous ambition in its efforts to transform the delivery of public services. Today, it offers a salutary tale illustrating the importance of ensuring that vision is tempered by an understanding of reality.

Last week saw the collapse of another private sector outsourcing provider, this time overseeing the delivery of probation services within the criminal justice system. Quite simply, the outcome-based contracting model that has been used is failing and providers are running out of money.

Is the model at fault?

Outcome-based contracting is not a new concept, but it is in most cases a far more complicated model than most alternatives. There are several reasons for that. One is that organizations often struggle to define precisely what outcome they actually want, or find that when it is achieved, they really wanted something different.

A second factor is change management. Shifting needs, new capabilities, innovative methods frequently create the need for dynamic change capabilities. This can be complicated to embed in the contract and it also requires a readiness on the part of all stakeholders to engage in change discussions, which may require quite fundamental renegotiation of the contract – even potentially its termination.

The third major factor is whether the contracting parties actually have the capabilities to oversee and manage an outcome-based contract. One example of capability is the necessary cash reserves or access to funding implicit in potential delays in payment (achieving outcomes often takes time). Another example is whether there are reliable monitoring or measurement systems to generate timely, accurate and mutually agreed data about the results achieved. Just as important, are there real-time data flows to assist monitoring and provide early warning of problems? And then there is the question of skills and competencies – an outcome-based agreement demands very different levels of governance and performance management than traditional forms of acquisition.

Finally, there is the question of culture. To what extent are the customer and the suppliers compatible in their outlook and behavior? Outcome delivery typically requires a greater level of collaboration, a readiness to share information and work on joint problem solving.

So what was missing?

There are sure to be further enquiries into the probabtion contract failure and it is important to point out that this is merely one example of the problems many organizations have with more complex forms of contracting.

In this instance, it appears that the required outcomes were quite well defined. The major failings look to be more associated with the belief – or perhaps hope – that the client did not need to maintain active engagement. Based on media stories, it seems that warning signs were not being actively monitored and, when they became evident, were ignored. A lack of readiness to accept accountability, to recognize a role in managing risk, is a frequently observed cultural characteristic in the public sector. And ultimately, it seems likely that this was a case where politically-inspired decisions focused on saving money took precedence over thorough analysis or good judgment.