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Outcomes-based procurement in local government – a chance to shine?

24 September 2020

Mark Saunders from Amey and Andreea Anastasiu from the Government Ooutcomes Lab (GO Lab) discuss the Excellence in Place Leadership outcomes-based procurement session.

There is an old adage that in contemporary organisations, ‘change is the new normal.’ For many of us, this has been the case for many years, with digital technology, new competitors entering industries or new channels to market driving the instability. However, few could have envisaged the extent and pace of change we have experienced recently. We’ve moved into unchartered territory, and seen how agile, if we are to remain effective, we need to be.

In the local government ‘place’ service world - whether delivered in-house or outsourced - specifications, method statements and contracts are crucial to provide structure and governance. Updating these outside-of-contract milestones can be difficult, yet we’ve demonstrated this year in response to external factors that, when we need to, we can change quickly.

Achieving local needs through the most suitable contract model

‘Input-based contracts,’ where the delivery of exact services is outlined in a prescriptive fashion, and ‘output-based contracts,’ where achievement is based on measured performance standards, tend to be the norm. So, could ‘outcome-based contracts,’ used in the ‘social’ or ‘people’ side of government, where payment is made upon a desired state (or ‘outcome’) being reached, be the answer?

‘Outcomes-based’ contracts can align the client (local authority) and the service provider because reward and risk are based on achieving a mutually agreed goal. This drives innovation and creativity, as well as reaching outside of current siloed organisations. It also enables the delivery of a tailored service based on the local community’s needs. This is the answer, then, right?

Well, it could be, but there are historical issues that many ‘place’ based services contend with. Faced with declining asset condition and increasing cost pressure, complicated contractual KPIs specifying where performance needed to be targeted became increasingly common, but often promoted the wrong behaviours. The relationship-driven contracts that both parties sought gave way to unforeseen challenges and a more commercial, contractual approach.

But in the agile, adaptable world we’re now living in, should we be considering a different approach?

Exploring the practicality

We felt that it was right to look again at open relationships based on trust, but that are equally robust and mutually beneficial. Outcome-based contracts have been around for a while but now could be their chance to shine. We wanted to explore this further and found that it’s not an isolated interest. In a recent event on ‘Innovation in Procurement,’ held in conjunction with ADEPT, with a number of local authorities from their Excellence in Place Leadership cohort, outcomes-based contracting emerged as a potential solution to current challenges.

And we know there are others involved in the discussion. The Future Highways Research Club, run by Proving Services, is working on studies with local authorities and service providers to understand perspectives and review future delivery mechanisms to help the sector negotiate the current challenges and opportunities it faces. Earlier this year too, the Chartered Institution of Highways & Transportation (CIHT)launched its ‘Improving Local Highways – the route to a better future’ report which included outcome-based service specifications as part of their recommendations. The Connected Places Catapult advises the right procurement approach can drive innovation in service delivery, while the Local Government Association has long asserted this with its National Advisory Group for procurement; both mention ‘outcomes-based procurement’ explicitly.

Embarking on a collaborative approach to this, we gathered a group of representatives from forward-thinking councils, procurement experts and innovators. We also engaged with the Government Outcomes Lab (GO Lab), which is funded jointly by Department for Digital, Culture, Media & Sport and the University of Oxford. This group began by considering two questions:

  • ‘Is there a tried and tested process to establish outcomes-based contracts?’
  • ‘To what extent are ‘social’ contracts similar to, or different from, ‘place’ contracts?’

Andreea Anastasiu, from GO Lab, provided an initial response: “Over the past four years, the GO Lab has been investigating the evidence and best practice around the use of outcomes-based approaches to tackle entrenched social problems. The idea of using outcomes-based contracts in the provision of social services is by no means new, and research conducted by the GO Lab has shown that public sector organisations have been using this approach to foster more prevention, innovation and collaboration. While outcomes-based contracts are not a panacea, one of the things we are keen to explore at the GO Lab is when, and how, a focus on outcomes can lead to better impact and more efficient public services.

“How can we bring a focus on outcomes to place-based services? What can we learn from the existing practice (predominantly, but not solely, in the world of social services) about how to develop robust outcomes contracts for services such as highways maintenance and public transport? Who are the key players we need to bring on board to ensure the success and long-term impact of these approaches?

“These are some of the questions we explored with Amey, ADEPT and members of the Excellence in Place Leadership group in what turned out to be a stimulating and inspiring conversation. The appetite of councils to do things differently came across clearly in our seminar, and so did the commitment to embrace more holistic approaches across their areas of responsibilities. We know that better roads and better transport links, for example, can lead to a whole range of other positive impacts – from connecting underserved communities, better access to healthcare, jobs and education, better safety – to name just a few – but how can we quantify, measure and link payment to these additional benefits in an outcomes-context?

“No one-size fits all, indeed one of the strongest messages that came out of our conversation is the need for these outcomes-focused approaches to be underpinned by a clear vision for a particular place, one that is defined in consultation with the local community and that has the support of its local leaders. We can’t develop outcomes-based contracts unless we are clear what those outcomes ought to be, have a robust understanding of what is meaningful and important for a particular community and understand what their aspiration for their local area is.

“If a shared understanding of what good looks like, of what outcomes we should seek or prioritise, is the starting point, then what are the practical steps that councils need to take to move forward in developing, implementing and managing outcomes-based contracts for ‘place-based services’? A handful of bold, innovative councils have already embarked on this journey, and we look forward to exploring with them what their journey has been and what others can learn.”

Mark Saunders from Amey continued: We know that outcomes-based contracting is an answer but is it the answer?

Honestly? We don’t know but we’re continuing to work together with progressive stakeholders to explore it further. We need to focus on, and celebrate, both the result and the positive benefits. We want to deliver what the community wants and values; to be agile and innovative to get there; be responsive to the inevitable change and meet the waves of dynamic challenges that, no doubt will be thrust in our direction, head-on.