Payment by Results – a new DFID approach to delivering aid

In June the Department for International Development (DFID) published its new ‘Payment by Results’ strategy which set out how the department would scale up its programmes to drive 'greater transparency and increased value for money.' It is developing Results Based Aid and Development Impact Bonds, which mean partners are paid on delivery of agreed development outcomes. It is a pioneering approach to the delivery of aid which is intended to 'help make the development budget go much further, bring more people out of poverty for good and ensure value for money for British taxpayers.' We were keen to understand in more detail how the transfer of payment for results would work in practice, and were fortunate to secure an interview with Les Campbell, Director, Value for Money at DFID:

We understand the strategy as payment on delivery of agreed development outcomes, rather than a contribution or a charity donation -- we see this in effect as a procurement contract? Is this how you see it?

"Yes, that’s right.  Payment by results (PbR) is about paying for the delivery of pre-agreed results, which are normally outputs or outcomes.  We can make agreements with a range of suppliers, from partner governments to NGOs and investors, and contracts will vary accordingly."

How specific/strict would you be about the expected output?

"We’ve found it is important to be extremely clear and upfront about what the indicator of success will be, as well as how we define and measure it. Everyone needs to be aware of and agree on the result as this is what they are trying to achieve. In contracts, suppliers will provide a methodology of how they will achieve each output and how much it will cost, how they will verify completion and what the payment triggers are. These should be as simple and specific as possible, and so contracts tend to be quite detailed in this area.

For example, the contract for a PbR project called ‘Delivering Increased Family Planning Across Rural Kenya’ clearly lays out precise results to be achieved at several levels of the results chain. This includes outcomes such as the years of protection provided for couples."

Would this make the process of 'who to donate to' more complex?
Does it imply you would be choosing causes best able to deliver tangible results?

"PbR is about working with partners in different ways and we can design contracts to suit different kinds of operators and suppliers.  For example, when working with small organisations that are less able to manage risk, it makes sense to agree payments against progress towards tangible results.

PbR does imply that we will increasingly be paying for the delivery of tangible results. We think this is the right thing to do: real results on the ground are what matters. UK taxpayers quite rightly want to know that their contributions are getting to the people who need it most and that the impact is felt widely."

Does this mean you will allocate the funding pie commensurately with size of possible outcome - the bigger the potential benefit, the bigger the award?

"Value for money for UK taxpayers is always crucial, but payments that we make have to be significant enough to motivate recipients to respond.  The assessment of how large payments should be is done on a case-by-case basis, by colleagues working close enough to the context to know what will be a sufficient incentive that also represents value for money."

How do you expect to monitor results of a cause that might be on the other side of the world?

"DFID has country offices that provide local expertise, track country developments, and maintain ongoing policy and technical dialogue with recipient partners. Best practice is to have independent verification in place, to ensure there is no manipulation of results and avoid disputes over what has actually been achieved.

For example, in one Ethiopian education sector project, we contracted an independent agency to provide a baseline assessment of the number of students sitting and passing exams, and to annually verify progress data to trigger payments. Government results were verified through cross-checking data at school level, and by checking the grading system for consistency from year to year. Auditors also interviewed invigilators to gain a qualitative insight into the strengths and weaknesses of the exam administration. You can read more about this verification on DFID’s Development Tracker."

How exactly will this help to spread monetary risk among stakeholders?

"Many of our contracts include a mixture of payment by results and upfront payments because suppliers need an upfront payment to get started. By making all other payments tied to the results they deliver, partners are then sharing any programme risk with DFID."

Will you have your ‘core’ procurement people involved with this or is it a different group of people?

"PbR is becoming a mainstream part of how DFID works, and will involve our ‘core’ procurement people as well as many others. PbR requires a range of capabilities, from analytical skills in measuring and forecasting results trends, through to sector expertise in working with the complexities of incentives and indicators. Commercial and procurement skills are vital to ensuring that we contract and tender in the right ways to ensure value for money."

Do you see the need for additional or different training for your staff to execute this strategy?

"Yes – some of the skills needed are outlined above. In Sharpening Incentives to Perform: DFID’s Strategy for Payment by Results, we commit to providing formal and informal training, guidance and networks for sharing expertise, in order to ensure that DFID staff have the skills, capability and confidence to deliver Payment by Results effectively."

Many thanks to Les Campbell for taking the time to answer our questions so attentively -- we look forward to seeing how the Payment by Results approach pans out in due course and whether it proves to be a coherent strategy to improve the allocation of aid process. And later this week, Peter Smith will take a look at where "payment by results" has (and hasn't) worked in a different but related environment, that of professional services, and whether DFID could take anything away from that experience.

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