work programme working brief 7
jobs for unemployed people which can potentially lead to that step-change in Work Programme performance this, and the previous government, has been looking for.
The opening market DWP were never going to be able to results: perform keep all bidders happy given the scale of competition. Indeed the object of the exercise is not to keep providers ‘happy’ but to end up with a new market which optimises performance, and from the or bust government’s point of view – at the lowest cost. However, it is not clear what ‘shape of market’ would be more likely to optimise performance, and therefore the scoring criteria for bids has leant more heavily on finance or ‘value for money’.
The shape of the market is largely he enthusiasm of the pre-bidding, determined by the spread and range of the slog of the bids, and finally providers and the number of new the crashing reality of winning or The top four providers entrants. If you believe competition can Tlosing – all procurements have will be dealing with drive better outcomes for unemployed the same phases and the Work people then: 1) a good spread of Programme was no exception. 53% of all Work providers is healthy, whilst concentration Procurements often take on a life of their Programme of the market in few hands is unhealthy; own – when the terms of the competition claimaints, while 47% 2) sufficient new entrants will be a spur become more important than the to new thinking and competition but at purpose. Again, the Work Programme will be shared the same time, fewer new entrants may was no exception. The reality of winning between the minimise the risk of unknown and and losing has kicked in for provider staff untested performance. (prime and sub-contractor). For many remaining fourteen provider employees, it is not the winning providers How do the results shape up? This or losing of a contract, it’s the keeping or analysis is based on Chart 1 and shows losing of their jobs. the share for each preferred bidder by questions. However, from June 2011 we percentage of the Department for Work But what do the results mean for start the process of persistent debate and and Pension’s (DWP) total volume. Over unemployed people? Will they receive monitoring of the Work Programme. one-third (36%) of all Work Programme better services? Will support be more Inclusion has always been in favour of the claimants will be flowing through just two personalised? Will they stand an design and ‘theory’ of the Work providers (Ingeus Deloitte and A4e), increased chance of getting a job? Will Programme, but now the test is how well it whilst over half (53%) will be going they be more likely to stay in a job? Will performs in practice. through four providers (Seetec and it be robust enough to cope with Working Links in addition to the top two). expected rises in unemployment? Will it At long last local and national partners The rest of the market (47%) is shared work in every local economy – especially now know who will be running the Work between the remaining 14 providers. those with few jobs? Who are the Programme and a positive dialogue can Furthermore the top four providers have financial winners and losers? now begin about how we work together to a relatively low engagement of the meet the government’s high performance voluntary sector whilst many of the other At Inclusion we know there are no expectations. There are powerful (smaller) providers have a significantly easy quick answers to most of these incentives that will drive more sustained higher involvement.
You can read these results from a range of different perspectives – is this Dave Simmonds the best or worst of worlds for the Work examines the outcome of Programme? Worst, because there is a the Work Programme bidding process and asks significant concentration in few hands with a long tail of providers with small whether it can guarantee quality above cost. and possibly less economic contracts.
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It is likely that the Chart 1: Work Programme - contractor market share of total majority of the volumes (%) contracts were Ingeus Deloitte secured solely on the grounds of who A4e discounted most Working Links Seetec
This composition is more likely to drive Avanta mergers – ending up with a reduced number of providers and therefore less G4S competition. Some would say that this is Maximus exactly what Freud had envisaged when he said that there would eventually be Rehab Group half a dozen large providers. It could also be the best of worlds – it keeps Serco many players in the market with plenty of opportunity to adjust market share from Newcastle College Group the low to high performers, with a strong CDG incentive for smaller providers to be the high performers. ESG
New entrants have not fared well. Only BEST G4S and JHP can be called ‘new entrants’ (our definition is not previously Pertemps holding a New Deal, Flexible New Deal Fourstar (FND) or Employment Zone prime contract) which gives just 8% of the Reed in Partnership market to new entrants. Many of those seeking to get into the market for the first Prospects time were completely unsuccessful, notably some large companies such as JHP Group PwC, Atos Origin, and Eaga. 0 5 10 15 20 25 Were the terms of the market loaded for the ‘tried and tested’ bidders or did the new entrants just not submit invitation to tender allowed bidders to elements there appears to be virtually competitive bids? Either way the result offer discounts on DWP job outcome little or no difference between scores. appears to say that it was tougher than fees (ie. not sustainment fees), and many assumed for a new entrant to bidders scored additional evaluation The consequence is that the additional succeed, but then DWP will say there will marks for every percentage point points secured by discounting can (and be other opportunities under the reduction. did) make all the difference. It is likely Framework in coming months and years. that the majority of the contracts were Will there be some companies pulling out It appears that the nature of the secured solely on the grounds of who of the framework as a whole? Extremely evaluation framework and/or the quality discounted the most. The feared ‘chase likely must be the answer, but then many of DWP’s scoring has led to discounted to the bottom’ happened again. What we were surprised at the high number on the job outcome prices having a very don’t know is why some bidders offered framework in the first place. significant impact – possibly far more discounts and some did not? Was it in than intended. From what we can the belief that performance could not be The impact of discounting discern, the total Quality Scores for the guaranteed at discounted prices or was So what have been the forces that first and second placed preferred bidders it to meet the expected rate of return to have led to the shape of the market? (and third placed for some CPAs) and their financiers? We may never know. The over-riding conclusion that people the unsuccessful were consistently However, we will all agree that we do not have made is: ‘price discounting’. The close. Indeed on some of the quality want the National Audit Office repeating
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their 2010 conclusions on the commissioning and bidding for Pathways: ‘In procuring Provider-led Chart 2: Increase in job entries or sustainment to offset the Pathways, the Department rightly set effects of discounts ambitious benchmarks for contractor 30.0% performance in tender documents, drawing on experience from the best performing Pathways pilot areas. The 25.0% Just increasing tenders subsequently submitted by job entries and leaving contractors and agreed with the sustainment unchanged Department were, however, significantly 20.0% in excess of these benchmarks and may not have been realistic.’1 15.0%
Discounting and performance Just increasing sustainment for We have explained before in Working the first 3 Brief how the minimum performance 10.0% months and leaving job expectation for the Work Programme has entries been set at the maximum that the New unchanged 5.0% Deals ever achieved over the last decade.2 From our financial modelling % increase % needed achieve to provider margin 0 at original discount these performance expectations give an 0.0% average price for each participant for the 0 5 10 15 20 25 30 35 40 45 50 whole programme of around £1,347. Discount rate (%)
This price already represents a reduction on previous programmes, so our assumption has always been that If discounting contractors are not and an increase in performance at the the minimum performance level also successful in increasing performance same time. It can be argued that there is equates to the financial break-even then the obvious impact is that there is no automatic trade-off between reduced point for contractors. In other words, less money in the system as whole. For spending and sustained job entries. contractors only start to make a surplus example, if the whole market was Indeed the early Australian experience once they exceed the minimum discounted by 20% and performance showed that performance could be performance level and/or spend less per was not increased at all, then the maintained but at a lower cost. However, person than £1,347. government saves £170m over the life of the significant increase in overall the contract and unemployed people performance that the Australian However, if prices are discounted then have a reduced service. This still doesn’t government was expecting did not that average price will reduce. We have mean that providers will make a loss – materialise but the cost savings did. modelled what additional performance it but only if they cut back on costs. takes to return the average price to From now on it is likely that any £1,347. Chart 2 shows the relationship The overall picture is one of finance government is going to be squeezing between the discount rate and the rather than quality driving the shape of contractors for efficiencies but without percentage improvement needed to get the market. Our suspicion (but we don’t jeopardising performance or the financial back to £1,347. know) is that the vast majority of viability of contracts. This is a difficult set contracts were won or lost on the level of of issues for a monopoly purchaser Improvement can be achieved discount. The consequences are that (DWP) to get right – expecting through either more job entries and/or discounting providers: will have even efficiencies from the market but not increased job sustainment. Our chart tougher performance targets; sub- abusing their power so that the market is shows both but a mix of more jobs or contractors will be further squeezed; and destabilised to such a large extent that more sustainment will give a line in overall costs (including jobs) will be there is widespread failure. between the two. So if, for example, reduced. If the Work Programme prices were discounted by 20% the challenge of a step change in There has been widespread minimum performance level for job performance on reduced funding was not speculation that at some point entries must increase by 5% to return tough enough – it just got tougher. contractors will return to DWP seeking a the average price to £1,347. If this were re-negotiation of their terms (especially if achieved only through increased However, the counter argument is that there is a double whammy of a sustainment it would take an almost innovation and the continued search for deteriorating labour market) but in the 10% increase. efficiencies can lead to decreased costs short-term DWP is likely to play hard-ball
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Table 1: Work Programme: supply chain volumes (DWP forecasts) - total for each contractor
Self delivered Voluntary) Public Private sub contract (%) sub contract (%) sub contract (%)
A4e 54.6 15.8 10.0 19.6 Avanta 49.7 19.7 13.3 17.4 BEST 70.0 0.0 15.0 15.0 CDG 43.7 22.0 4.2 30.1 ESG 0.0 0.0 21.0 79.0 Fourstar 85.5 11.9 0.0 2.6 G4S 0.0 37.1 14.0 48.9 Ingeus Deloitte 51.2 16.9 2.5 29.4 JHP Group 21.9 34.6 9.5 34.0 Maximus 41.5 43.4 3.3 11.8 Newcastle College Group 0.0 13.8 30.0 56.2 Pertemps 69.0 8.0 12.0 11.0 Prospects 31.0 56.5 6.0 6.5 Reed in Partnership 62.7 9.1 5.7 22.6 Rehab Group 0.7 25.9 6.5 67.0 Seetec 61.5 9.5 0.3 28.7 Serco 0.0 31.3 8.3 60.3 Working Links 56.9 6.3 14.6 22.2
Total volumes 43.1 18.3 8.5 30.0
Source: Department for Work and Pensions and Inclusion
with individual contractors – there are detail released on the make-up of each unless some contractors are offering plenty in the market to transfer contracts preferred bidder’s supply chain. Table 1 guaranteed volumes. to, even if it does cost DWP a bit more. shows the sectoral split for each preferred bidder. There are also significant variations of The voluntary sector squeeze involvement between areas and regions, in The involvement of the voluntary Overall voluntary sector sub-contractors particular Scotland and Wales seem to have sector under both FND and the Work have 18.3% of participants but in addition low participation. Scotland has just a 7% Programme has been persistently 1.1% of participants are covered by the voluntary sector share whilst at the same debated for the last few years. Ministers self-delivery of the voluntary sector time the Wise Group (Scotland’s leading have been very clear about their desire primes (CDG and Rehab), making a total employment and skills social enterprise) for voluntary sector involvement but of 19.4%. Based on our financial model failed to get any contract at all. No wonder were never pinned down on what this this equates to £91 million per year for Martin Sime, Director of the Scottish Council might mean in financial terms. Voluntary the voluntary sector. of Voluntary Organisations, described the sector leaders have also been very results a ‘travesty’ for Scotland. vocal in their fears of a squeeze on the Rehab and CDG together account for voluntary sector. 8% of the total market but this needs to DWP has stressed the number of be read with caution. Half of Rehab’s voluntary organisations in press releases – The problem, however, is that nobody goes to their private sector partners, ‘nearly 300 are expected to be involved as seems to have a benchmark – what was Interserve, and 30% of the CDG share sub-contractors’. However, as we have the scale of voluntary sector involvement goes to private sector sub-contractors. pointed out, nobody knew the scale of in the New Deals and FND? If we had What will not show up in these figures is involvement before. that information then we would have a the extent to which voluntary definitive answer because DWP did organisations are used on a ‘call-off The Third Sector European Network and release their estimate of the value of basis’, but many in the third sector will Inclusion surveyed in March over 200 voluntary sector involvement in the Work question the viability of maintaining voluntary organisations involved in Programme – £95 million per year. capacity on this basis. It will be high risk delivering support to unemployed people to This can be approximated from the given the likely fluctuation in referrals ascertain the extent the voluntary sector had
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However, there remain powerful financial about this task will make the difference incentives for contractors to work with the between success and failure. Has the voluntary more disadvantaged customer groups but sector lost out? It is the effectiveness of those incentives have References surely been diminished with the overall 1. Support to incapacity benefits claimants hard to say. Nobody financial strictures of the programme. through Pathways to Work, National Audit Office, seems to have a 2010 benchmark of the It is highly likely that a ‘work first plus’ 2. P.Bivand and D.Simmonds (2011) ‘Can the approach will evolve. By this we mean Work Programme succeed? Working Brief scale of their that providers will be driven to get early February 2011 involvement in the job entries for the more employable and test approaches for how employment can Dave Simmonds is Chief Executive of New Deal or FND. In then be sustained. For those with lower Inclusion Scotland, certainly, levels of employability, the prospect of they appear to have continued support is bleak especially in a small share the second year. The final question mark will be on the ability of providers to work intensively in been involved in bids. 70% had been deprived areas – those with high involved in bids but it was the larger concentrations of unemployed and low voluntary organisations who were more numbers of vacancies. All partners, successful at being included, with the including contractors, know how smaller local organisations losing out. important it is that these areas are not We will be re-surveying to find out how also ‘parked’ but it is questionable many have actually ended up with sub- whether the Work Programme, on its contracts. own, will be sufficient. How resources and local effort are brought together by Despite the inadequacy of prior providers and local authorities will information there is little doubt that there become yet more important. Local has been a voluntary sector squeeze Authorities and constituency MPs will no which will mean there will be a reduced doubt be keeping a close eye on how role for voluntary organisations in providers target their effort and tackling worklessness – at least within resources. the Work Programme. This is not what Ministers intended (we presume from Performance or bust their statements) so it remains to be Despite this gloomy prognosis on the seen what actions they can or will take. results of the bidding, there is little doubt there are powerful incentives that will What will this mean for unemployed drive increased sustained jobs for people? unemployed people. Whilst the level of There will now be a heightened risk of discounting has soured the results for both lower standards of service across some, within a competitive bidding the board and the ‘parking’ of environment it was inevitable this was disadvantaged participants. The financial going to happen. But it may yet prove to pressures on all contractors (and be a false economy for DWP to have especially those discounting) will asked for and taken the discounts – time inevitably mean reduced numbers of will tell. Personal Advisers and higher caseloads. Whilst the ‘black box’ gives freedom and The positive response now is an flexibility to personalise, the challenge exclusive emphasis on performance. will be to demonstrate personalisation There are many ways in which within a financial system that will be performance can be improved and the driving standardisation. task is to explore each and every avenue, whilst acknowledging what has worked ‘Parking’ (where only a minimum from previous programmes and service is provided) has always been the internationally. How the successful greatest fear for the Work Programme. contractors and their supply chains go