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. [email protected] 8 working brief MAY 2011 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 [email protected] work programme working brief 9 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.