Published by Alexander Hitchcock on 13 July 2016
- Our Work
- The Reformer Blog
11 October 2016
The Work and Health Programme is the next instalment of outsourced welfare-to-work services. The focus of this programme will be ‘hard to help’ claimants. Exactly who that includes remains unclear – a supporting document released on Saturday simply refers to “the long term unemployed, persons who have a disability, and other disadvantaged groups.”
It is right that the Government focuses on those with the greatest need. Unemployment has not been lower since the third quarter of 2005, and previous programmes struggled to meaningfully help this group. An improved employment model for people with a disability or health condition in particular is essential, especially if the Government is to meet its aim of halving the disability-employment gap.
To get the best possible services for users, DWP has emphasised the need to “create and maintain a competitive and sustainable market.” This competition can push providers to innovate and drive down price for contracts. Having a wide base of possible suppliers also provides security for government should an incumbent provider fail. In the long term, fair competition helps ensure suppliers will return to bid for future iterations of employment-services contracts.
The DWP’s approach to procuring the Work and Health Programme may jeopardise this.
The procurement has been running since April 2016. It is now entering a two-stage competition process. First, bidders will compete to be appointed to an “umbrella agreement”. Second, those on the agreement will get the chance to compete for contracts for the programme. On Saturday, the Government announced that there will be six regional agreements and a national one, with a maximum of five bidders on each region – with no cap as to how many agreements individual suppliers can be listed on.
The information outlined has important gaps. This could inhibit suppliers from bidding in the first instance, or could lead to suppliers bidding to join the umbrella agreement, but opting to not bid for contracts.
Crucially, no specific funding model is outlined. The document outlines that a payment-by-results model will be used, but does not explain what proportion of the contract will be outcomes based. Reform research shows that weighting outcomes payments too heavily (over 90 per cent of contract value) has inhibited organisations bidding for employment services contracts in the past – while anything under 60 per cent allows providers to ‘park’ some claimants while still making a profit. In addition, the payment tariffs providers stand to receive for helping different users into work are not set out, meaning bidders cannot know if the programme is financially viable – and increasing the likelihood of them dropping out at the second stage of competition.
There will also not be clarity on contract sizes until the second stage of the procurement. Regions may or may not contain multiple contracts. If commissioners expect those on the agreement to be able to deliver contracts for whole regions, competition will be reduced. Reform research suggests that medium-sized organisations (such as charities with the experience of helping those furthest from the labour market) will struggle to deliver contracts valued at £10 million or more (see table 1). Failing to provide clarity here will also reduce the possibility of smaller organisations forming joint bids for services.
Table 1: Work and Health Programme Lot values
These problems have long been known to DWP officials. Not only has DWP failed to learn from this early feedback, but it has also ignored lessons from past procurements, in which failure to share information in good time made bidding for contracts difficult for organisations unable to bear unnecessarily large risk. That only select few providers may be in a position to bid for contracts when they are outlined early next year should be a severe concern for policymakers hoping to use competition to improve the quality of welfare-to-work services.
Alexander Hitchcock, Researcher, Reform