Select Committee on Work and Pensions Third Report

10   Contracting with the Private and Voluntary Sectors

316. The DWP contracts a substantial proportion of its employment programmes to private and voluntary sector (PVS) providers. It told us that it intends to continue to work with PVS providers "with the aim of maximising the effectiveness of the Department's services," and that it is "sensible and appropriate that Jobcentre Plus continues to use the expertise of providers outside the Department."[367] Whilst there are differences between private and voluntary sector organisations, in terms of their aims and objectives and the way in which they are run, this chapter will focus on issues which are common to both.

A broader role for the Private and Voluntary sectors

317. Recently, the DWP has made changes to the legislative framework to allow PVS providers to take over more of the functions previously carried out by Jobcentre Plus. The Welfare Reform Bill currently before Parliament contains a clause which would extend the role of private and voluntary sector providers (PVS) in the delivery of employment programmes. Under the Bill, the Secretary of State may authorise others to conduct "work-focused interviews", make action plans and give directions. In addition, he may, through regulation, authorise others to carry out a range of other functions. This could include applying benefit sanctions, for example when claimants do not attend compulsory interviews.

318. More detail on the DWP's plans for making use of these powers was given in a Written Ministerial Statement made by Jim Murphy MP in July. From October 2007, private and voluntary sector providers will start to help to deliver the Pathways service, and this will be extended "to the remaining 60% of new and repeat IB customers by April 2008." PVS providers will be used "because our good partnership working with them on other initiatives has shown to be very effective, particularly when we offer them outcome-based contracts and payment by results. Providers will engage with customers after their initial work-focused interview."[368] The first work-focused interview (WFI) a client has will still be delivered by staff at Jobcentre Plus, but later ones may be contracted out to PVS providers.

Decision-making powers

319. During debate in Standing Committee on the Welfare Reform Bill, Mr Jim Murphy, Minister for Employment and Welfare Reform, said that there was no immediate intention to devolve decision-making or sanctioning powers to the private and voluntary sector. He also said that, if this did happen in future, there would be separation between the individual within a PVS organisation who was advising a particular client, and the individual who made any decision to impose a sanction: "[o]ur intention is that the personal adviser will not be doing the sanctioning … and will not become the decision maker […] The power in the clause will potentially move a decision to a private or voluntary sector organisation […] we will seek to structure a system whereby there is a clear separation of the personal adviser and the decision maker."[369]

320. We investigated the increased use of PVS providers last year in the course of our inquiry into Incapacity Benefits and Pathways to Work. We commented:

"The Committee welcomes the involvement of the private and voluntary sectors in delivering aspects of the reform programme, including work-related activity programmes and work-focused interviews, recognising both the potential benefits and some of the risks. We are aware that there may be difficulties for some voluntary organisations, due to coverage, capacity issues or potentially conflicting roles. However, the requirement to deliver sanctions for non-compliance is more complicated. The Committee recommends that the decision of whether to administer a benefit sanction should rest with a DWP decisionmaker rather than a contracted service provider. The Department should carefully consider the views of private and voluntary sector service providers received during its consultation on this issue."[370]

321. The Department responded to the report on 19 June 2006, and welcomed the Committee's positive reception of the use of PVS providers. It said that it recognised "the complexity of the issues involved in establishing the most appropriate roles for the different sectors - public, private and voluntary- that will be operating in partnership in delivering welfare reform," but argued that there was "no clear consensus" on where boundaries should be drawn. It said that during the roll-out of Pathways to Work up to 2008, "decisions on sanctions will continue to rest with DWP decision makers, although DWP would not wish to rule out the possibility of revisiting these arrangements."[371]

The views of Private and Voluntary sector organisations

322. During the course of this inquiry, we heard evidence from a range of organisations involved in PVS provision: the Employment Related Services Association (ERSA), a membership organisation for private and voluntary sector providers of employment services; the Wise Group, a voluntary sector provider operating in Scotland; and the Association of Learning Providers. Most welcomed the opportunity to provide more services on behalf of Jobcentre Plus, but none wanted to be allowed to impose sanctions.

323. PVS organisations told us that they were able to build relationships of trust with clients who might not feel as comfortable with Jobcentre Plus employees. ERSA told us that "customers value working with organisations independent of the Jobcentre Plus agency. It generates trust between advisor and customer and helps to overcome their barriers to employment without feeling under threat of sanctions and judgements about behaviour […] Rightly or wrongly, some individuals are uneasy with working with Jobcentre Plus and so will attain better results with independent providers."[372]

324. ERSA told us that in their view the Welfare Reform Bill did not go far enough in allowing PVS organisations to deliver subsequent WFIs. They said that they wanted the opportunity to carry out initial WFIs as well, and that they had not been consulted about the decision not to allow this:

"No consultation with providers was undertaken in making this decision and no explanation has been given for it. As independent providers have the experience and capacity to deliver WFI's, it is unclear why this decision was made. Ideally ERSA would like to have this decision re-considered to allow the private and voluntary sectors to be really tested what difference they can make if working with clients from first point of contact onwards. At the least, it would be helpful to understand the reasoning behind the decision and to see assurances that in future, policy developments will be consulted on with interested parties."[373]

325. The PVS organisations we spoke to did not wish to be allowed or required to impose benefit sanctions as part of their contracted services. Most felt that this might diminish the relationship of trust referred to above. David Coyne of One Plus told us: "Part of what we do and the values that underlie our relationship are trust and about assisting people on their journey, which is not necessarily just about getting them a job, it is about dealing with a much wider range of issues. I think it would be impossible for us to do that properly if we were involved in sanctioning people."[374] Frances Parry of ERSA told us that, while ERSA members could "work around" such a power if it were introduced, they did not see a need for it: "We see it [Jobcentre Plus] as being a neutral gateway to benefits and services. We would rather adopt the situation we have, I believe, in Employment Zones where, if there is a sanctions issue, we collect the evidence and the evidence is passed to Jobcentre Plus to make a decision about the benefits."[375]

326. ERSA told us that their members could offer "specialist and expert provision," and were "particularly effective when dealing with the hardest to help."[376] However, the Public and Commercial Services Union (PCS) told us that comparisons between Jobcentre Plus provision and that of PVS organisations were not being fairly carried out by the DWP. It told us that it was "simply not true that the third sector has a consistently better record in the provision of employment services than in-house staff. Wherever Jobcentre Plus staff have been allowed the same flexibilities and funding as private sector companies or charitable organisations they have been able to compete with, if not surpass, the performance of contractors."[377]

Comparing the performance of Jobcentre Plus and other providers

327. More evidence may be needed on the relative performance of PVS organisations and Jobcentre Plus. ERSA told us there was "a deficiency in market and performance information which makes it difficult to compare providers across sectors […] it would be useful for DWP to ensure data is collected so that [Pathways] providers are monitored and the success of the private and voluntary sectors can be measured in comparison to Jobcentre Plus."[378]

328. The DWP told us that it was "currently developing its understanding of the relative performance of different delivery models," and this was ongoing. It provided analysis of the relative performance of Employment Zones and New Deals in similar areas, and this concluded that "in the second half of 2004 Employment Zones got a higher percentage of starts into jobs and sustained jobs than their Jobcentre Plus delivered New Deals in comparison areas. However, these better outcomes were achieved at a considerably higher cost."[379] Its comparison of Action Teams for Jobs showed that Jobcentre Plus teams did significantly better at achieving their job entry targets than private-sector led teams.[380]

329. If the DWP is to obtain the best value from PVS providers, it needs clear evidence on their comparative performance levels in different fields. We recommend that the DWP continue with its assessments of the relative performance of PVS providers and Jobcentre Plus, and provide us with details of their findings.

Contract structures

330. We heard evidence that the process required before an individual could find sustainable work was often a lengthy one. David Coyne of One Plus told us:

"The sorts of impacts that are made at that earlier point in the continuum are around things like family cohesion, debt management, educational attainment or attendance of children at school. It is much more about assembling the basic building stocks of a stable family environment in which the parent can then start to move towards the economic interventions that DWP are interested in. What we would argue very strongly is the other things are a very, very necessary precondition for New Deal type initiatives to work. If they were not being done then the interventions in the 13 weeks before and after job entry would be unsustainable."[381]

331. As people who are further from the labour market will take longer to help, it is important that providers are incentivised to deal with this group. Richard Cairns of Glasgow City Council told us:

I had this discussion with some private sector providers […] around what the merits would be in people with different sets of circumstances having some different premium attached to them that was measured on the basis of their opportunity costs relative to remaining on benefit in the long-term. In theory everyone subscribes to that because organisations like the Wise Group and others would be given adequate resources to deal with the kinds of people that they find at their door and any organisation that chose to work with the least challenged, if you like, would earn less revenue from doing it. In principle it is a reasonable model.[382]

332. Our report, Incapacity Benefits and Pathways to Work, published last year, made recommendations about how contracts for Pathways to Work provision should be structured. It recommended that the DWP should

"consider carefully how best to progress with [outcome-based] funding to ensure that all providers - private and voluntary sector - do not skew their focus towards helping into work those who are already closer to the labour market. Providers must receive payments that recognise the ongoing support needed, not only to move a disabled person into work, but also to ensure their jobs are sustained. We recommend that the contracts reward providers for a range of outcomes leading up to and including job entry and that job retention for at least 12 months is rewarded."[383]

333. In its response, the DWP told us that its aim in planning contract structures for outcome-based funding was "to ensure that contract structures do not lead to the introduction of perverse incentives that could have unwanted impacts, while avoiding creating overly complex monitoring systems and over-specification within contracts."[384]

334. We repeat our previous recommendation that DWP needs to "consider carefully how best to progress with [outcome-based] funding to ensure that all providers - private and voluntary sector - do not skew their focus towards helping into work those who are already closer to the labour market". Providers for all groups should receive payments that recognise the ongoing support needed, not only to move a person into work, but also to ensure that their jobs are sustained. The need for the system to be improved to reflect these objectives is becoming more acute as the level of private and voluntary sector provision increases.

Prime Contractor

335. Jobcentre Plus has a strategy of using a prime contractor to deliver its services where possible. In a memorandum to our inquiry on the Efficiency Savings Programme in Jobcentre Plus, DWP explained how this system works:

"Jobcentre Plus has grouped its contracts into larger, more commercially viable packages, with a preference for one main provider ("prime contractor") being responsible for the delivery of all services across a geographical area. At the same time, Jobcentre Plus fully appreciates the importance of ensuring that we make good use of the high quality provision offered locally by a range of providers, including many smaller providers from the private, voluntary and public sectors."[385]

336. There are concerns that the prime contractor model is not working as it should. We heard evidence that some New Deal prime contractors are not contracting work out to smaller organisations, as the DWP intended that they should. Frances Parry of ERSA told us:

"We feel that the Prime Contractor model as it currently looks risks losing the diversity of the provider network for the sake of securing efficiency savings. The model really moves contract managements to the prime contractor, and we feel that over time the prime contractor is bound to deliver more and the sub-contractor less. Also the prime contractor model does not support the Government's own choice agenda, which we do. So, we have got a situation where it may compromise diversity, it may work against the choice of the customer, there is a possibility of monopoly development, and it just does not encourage ongoing quality provision. We wonder, in particular, if there is an underperforming prime contractor in a district, how would the Jobcentre Plus respond if there is no alternative provider?"[386]

337. The Minister for Employment and Welfare Reform, Jim Murphy, told us that he recognised these fears, but did not think they were being realised at present:

"I know this was a concern that existed in some quarters about the creation of prime contractors squeezing out some others. There is no evidence at this stage that that is what is happening […] at the point at which a prime contractor makes an expression of interest and goes into the formal contracting process with DWP we ask for details of the sub-contracting arrangements, so we monitor this very closely and will continue to do so to make sure that prime contractors are not squeezing sub-contractors out of the market, because it is absolutely essential […] one contractor would find it very difficult indeed to have that breadth of expertise to support people with all sorts of different disabilities and fluctuating mental health conditions. It is absolutely essential that sub-contractors, including niche organisations, are able to play their part in the welfare market and support our customers."[387]

338. Prime contractors must not be allowed to become sole contractors, or valuable local expertise will be lost, reducing the opportunities to engage with those far from the labour market. We recommend that the DWP should publish data on how many organisations prime contractors are, in fact, contracting with, and the value of these contracts. We also recommend that the DWP should clarify what its response would be if a prime contractor was found to be consistently underperforming.

367   Ev 251 Back

368   HC Deb, 4 July 2006, col 33WS Back

369   Official Report, Standing Committee A, Welfare Reform Bill, Col.330, Ninth Sitting, October 31 2006 Back

370   Work and Pensions Select Committee, Third Report of Session 2005-06, Incapacity Benefits and Pathways to Work, HC 616, para 306 Back

371   Department for Work and Pensions, Reply by the Government to the Third Report of the Work and Pensions Select Committee, Session 2005-06, Cm 6861, June 2006, p 21 Back

372   Ev 161 Back

373   Ev 162 Back

374   Q 16 Back

375   Q 252 Back

376   Ev 160 Back

377   Ev 232 Back

378   Ev 162 Back

379   Ev 330 Back

380   Ev 330 Back

381   Q 21 Back

382   Q 24 Back

383   Work and Pensions Select Committee, Incapacity Benefit and Pathways to Work, para 309 Back

384   Department for Work and Pensions, Reply by the Government to the Third Report of the Work and Pensions Select Committee, p 22 Back

385   Work and Pensions Select Committee, Second Report of Session 2005-6, The Efficiency Savings Programme in Jobcentre Plus, HC 834, Third Supplementary Memorandum from Jobcentre Plus. Back

386   Q 255 Back

387   Q 457 Back

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