House of Commons - Management and Administration of Contracted Employment Programmes

Management and Administration of Contracted Employment Programmes - Work and Pensions Committee Contents

5 Sub-contractors

DWP and "market stewardship"

128. The Department is moving from a system where it contracts directly with providers, to a prime contractor model. Under this model the Department contracts with a prime contractor, (who may deliver some services themselves) who then subcontracts to smaller providers. In written evidence the Department explained that:

[...] the Commissioning Strategy committed the Department to a market stewardship role: playing an active and transparent role to ensure that smaller, local providers, who have the capabilities needed and who perform well, can flourish and develop.[128]

129. The Department sees itself as being very involved at all levels of the market. The Code of Conduct says that the Department will "ensure that delivery providers can have a 'voice' direct to DWP, not just as a vehicle for talking about common problems, but as an opportunity to share insights that are best understood by those dealing with our customers".

130. In oral evidence we heard that the Department seemed to be devolving much of its responsibility for employment programmes. Mr Davies from BASE told us that:

If we are going to have this active stewardship, I am not sure what it looks like and what it means. I have not seen much evidence of a will to bring in this active stewardship of the market. We have seen DWP hand over some of the requirements for contract management of the supply chain and quality assurance within there so they are not hands on with that. There is a lot of looking but I am not sure there is much doing […]. All the evidence is that they are going 'We do not really want to'.[129]

In oral evidence, the Minister explained that the Department was "contracting responsibility":

I am concerned that we do not end up with just a few prime contractors who have absorbed everybody else and that we then do not have a competitive market in which to take this work. Are we devolving responsibility? We are contracting responsibility. We can argue about words, but we remain with ultimately the responsibility for those customers until they go off our books, they are no longer receiving benefit, and they are back in work.[130]

Code of Conduct

131. The Code of Conduct was published as part of the DWP's Commissioning Strategy in February 2008. It governs the relationship between prime contractors and subcontractors. The Code is 4 pages long and covers; Values, Pre-awarding of contract, Post-awarding of contract, Equality and diversity, and TUPE. Some of the Code is very definite and specific, for example it specifies that:

There will be no "poaching" [of] potential delivery provider staff during sub-contracting negotiations.

132. However other parts of the Code are more subjective, for example there is provision that:

Funding should be on a basis that is fair to the different organisations involved and reflects relative ability to bear particular risks.

133. The Code also says that the Department will undertake to:

monitor and enforce the Code of Conduct consistently and fairly;
[…] act as stewards of the supply chain in its initial stages supporting providers and Contract Managers in the implementation activity from contract award through to live running;
actively promote awareness of and adherence to the use of the Code of Conduct by top-tier providers and delivery providers;
provide a grievance route for delivery providers who believe that the Code of Conduct is not being adhered to; and
ensure that delivery providers can have a 'voice' direct to DWP, not just as a vehicle for talking about common problems, but as an opportunity to share insights that are best understood by those dealing with our customers.

134. Most submissions we received made little or no comment about the Code of Conduct. The Association of Learning Providers said it "goes some way towards mitigating behaviours between contracting partners but as yet there is not much evidence that it has enough "teeth" to resolve serious problems".[131] In oral evidence, Mr Davies from BASE said:

[...] as far as I am aware there were not any subcontractors involved in the development of the Code of Conduct. There is widespread scepticism about that Code of Conduct unless it is a legal part of the contracts and enforceable. It is full of words like "should" and "expect" rather than "will" and "must". It is largely seen as a bit toothless and irrelevant.[132]

135. However several submissions said that they hope the new Merlin system (discussed below) would be more effective. Working Links said that Merlin was being developed because:

it was felt that the existing Code of Conduct was largely toothless, was only a contract requirement for prime contractors, allowed no redress for poorly treated sub-contractors and did not do enough to raise standards across the supply chain.[133]

New York City

136. In oral evidence Mr Davies, from BASE drew our attention to DWP research which looked at the experience of New York City.[134] New York City has, like DWP, adopted a prime contractor model of employment services with outcome payments. However, unlike in the UK, New York City does not see itself in a "market stewardship role" and the contracts do not include any requirement about the quality of customer experience or a requirement to use sub-contractors. Many providers in New York City have adopted a "work first" model of employment provision. Advisers adopt a "sales-like" approach, selling the benefits of work to customers. They aim to move customers into any work in the belief that this will overcome any barriers they have. Specialist help is generally not provided, so some prime contractors have no subcontractors.

137. The report noted that

With just eight prime providers in the NYC welfare market at present, it is fair to say that market diversity is limited. The use of sub-contractors is very much left to the primes and has decreased in recent years […]. The low level of sub-contractor service provision has been accompanied by, and is possibly attributable to, the 'hands off' approach of funders towards prime/sub-contracting arrangements and relationships.

138. It concluded that:

The NYC example […] reinforces the current British approach of paying careful attention to the structure of the market, both in the initial phase of implementation and on an ongoing basis in order to secure:

a diverse market that offers clients real choice;
a market that drives and sustains innovation;
a market that embraces and fosters the contribution of a flourishing Third Sector;
a market in which relationships between primes and sub-contractors are governed by a code of conduct.

139. While prime contractors in New York City are not required to use subcontractors, if they do use them then the subcontractors are protected:

[...] sub-contract arrangements must be approved by the HRA,[135] and are monitored by site visits. Prime-sub-contractor relationships are not governed by a code of conduct, but if problems arise, the HRA can intervene of their own will or at the request of either the prime or the sub.

140. The report concluded that monitoring and intervention was important:

[...] delivering services through sub-contracts requires not only monitoring but also intervention to ensure that service delivery is not jeopardised by difficulties at either the prime or the sub level, whether those difficulties are related to capacity, to infrastructure or to the prime-sub relationship.

141. The New York City experience has shown that it is possible to run a commercially successful prime contractor making little or no use of sub-contractors. It has also seen the numbers of subcontractors decrease over time. The Department cannot rely on market pressure alone to ensure that sub-contractors remain involved. However the New York City experience has not demonstrated whether "prime only" contractors were able to provide a quality customer experience, or whether they have the same long-term outcomes as those who used subcontractors.

142. New York City does not require prime contractors to use sub-contractors, and it does not see itself as having a "market stewardship" role. Despite this, when subcontractors are used it has been necessary for them to intervene in the relationships between prime contractors and subcontractors to ensure service delivery is not jeopardised.

Unfair treatment in the UK

143. Some submissions to this inquiry felt that the prime contractor model combined with little oversight by the Department could lead to small contractors being exploited. This view was not universal, the Wise Group said that:

We welcome the prime contractor model as useful in not only reinforcing localism, but also building capacity amongst smaller organisations in the Third Sector.[136]

144. A4e also cautioned that:

DWP's role in the protection of supply chains needs to be carefully balanced against the need to ensure that the benefits derived from allowing the top tier of quality Prime Contractors to use their position to find 'what works' is not needlessly impeded. Imposing too many barriers will return the welfare to work market to an era of micro-management, albeit by proxy.[137]

145. In oral evidence, A4e told the Committee that they ensured that their contracts with sub-contractors reflected the terms they received from the Department.[138]However during the course of this inquiry we heard of a number of instances that did not meet the high standards described to us in respect of: tendering, the terms of contracts and in force.

TENDERING: PATHWAYS TO WORK

146. We heard that many of the sub-contracting arrangements in Pathways to Work had broken down. The Department told us that, of 33 original third sector subcontractors, 28 are still delivering Pathways.

147. Despite the figures showing that most subcontractracting arrangements had been honoured there was a perception amongst providers that there had been problems. In oral evidence, Mr Davies from BASE told us that there had been problems with tendering for Pathways but that lessons had been learnt :

There was some bad faith and the DWP have learnt from that. For instance on the tendering of Work Choice, now primes have to list the subcontractors they have agreed to work with and they will be held to that.[139]

148. While Mr Lester, Vice Chair, ERSA and Director of Operations, The Papworth Trust added that there was still room for improvement:

There is no doubt Pathways was really the first contract to use the prime/sub model with any significance and there was learning to be done. Part of that learning is with Flexible New Deal and Work Choice it is more overtly articulated who the subcontractors might be [...]. I am certainly seeing it in the bid opportunities that Papworth have been involved in that things have changed and the way people approach it is far more clear and robust. Is it perfect? No. There will be improvements to be made but it was better than in the Pathways.[140]

149. Mr Cave, Delivery Director, Employment Group, DWP noted that the system cannot be too rigid because there are cases when the Department wants prime contractors to change sub-contractors:

[...] if bidders go into a competition with the best of intentions and say, "These are supply chain arrangements" and then discover in practice that some subcontractors are not delivering to the extent that they should be, we want them to change those arrangements. We have no investment in maintaining supply chain arrangements which are not effective.[141]

TENDERING: FND

150. The system of tendering for FND is different from Pathways. When a potential prime contractor submits a tender for FND to the Department they must provide information about which sub-contractors they will use and what work those subcontractors will perform. However, we also received evidence of problems with this new system. The City Strategy Pathfinders Learning Network said that:

Pathfinders report that they have found themselves characterised as 'key stakeholders' or 'delivery partners' in bids after only very limited contact and superficial relationships with some potential primes.[142]

This could lead to the Department receiving bids that indicated that the prime contractor had working relationships with people in the area, and had worked with them to design their programme, when that was not the case. The City Strategy Pathfinders Learning Network also said that "there is only modest confidence that tools like the 'letter of intent' are sufficient safeguard for subcontracting arrangements."[143] It also suggested that bids should be scored on supply chain development.[144]

151. In Glasgow we were told that one company had applied to eight potential prime contractors to be a subcontractor; it had only heard back from two and did not know whether its name had appeared in bids. In oral evidence we put this case to the Department. Mr Cave told us that "we require each bid not only to say what its subcontractors are but to submit evidence from those subcontractors to show that they are aware that they are in that bid and have given their assent to it".[145] However, the Minister added that "I get some of that feedback [that subcontractors do not know if they are in bids] as well and I am trying to make deliberate efforts to hear that feedback by meeting with some of those third sector providers".[146]

152. Also on our visit to Glasgow, we heard that three large organisations had each bid for prime contractor status. However, each named the other two as sub-contractors in their bids. As a result, it did not really matter who won the contract. In addition, because the companies involved were so large, they would need to make no, or very limited, use of any other sub-contractors, including those with a track record of provision in the area. Similar practices have been described in the press. On 14 December 2009, Regeneration & Renewal magazine reported that:

Senior figures in the sector told Regeneration & Renewal that some prime contractors are agreeing, behind closed doors, to subcontract to each other on a reciprocal basis. "Prime contractor X says to prime contractor Y: 'If you subcontract to me in your area, we'll subcontract to you in our area'," one source said. 'This means that smaller providers, particularly those in the third sector, may get shut out.'[147]

This sort of practice would seem to us to constitute a cartel.

153. In oral evidence the Minister told us that:

I would also say that more recent invitations to tender have required details of organisations who will deliver the key element, including subcontractors. If I had evidence that in an area this was effectively being used by primes through subcontractor relationships to carve things up, then I would be concerned that we had not picked that up through the more recent changes we had made in relation to tender processes.[148]

TERMS OF CONTRACTS

154. The Association of Learning Providers told us that there is evidence of sub-contractors being taken advantage of. An FND prime contractor "inadvertently" informed its sub-contractors that its contract with the Department had a 40% tolerance level built into projected volumes for payment. However, the prime contractor had only passed on a 15% tolerance to sub-contractors. The submission continued:

[...] it is doubtful whether these arrangements would have come to the notice of DWP, and therefore been flagged up as a potential risk to front-line delivery, without a well-intentioned but inadvertent slip on the part of one of their Primes—certainly subcontractors we have spoken to do not believe that DWP's contract management structure would have identified it as things currently stand.[149]

155. Another issue around contract terms was brought to our attention by Mr Davies from BASE. He told the Committee that there "are real issues about management fees [for Workchoice]. 30% seems to be the standard. I have concerns that the actual funding that is left to deliver programmes is going down and down". When prime contractors pass payment on service fees and outcome payments to subcontractors they deduct a management fee. Some prime contractors will provide a lot of services for their subcontractors, others very little.

156. Mr Murdoch, Chair, ERSA and Executive Director, A4e told us that the Department needed to become more involved in ensuring contracts were fair:

ERSA demands a diverse effective supply chain that provides best possible service for the customer. It is important, therefore, that DWP get involved in some of these issues around service fee and how it is passed on to the partner. They need to get involved and look at the issues in our market. Without that we could lose some fantastic organisations that maybe do not have some of the financial nous, the scars of the commercial world, in order to survive. It is important DWP in its role of stewardship looks into these issues.[150]

157. In oral evidence, Mr Cave from DWP told us that very different pricing models could be fair depending on how work was divided between the prime contractors and subcontractors:

I can envisage that you might have a prime contractor whose model is to take on the cost—because they have the prime contract—of a lot of investment in systems facilities and management processes, in order to free the subcontractors up from that. That will affect the pricing arrangement which they come to. Others may take more of a stance of saying, 'We want a subcontractor to do end-to-end service delivery in a particular area' so you would get a different arrangement there, and so on.[151]

158. Mr Cave went on to say that the Department had not seen any Work Choice bids yet but that "we do not have a standard view on what the commercial relationships should be between the prime contractor and a sub".[152] He said that he could ask to see contracts with sub-contractors, but that this was not routinely done.[153]

159. The Minister then clarified that "I would not want you to think we do not care at all about what happens to the subcontractors" and that that was why Merlin and the Code of Conduct had been developed.[154] However these all worked "on the basis that in the end our prime relationship is with the prime contractor".[155] Mr Cave noted that sub-contractors can and had walked away from contracts when they were not happy with the pricing structure. He thought that those providers with a genuine specialism would have the market power to force changes to the terms of contracts. [156]

CONTRACTS IN FORCE

160. We heard other reports of problems in the relationship between prime contractors and subcontractors when contracts were in operation. On our visit to Glasgow we heard from several subcontractors that they were only sent the very hard to help by prime contractors which made it difficult for them to get outcome payments. One had successfully taken part in New Deal despite this, although another had had to pull out of a contract because they were losing money.

161. BASE told us about the experience of some of its members in Pathways. It said:

In two [Pathways to Work] contract areas, we are aware of difficulties where the prime provider has not paid the subcontractor since the start of the contract. One of these subcontractors sought to challenge this by contacting DWP only to be told that DWP does not speak to subcontractors. This seems at odds with DWP's stated aim of "active stewardship" within the market.[157]

162. In oral evidence the Department told us that this would be a breach of the prime contractor's contract with the Department which requires that sub-contractors are paid within 30 days. The Minister said he would be concerned if subcontractors were not being paid. Mr Cave said that "we get a lot of contact from subcontractors. I do not think there is a sense out there that our doors are closed to them".[158] However, in oral evidence, Mr Davies from BASE told us that it was "difficult for subcontractors to raise these issues with the Department because the Department is turning around and saying 'We do not talk to you. We only talk to Primes' so where do they go?"[159]

163. Practices have been reported to us, and reported in the press, whereby potential prime contractors are submitting tenders which subcontract to each other on a reciprocal basis, squeezing others out of the market. We were very disappointed that the Minister was not able to tell us that we had been mis-informed. The practices described to us should have been easily visible to the Department at the tendering stage. The Department must look not just at what percentage of work prime contractors are devolving to sub-contractors, but at who those subcontractors are. If a cartel is operating it should be broken up.

164. The Department's Code of Conduct says that "Funding should be on a basis that is fair to the different organisations involved and reflects relative ability to bear particular risks". In order to enforce this the Department must have a clear idea of what constitutes "fair", we are not convinced that it does. The Department needs a clear idea of what constitutes a fair contract, and to make this known to providers.

165. We were very concerned by the reports of subcontractors who have not been paid. We welcome the reassurances of the Department that it is willing to get involved in such cases. However, this does not seem to have happened in practice. The Department needs to ensure that its staff are aware that they should intervene in such cases, and that subcontractors know who to contact. The Code of Conduct says that the Department will "ensure that delivery providers can have a 'voice' direct to DWP". This is clearly not happening, the Department must ensure that it does.

166. We welcome the Department's stated policy of "active market stewardship". However we are not seeing it happen in practice. The Department needs to clarify what constitutes fair treatment of subcontractors and ensure that prime contractors meet these standards. So far, it is clear to us that the Department does not even have a clear idea of what constitutes fair treatment, and, despite the rhetoric, has shown no willingness to get involved with even the most serious cases.

MARKET FAILURE

167. While market failure is a term which is often used to describe a market where there is not fair competition, it can also describe a situation where a market collapses and fails to meet demand. We heard that while unfair treatment of subcontractors could lead to an individual subcontractor going out of business, the Department also needed to be aware of the risk of market failure. As has already been discussed, the New York City authorities, who did not see themselves as taking a "market stewardship" role, still found it necessary to monitor the treatment of subcontractors to ensure service delivery was not jeopardized. The Association of Learning Providers told us that stability was needed, especially while the system was being set up:

We understand that one of the ultimate aims of DWP is to actually distance themselves to some degree from supply chain arrangements below PC level, seeing them as purely commercial agreements, and they are correct in this to a large extent. However, it is understandable that all providers are concerned as to how viable and workable the system will be, and we feel that DWP would be ill-advised to take this sort of step back at too early a stage until the system becomes more embedded, effective and familiar to all concerned[160]

168. Mr Davies from BASE told us that:

There is a real danger sometimes that they [subcontractors] will just jump at any deal that is offered and that it will not be financially viable. I am not sure what level of risk assessment has gone on looking at the possibility of market failure among subcontractors. I think that is potentially quite a big issue as we go on.[161]

169. If the Department is not aware of the details of contracts with subcontractors, of how risk is shared, and how changes in on-flows will affect subcontractors, it will be difficult for it to predict the circumstances that would lead to large numbers of subcontractors going out of business or withdrawing from contracts. For example, we have already looked at a case of a prime contractor who received a 40% on-flow tolerance from the Department. The Department would therefore expect the system to be able to cope with on-flows 40% above what was originally predicted. However, the prime contractor had only passed a 15% tolerance onto the subcontractors. As a result the subcontractors would start to have financial problems when on-flows were only 15% above what was predicted. If the Department had not seen the contract this would come as a surprise.

170. We do not know how widespread unfair treatment of subcontractors is, but neither does the Department. If such behaviour by prime contractors were to be widespread it would have the potential to put otherwise viable subcontractors out of business, leading to a loss of specialist knowledge in the market. However, it could also jeopardise the delivery of contracts or lead to market failure; the Department must be alert to this risk.

The role of small organizations in the Employment Market

171. In Glasgow, we were told that, as part of the City Strategy, prime contractors had been contractually required to run workshops for potential subcontractors. The aim was to encourage them to take part in the City Strategy, and give them the support they needed to do so. The City Strategy management had been disappointed with the response from subcontractors, but said they were not sure why the process hadn't worked as they had hoped. We were told that the Department's requirements for IT security and administration were burdensome and beyond the reach of small contractors. The processes of having to submit tenders to many potential prime contractors, but only getting the work if that prime contractor then won the contract, created a lot of work for potential subcontractors.

172. However the small contractors we met in Glasgow told us that much of this was untrue. One organization told us that it had bought the required encryption software, and used it to submit data on behalf of a range of voluntary sector organizations. Another organization told us that it had passed a full EU audit. A third had previously been asked by the Department to manage subcontractors and undertake the administration for a DWP pilot. Medium sized third sector organizations had provided administrative support for smaller ones. The small contractors we met felt very strongly that prime contractors were using their size as an excuse to keep business for themselves. One organization had delivered a service successfully for the past seven years. It was not allowed to tender to be a prime contractor because it was too small, so submitted Expressions of Interest to potential prime contractors. However, the prime contractor which won the contract decided to take the work in-house. In oral evidence, Mr Cave told us that he felt that that was an example of competition.[162]

173. There are barriers to small providers tendering for contracts, particularly the need to submit tenders to multiple potential prime contractors. However, in Glasgow we were very impressed with the measures small organizations had taken to work together and share expertise and resources. Every help needs to be offered to ensure that small providers can participate in the market; however, the Department must ensure that the biggest barrier to potential subcontractors is not the attitude of prime contractors.

174. We heard that providers who had run a service successfully for many years could lose work if they were too small to tender to be a prime contractor, and the prime contractor that won the contract then took the work in-house. This loss of local expertise and a proven service cannot be in the interest of customers. Tenders should be judged on their impact on existing services which are working well.

Merlin

175. The Department is overseeing the development of a bespoke accreditation based standard—the Merlin Standard. An industry led Merlin Advisory Group will take responsibility for overseeing the development of the standard which will draw on existing best practice in relation with subcontractors used in the sector:

[...] it was proposed that a two year pilot of a 'Merlin Standard' should be developed to produce an industry supported accreditation process specifically designed to address the Code of Conduct, taking into account and dovetailing with existing standards and internal processes. In addition there should be an arbitration and mediation function to consider grievances which have failed to be resolved through normal dispute resolution processes.

DWP will fund this pilot in the early days, moving towards an outcome of an independent and self-funding industry led accreditation and information service being in place by July 2011 (Merlin Standard).[163]

176. The Invitation to Tender for Flexible New Deal Phase 2 provides more information, saying that:

The Merlin Standard will underpin the contractual requirements of the Code of Conduct that is already part of the Prime Contract. Additionally it will link to a mediation and arbitration service where there is evidence that suppliers are acting in breach of the contractual obligations of the Code of Conduct.

The contractual consequences of the Merlin Standard will be developed and communicated as part of the two year pilot. As this pilot period aligns with the procurement and implementation phases of Flexible New Deal Phase Two, suppliers are asked to bid on the basis that the Merlin Standard will apply to the Flexible New Deal Phase Two contract, either at the outset or during the contract period.[164]

177. The Papworth Trust suggested that, if the Department had closer links with subcontractors, Merlin would be unnecessary:

[...] there should be a clear link between the DWP and the larger sub-contractors, in essence to provide DWP with visibility of the performance across the contract and see what value prime contractors are adding. This could also provide a clear route for sub-contractors to raise concerns and in some circumstances 'whistle-blow' should any malpractice occur, thereby removing the need for other systems such as the Merlin project currently being developed. [165]

178. In oral evidence we heard that Merlin was too bureaucratic,[166] and was "being imposed from DWP from afar",[167] and that there seemed to be no opportunity to resolve disputes other than by going to the Ombudsman.[168] BASE suggested that the Department should have a role in dispute resolution to avoid things having to go to the Ombudsman. It also said that very few small providers had heard of Merlin.[169]

179. Mr Cave told us that while the Department's written evidence said that Merlin would not start until July 2011, Merlin would actually start to operate quite quickly:

We are starting to use Merlin on a pilot basis in February/March next year with FND phase one providers and that would be then used in FND phase 2 as that comes in. It is not there at the very beginning of FND phase 1, but it is very shortly afterwards. [170]

180. The Minister went on to explain why Merlin was necessary:

[...] principally the contract between ourselves and the prime contractors is a contract between ourselves and the prime contractors and the code of conduct is within that contract to dictate to contractors how they should behave. What then follows, inevitably, is that to work on the supply chain and to ensure that we have a very healthy market within the supply chain there are some things that you are not going to be able to legitimately agree with in that contract between ourselves and the primes and where there is merit in having an additional process. That is where the Merlin Standard comes in.[171]

181. After we had finished hearing oral evidence the Department published the Draft Merlin Standard. It consists of four principles: Supply Chain Design, Commitment, Conduct and Review, which are then spelt out in detail. Prime contractors submit evidence to Merlin that they meet the standards set out in the principles. They then go through an assessment process which includes a site visit and talking to subcontractors. They are then graded as "Excellent", "Compliant" or "Unsatisfactory". There is no reference to what the consequences would be from the Department as the result of an "Unsatisfactory" grade. The draft contains no reference to any process to resolve disputes between prime contractors and subcontractors.[172]

182. However, in practice it may not be possible to separate the role of Merlin from the management of contracts as a whole. It is not yet clear whether Merlin will issue guidance as to what is acceptable in contracts, or only adjudicate on disputes. It is also not known whether those decisions will be made public. However, as has already been discussed, the treatment of subcontractors can not be separated from the operation of the market as a whole. Merlin's decision on for example, whether or not it is acceptable not to pass on on-flow tolerances will determine how the market copes with changing volumes. Merlin could make a decision, or series of decisions, which forces certain sub-contractors out of the market. We do not know if the Department would be able to over-rule any such decisions.

183. The Invitation to Tender for Flexible New Deal Phase 2 says that Merlin "will link to a mediation and arbitration service where there is evidence that suppliers are acting in breach of the contractual obligations of the Code of Conduct". However, the Draft Merlin Specifications contain no details of a "mediation and arbitration service". If a prime contractor is in breach of its contract with the Department we fail to see why the Department would not get involved itself. There may be a role for a formal arbitration service to look in detail at contracts; however, sub-contractors should be able to approach the Department first, and the Department should be able to resolve clear cut cases.

184. Decisions made by Merlin will have implications for the viability of individual subcontractors and for service delivery. Its decisions on what constitutes fair risk sharing will affect the ability of the market to cope with changes in on-flows. Potentially Merlin could make decisions which would result in a crucial subcontractor, or large numbers of subcontractors, leaving the market or going out of business. It makes sense for the Department to make these decisions itself, allowing it to ensure the market develops in a way which is stable, robust and meets the needs of customers.

185. The Draft Merlin Specifications provide for prime contractors to be graded as "Excellent", "Compliant" or "Unsatisfactory". We call on the Department to spell out what would be the consequences for a provider of receiving an "Unsatisfactory" grade.

128 Ev 91 Back

129 Q52 Back

130 Q155 Back

131 Ev 74 Back

132 Q54 Back

133 Ev 52 Back

134 Q52, Dr Armstron, Yvonne Byrne, Lisa Patton and Sarah Horack, Department for Work and Pensions, Welfare to work in the United States: New York's experience of the prime provider model, 2009 Back

135 HRA, Human Resources Administration, whose role is to 'coordinate and integrate the City's human services programmes'

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136 Ev 36 Back

137 Ev 65 Back

138 Mr Murdoch Q43 Back