Appendix: Government response
Introduction
The Government welcomes the Fourth Report of the
Work and Pensions Select Committee on the Management and Administration
of Contracted Employment Programmes. The Department of Work and
Pensions has always insisted on the highest standards of probity
in relation to claims and payments for providers' activities and
always investigates any allegation of fraud and wrongdoing. The
Department is focused on preventing fraud as much as detecting
it and has a strong fraud prevention regime in place.
The Government is reviewing policy in this area.
The Work Programme, which is being introduced from summer 2011,
will provide an integrated package of personalised help based
on the needs of individuals who find themselves out of work. The
Work Programme will radically simplify the array of existing employment
programmes and deliver coherent, integrated support more capable
of dealing with complex and overlapping barriers to work. The
Work Programme will be underpinned by strong processes and controls
for ensuring that providers meet high standards in respect of
information security, financial probity and basic business integrity.
This new approach to delivering employment related
support services, offering integrated support to those who most
need it, will be delivered through a new procurement framework
for potential delivery partners. The Departments Framework For
Provision of Employment Related Support Services, known as "The
Framework" will enable us to move packages of work quickly
to the best performing delivery partners, thus delivering improved
performance and better value for money. The Framework will be
used to procure contracts to deliver the new Work Programme, and
may be used by both the Department and other publicly funded bodies
to deliver other future employment related support services.
PREVENTION OF FRAUD
[Paragraph 15] Levels of detected fraud in contracted
employment programmes are low. We were also told that there is
little evidence that there is a problem with undetected fraud.
However the frauds uncovered to date have highlighted the extent
of the risk that weaknesses in the system could be exploited.
The Department must ensure that processes for the detection of
fraud are rigorous and robust.
Enhanced measures, processes and systems have been
introduced into all Contracted Employment Programme contracts
over the past year through a revised contractual model. All Department's
contracts include 4 key fraud prevention principles. They are:
- there must be a whistleblowers
charter in place, enabling supplier staff to report inappropriate
behaviour by colleagues in respect of performance claims;
- performance management systems within the organisation
must not generate perverse incentives among individual employees
to falsely claim performance achievements;
- there must be segregation of duties within the
supplier's operations between those achieving performance and
those reporting it to the Department: between claim and validation;
and
- an internal audit regime must be in place which
provides for periodic checks of the performance reporting regime.
[Paragraph 17] The Department was not able to
tell us how many fraud cases to date had come to light as a result
of the provider notifying the Department. Until now it seems that
the majority have been identified either by whistleblowers or
through the Department's own processes. The Department needs to
issue clear guidance to providers about what problems can be dealt
with internally and when it must be informed. The Department must
also keep records of when providers notify it of suspected fraud.
[Paragraph 18] It is a matter of concern to us
that the Department is moving towards a system based on providers
detecting fraud themselves and notifying the Department. On past
performance this would seem highly optimistic. If the Department
is to continue down this route it must work with providers to
develop a system which is rigorous and transparent.
The Department's contracts contain clauses detailing
the actions providers are required to undertake to ensure prevention
of fraud and irregularity in the delivery of provision.
The Department requires organisations bidding for
welfare to work contracts to notify the Department of any disputes,
breach or default action in the last three years against them
or any of their sub-contractors. Any instances of this type will
impact negatively on further consideration of the bidder.
Providers are required to notify the Department immediately
if they suspect fraud has been or is occurring. The relevant contract
clause states:
36.2 The Prime Contractor shall use its best endeavours
to safeguard the Authority's funding of the Provision against
fraud generally and, in particular, fraud on the part of the Prime
Contractor's directors, employees or Sub-contractors. The Prime
Contractor shall pay the utmost regard to safeguarding public
funds against misleading claims for payment and shall notify the
Authority immediately if it has reason to suspect that any serious
irregularity or fraud has occurred or is occurring.
The Department does not rely solely on providers
for assurance; the primary purpose of the Department's Provider
Assurance Team (PAT) is to provide assurance that providers' systems
of internal control are effective at managing risk to the Department's
expenditure and data. This includes looking at their fraud prevention
systems to ensure that they adhere to the four key fraud prevention
principles and that they are operating effectively. For example,
PAT assesses the operational effectiveness of provider whistleblower
policies to notify the Department of fraud by talking
to individuals within the company to assess how accessible
the policy is, how comfortable individuals would feel using the
policy, and if the ethos of the company encourages whistle blowing.
[Paragraph 23] We welcome the Department's four
key principles for employment programmes. They provide a good
minimum standard for providers to work from. However we are concerned
that there is not an outright ban on individual bonuses linked
to job outcomes. These have played a role in at least some of
the past frauds, and could do so again in future.
The Department rewards contracted employment programme
providers primarily on the basis of outcomes delivered, so it
is logical to assume that some providers will also look to reward
individuals/teams working for them on a similar basis. Whilst
the Department could choose not to award contracts to providers
that operate in this way, this could be counter-productive to
delivering outcomes. The Department works with providers to ensure
that they have effective controls in place to manage the risk
of individual employees making inappropriate claims for example
appropriate validation procedures and segregation of duties.
[Paragraph 32] We have heard that the current
paper based system for verifying job outcomes is bureaucratic
and unpopular. We are worried by reports that some employers are
charging providers for the paperwork they have to complete. The
Department must ensure that the burden of paperwork does not discourage
employers from hiring people on employment programmes.
[Paragraph 33] There is not yet any clear evidence
as to how effective off-benefit checks are for verifying that
FND customers are in work. Were they to prove reasonably accurate
we could see the potential benefits to the Department, providers
and employers, of relying more on off-benefit checks combined
with random checks, as the Department proposes. However, we believe
any move to a less bureaucratic system, with savings for both
providers and the Department, should be balanced by severe penalties
for any provider which has fraud taking place in its organization,
systematic or otherwise. A system of deterrent could be as effective,
and cheaper, than the current system of paper-based verification.
The Department has recently reviewed its end-to-end
process for evidencing outcomes claimed by providers with the
focus specifically on addressing three major concerns within existing
systems; 1) that the evidence it asks of providers is not independent,
2) it is overly bureaucratic for providers and 3) that using off-benefit
checks alone do not necessarily mean that an individual is in
work. The Department has consulted with providers as part of the
review.
As a consequence the Department is currently looking
to implement a process that will combine off-benefit checks in
100% of cases before payment is made with sample checks post payment,
using internal links with Her Majesty's Revenue and Customs data
and/or independent checks with employers to confirm that the individuals
for whom providers have received payment are both off benefit
and in work. As well as further validating the provider claim,
this post payment check will also allow the Department to measure
the effectiveness of the off-benefit check.
Taking responsibility for these activities within
the Department will not only allow the Department to reduce some
of the bureaucracy, for example by telephoning employers rather
than asking them to complete and return documentation, it will
also free up some of the provider's time and resource to allow
them to focus on what the Department is paying them for; getting
customers back into work.
[Paragraph 40] The Department needs to be clear
about the purpose of the service fee. FND has several mandatory
parts, which include an initial assessment, a work focused action
plan, and four weeks full-time work related activity. If the service
fee is a fee for services rendered, then the Department needs
to check that these activities take place, and demand a refund
of the service fee if they do not. If the service fee is actually
an up-front payment for set-up costs it should be renamed to avoid
confusion. Whichever is the case, the Department needs to ensure
that there is monitoring of the mandatory parts of FND, and that
providers are clear that the Department expects them to be delivered.
The Service Fee was developed as a non outcome based
fee payable to Prime Contractors by the Department for the delivery
of employment provision. The service fee does not currently carry
any stipulations as regards how providers spend it. The
Department has not experienced problems with providers misunderstanding
the term "service fee".
The Government is introducing a new Work Programme
which will replace current programmes including the Flexible New
Deal (FND). The Work Programme will support a wide range of customers,
from Jobseeker's Allowance recipients who have been out of work
for some time, to customers who may previously have been receiving
incapacity benefits for many years.
In the future, providers delivering the Work Programme
will be paid first and foremost by results, including sustained
work outcomes. The Department will pay providers for what they
achieve but will not specify how they achieve results; a "black
box" approach. The level at which these results payments
will be made has yet to be decided. As the Department will not
be specifying the activities which attract payment, the definition
of what constitutes a "service fee" will not be an issue
in the future.
[Paragraph 45] Anyone involved in fraud risks
criminal sanction. However at the moment companies where fraud
is found which is not systematic face no penalty beyond repayment.
This is not acceptable. Where the Department has identified "inadequate
management oversight and controls on the part of providers"
allowing fraud to take place, providers should be penalised. The
Department can terminate contracts in the most serious cases,
but in all cases there must be financial penalties beyond the
repayment of fraudulently claimed outcome fees.
[Paragraph 46] The Department is moving to a system
where providers are taking more responsibility for detecting fraud
through their own internal procedures, while the Department carries
out less auditing itself. The Department should combine this model
with stringent financial penalties as one way to ensure providers
are focused on preventing fraud.
All the Department's contracts now contain clauses
which stipulate the penalties which the Department will apply
to providers who commit fraud. These include termination of contracts,
and recovery of "liquidation damages" in respect of
reputational damage and cost of investigations. These penalties
are over and above the repayment of fraudulently claimed outcomes.
[Paragraph 53] We welcome the Department's commitment
to publish the lessons learned from Risk Assurance Division (RAD)
reports but we believe this does not go far enough. We also welcome
the fact that A4e were in favour of RAD reports on the company
being published. We agree with the Minister that in cases where
there is no case to answer RAD reports should not be published.
However where wrong doing is found they should be published, with
redactions where necessary. If this would prejudice an ongoing
investigation the report should be published after such investigations
are finished. We believe that seeing the detail of the report
will provide valuable lessons for other providers, and that publication
will also provide another form of deterrent.
The Department has looked at the scope for producing
individual "redacted" reports where there is evidence
of wrongdoing. The Department has obtained legal advice that although
it is not an outright allegation of proven criminal activity,
"wrongdoing" is suggestive of criminal conduct. Any
redacted reports must therefore be redacted to an extent that
the provider could not be reasonably identified. Failure to do
this could expose the Department to litigation for libel, particularly
if the provider suffered financial detriment as a result of publication.
The Department has therefore concluded that reports would need
to be redacted to such an extent that they would have limited
value.
The approach favoured by the Department is to include
information in an Annual Report on Contracted Employment Provision
that:
- provides much of the information
that would be contained in individually "redacted" reports
about wrongdoing;
- sets out volumes and types of offending, including
trends over time; and
- identifies lessons learnt and proposed responses.
The Department believes that the proposed Annual
Report is a sensible, reasonable-cost alternative to the Committee's
recommendation which will allow the reader to gain a better understanding
of the extent of the vulnerability to fraud and wrongdoing in
employment programmes. The Department is currently undertaking
work to establish the format for the Annual Report and will update
the Committee on progress.
[Paragraph 54] We were surprised that the Department
does not routinely share the results of investigations with other
Government departments, non-departmental public bodies or local
authorities. It should do so, and also ensure it is notified of
investigations by other bodies. While the Department has not identified
any "systematic fraud" it has identified cases of "inadequate
management oversight and controls", something which must
be shared with other bodies who have contracts with those companies.
The Department has been unable to identify a forum
or mechanism for sharing details of cases where inadequate management
oversight and controls has been identified. There is no central
record or database of contracts held by organisations, so it is
not possible to identify which public bodies have contract with
those organisations.
However, the Department intends to explore the opportunities
the new Framework for Provision of Employment Related Services
provides in allowing access by other Departments to information
on provider performance.
CUSTOMER SERVICE
[Paragraph 65] We received strong evidence that
customers need more information about what help and support they
can expect from providers. We recognise that there could be a
tension between this and the "black box" approach. However,
in Glasgow we met clients who were receiving very little help,
and who had no idea that personalised help and training were options.
Jobcentre Plus staff should have a role in monitoring provision,
and talking to customers about what help and training they have
been offered. The customer could then challenge the provider if
they felt they were missing out.
[Paragraph 86] Customers can also have an important
role in letting the Department know what is going on on the ground.
They may be able to identify instances of creaming and parking,
or to identify the reasons for a provider's poor outcomes. We
agree that one way to do this would be through customers' continuing
relationship with Jobcentre Plus. However, Jobcentre Plus staff
need to be advised to initiate these conversations with customers,
and to be given the time to talk to customers. There also needs
to be a mechanism for any problems to be fed back to both the
provider and the Department.
[Paragraph 104] We were disappointed, but not
surprised, to hear of evidence of "parking" on Pathways.
We also note the evidence that this was linked to pressure from
managers after it emerged that previously agreed targets were
unrealistic. As we noted in our previous report the targets for
FND are very challenging. The Department needs to focus on ensuring
that this pressure does not result in customers being parked.
The Work Programme, due to commence summer 2011,
will replace current programmes including Flexible New Deal and
Pathways to Work. Through the Work Programme the Department will
support a wide range of customers from Jobseeker's Allowance recipients
who have been out of work for some time to customers who may previously
have been receiving incapacity benefits for many years.
Providers delivering the Work Programme will have
greater freedom to give people the support they need. Providers
will be paid first and foremost by results, with the focus on
aligning rewards with benefit savings.
Commercially qualified Account Managers have been
appointed to work with providers to drive up their performance
across all contracts. Provider Engagement Meetings are being conducted
with Jobcentre Plus staff and providers where performance and
delivery issues are discussed and actions agreed, to improve customer
experience.
The Shared Promise on Customer Care should further
improve awareness amongst customers of what they can expect to
receive from their provider. Providers are contractually obliged
to inform customers of their complaints procedures.
[Paragraph 70] The ERSA Charter is currently voluntary
and unenforceable. Customer rights need a much higher status than
this. It is also important that customer rights are enshrined
right from the start of contracts. We regret the fact that the
Department seems to be adding in customer rights as an afterthought.
We call on the Department to introduce a compulsory, monitored
and enforceable Customer Charter as soon as possible. This should
be based on the ERSA charter and contain details of how customers
can complain.
The Department takes the experience of customers
very seriously. Processes are in place to ensure providers meet
their contractual requirements regarding customer service. The
Department intends to survey customers about their experience
on a regular basis, as customer feedback and satisfaction is integral
to its contract management process. Where customers have complaints,
the Department is committed to ensuring that these are dealt with
swiftly at the appropriate level. The Department does not therefore
consider that a compulsory monitored and enforceable Customer
Charter based on the Shared Customer Promise would add value but
will keep this under review.
All providers are required to have a complaints process.
Providers are asked to give details of their processes including
their grievance and customer complaints procedures. This is then
assessed as part of the evaluation process and forms part of their
contract. Feedback from customers forms part of regular Department
contract performance discussions with providers. The Department
will continue to develop its approach to customer surveys and
strengthen the channels through which Jobcentre Plus advisers
and customers can raise any concerns they have about the behaviour
of particular providers.
[Paragraph 77] We were disappointed to hear of
a range of poor service experienced by customers. The evidence
we heard was anecdotal and we have not had the opportunity to
establish whether such problems are widespread. We do not doubt
the commitment of most providers to customer service, but the
Department and providers must work harder to ensure problems are
dealt with promptly. Customers on many programmes have no right
to change provider, making it particularly important that they
are given a good service. We note that many of the customers we
spoke to were reluctant to complain. The Department and providers
need to be proactive in order to identify, even serious, problems.
The Department is planning a programme of work to
build on the existing customer complaints procedure including
working with Jobcentre Plus to develop a systematic process for
analysing and acting on customer complaints, and developing an
on-line facility for customers to register their experiences of
contracted employment provision. The Department will also continue
to develop its approach to customer surveys and strengthen any
channels through which Jobcentre Plus advisers can raise any concerns
about the behaviours of particular providers.
[Paragraph 78] Providers seem to agree that "zero
hours" contracts should not have a place on employment programmes.
However, such contracts are still eligible for outcome payments.
This is unacceptable, and the Department should act quickly to
ensure that "zero hours" contracts are not eligible
for outcome payments.
"Zero hours" contracts are a fact of modern
employment practice. The Department does not pay for job outcomes
that do not comply with the definition of an outcome as used within
a specific piece of provision. The Department will make a payment
where the provider has satisfied the criteria for claiming a job
outcome, regardless of the type of contract.
[Paragraph 85] It is important that providers
have a complaints system in place. However they should also have
mechanisms for customers to provide feedback and comments and
the Department should check that this takes place. Such information
will not be comparable year on year, or between providers, or
with Jobcentre Plus. We recommend that the Department carry out
and publish a "Customer Survey" for customers on contracted
provision, as they do for their own customers, to provide rigorous
comparable data.
The Department ensures that it is open to messages
from the many sources of intelligence on providers' standards
and delivery. The Department has recently published independent
research of customer experience of contracted employment provision.
Participants were asked about their experiences, and what has
been important in moving them towards work. The Department is
using the results to measure the extent to which customers are
satisfied with the service from providers. The data collected
can be analysed by customer characteristics, so the Department
will be able to identify for each provider if there are any tendencies
for certain groups of individuals to achieve better or poorer
job outcomes.
The Department currently requires providers to put
in place customer complaints systems. Where customers have complaints
the Department will ensure that these are dealt with swiftly at
the appropriate level.
[Paragraph 91] Customers on programmes need to
know how to complain about the service they receive. They need
to be able to lodge formal complaints which receive a response
and to escalate that complaint to the Department if it is not
resolved satisfactorily. We are not yet convinced of the need
to set up an Ombudsman, but the Department should keep this under
review.
The Department has a clear, well advertised and detailed
complaints system, and does not consider that a further level
will add value. There is plenty of scope for a customer to lodge
their complaint and to escalate the matter to the Department through
the three stage complaints resolution process, including if they
wish to have it considered by the Independent Case Examiner and,
ultimately, to the Parliamentary and Health Service Ombudsman.
The Department seeks to continually improve its complaints
resolution procedures through feedback from customers and staff.
Improving resolution performance at the earliest possible stage
of a customer's complaint providers considerably better customer
outcomes and is much more cost effective than adding further layers
of escalation. There are no plans for a formal review of an ombudsman
for complaints, but the Department will continuously review the
effectiveness of its complaints system.
[Paragraph 97] We have received evidence that
Ofsted has improved its inspection of providers over recent years.
However employment programmes tend to rely far more heavily on
the relationship between staff and customers than academic or
vocational education. Motivation and self-esteem can be more important
than what the customer has actually learnt. The Department needs
to monitor closely that what Ofsted identifies as quality actually
relates to sustained job outcomes.
[Paragraph 98] We heard contradictory evidence
about whether Ofsted was using specialist inspectors or moving
to a more generic use of inspectors. Employment programmes are
very different from much of the provision inspected by Ofsted
and specialist inspectors should be used.
From 11 August 2010, external inspections will no
longer be carried out by Ofsted in England, Estyn in Wales and
HMIE in Scotland.
From this date, the Provider Assurance Team will
extend its remit to cover, in a light-touch way, some of the quality
issues that formed part of external inspections. A new single
quality self assessment tool will also be developed to replace
both the existing Self Assessment Report and Quality Assessment
Questionnaire. The Department will provide further information
about what this will mean in practice as development work progresses.
VULNERABLE GROUPS
[Paragraph 107] The Department has told us that
it will try and prevent "parking" through the contract
management system. However we believe that incentivising contractors
to work with all customers is crucial. We again welcome the Department's
plan to pilot an accelerator model of payment and call on it to
keep the Committee updated on their progress.
Personalised Employment Programme pilots have been
superseded by the Government's planned Work Programme, due to
commence summer 2011. The Work Programme will radically simplify
the back to work system by ending the complexity of the previous
regime. Through the Work Programme the Department will support
a wide range of customers—from Jobseeker's Allowance recipients
who have been out of work for some time, to customers who may
previously have been receiving incapacity benefits for many years.
The payment structure for the Work Programme is currently
under development. Detailed information will be available when
the Department begins the Work Programme procurement mini-competition
in December 2010. The Department is establishing an umbrella arrangement
of "approved" providers ("The Framework")
which may be used by the Department and other publicly funded
bodies to deliver both the Work Programme and other future employment
related services. The competition commenced in June 2010 and results
will be known in November 2010. The next stage of the procurement
process, the "mini-competition" commences in December
2010 when organisations successful in the Framework competition
will be invited to tender for the Work Programme contracts with
implementation by summer 2011.
The Work Programme will include a largely outcome-based
payment system that rewards delivery partners for helping those
with greatest need, ensuring that they will be motivated to help
everyone. Outcome payments available will be higher the harder
it is to get someone a sustained job, better matching the cost
of supporting the harder to help and the benefits that result.
[Paragraph 115] We were very pleased to hear that
under Flexible New Deal some prime contractors were offering higher
outcome payments for the harder to help than they themselves receive
from the Department. However the Work Capability Assessment is
leading to more people with health problems on Jobseekers Allowance,
and to a higher proportion of the severely disabled on Employment
and Support Allowance. This will lead to providers needing to
work with customers with more severe barriers than they had anticipated.
The Department must work with providers to ensure appropriate
support is provided for these customers.
[Paragraph 119] Providers have told us that for
those with the greatest barriers to work Flexible New Deal funding
is not appropriate. One provider told us that there are over half
a million people who are not served by current DWP programmes.
We call on the Department to investigate the issue, and to supply
the Committee with its estimate of how many people are not served
by current programmes, and details of the measures they are taking
to ensure that FND and other programmes cover all those who need
help.
The new Work Programme will replace current programmes
including the Flexible New Deal (FND) from summer 2011. The Work
Programme will support a wider range of customers—from Jobseeker's
Allowance recipients who have been out of work for some time,
to customers who may previously have been receiving incapacity
benefits for many years.
In addition, the Government has announced its clear
commitment to help disabled people by introducing a new Work Choice
programme from October 2010. Work Choice is designed to respond
more flexibly to the individual needs and help disabled people,
who face the most complex barriers to finding and staying in employment,
into work.
Work Programme delivery partners will be given longer
to work with individuals and greater freedom to decide the appropriate
support for them. Delivery partners will also be offered stronger
incentives to work with the harder to help, and job outcomes will
be paid out of the additional benefit savings they realise as
a result of placing people into work.
The Government aims to have the new Work Programme
in place nationally by the summer of 2011.
[Paragraph 125] The Department has told us that
it is confident that Flexible New Deal will meet the needs of
all customers, including all those moving from Incapacity Benefit
onto Jobseekers Allowance. We also note the range of measures
it is taking to prevent parking. However, as the Department will
not be collecting management information by impairment, it will
not know whether these measures are working. The characteristics
of those claiming Jobseekers Allowance are changing and there
are increasing numbers of people with health problems and disabilities
receiving the benefit. The Department must recognise this and
ensure that the evaluation of FND examines the impact on different
impairment groups. In addition the contract management process
must pay close attention to what services providers are offering
people with disabilities. If problems emerge then monitoring by
impairment should be introduced.
[Paragraph 126] We were concerned to hear that
there may not be monitoring by impairment on Work Choice. This
is unacceptable in a brand new programme specifically designed
for severely disabled people. We call on the Department to introduce
monitoring by impairment groups for the first two years; progress
can then be reviewed.
The Department already has comprehensive data on
the characteristics of benefit recipients and participants on
employment programmes. There are plans to incorporate data on
job outcomes, and customer experience, into this data infrastructure.
This will enable the Department to monitor customer progress on
contracts by impairment, and use it to support contract management.
The Department computer client records contain information
on whether the client has a disability, and if so, its nature,
using the following categories:
- Mobility
- Manual Dexterity
- Physical Co-ordination
- Continence
- Ability to lift, carry, move everyday objects
- Speech, hearing or eyesight
- Memory or ability to concentrate, learn or understand
- Perception of the risk of physical danger
- Cumulative effect of several of the above
- Past disability
- Progressive condition
- Recurring condition
In addition, to strengthen how the Department will
monitor impairment on a programme specifically designed for customers
with moderate to severe disabilities, the Department is developing
an additional disability drop down marker within the Work Choice
"opportunity type" to capture the following enhanced
management information:
- Condition restricting mobility dexterity
- Visual impairment
- Hearing and/or speech impairment
- Long term medical condition
- Moderate to Severe Learning Disabilities
- Mild Learning Disabilities
- Severe Mental Illness
- Mild to Moderate Mental Health Conditions
- Neurological conditions
- Multiple conditions
This information will be available for the Department
for evaluative or operational purposes.
SUB-CONTRACTORS
[Paragraph 140] 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.
[Paragraph 141] 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.
[Paragraph 162] 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.
Customers with multiple barriers need a range of
support. The success of the Work Programme will depend on ensuring
that specialist provision is integrated effectively into the supply
chain. In practice, much of this support is delivered by local,
specialist, voluntary and community sector organisations.
The Department is therefore conducting a procurement
competition to appoint "approved" providers and then
a "mini-competition" for the Work Programme from these
appointed providers. In order to be on the Framework providers
will need to demonstrate that they have sufficient capacity and
capability to manage complex and diverse supply chains. To be
successful in the mini-competition and be awarded a Work Programme
contract, providers will need to demonstrate that they have the
credibility to deliver.
The Department will monitor and regulate provider
relationships throughout the entire supply chain through the Merlin
Standard, the new supply chain accreditation, to verify that providers
have excellent, healthy working arrangements, and ensure that
all parties act with integrity. The Department will be reassured
through the Merlin Standard that prime contractors can evidence
success in managing high value and complex multi-layered supply
chains, including in how well they support and help develop their
subcontractors and delivery partners.
[Paragraph 163] 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.
The Department imposes certain contractual obligations
upon prime providers in respect of fair treatment. These include
a requirement for all providers to pay their supply chain partners
within 30 calendar days. The clause is:
8.1 The Prime Contractor shall include in its
contracts with suppliers or Subcontractors engaged for the
purposes of providing the Provision a written condition undertaking
to make payment for the supply of their goods and/or services
within thirty (30) calendar days of receipt of the supplier's
or Subcontractor's valid invoice (provided that such goods
and/or services have been supplied in accordance with the relevant
contract).
In addition, the Department 's Code of Conduct sets
out the parameters of expected behaviour for the Department's
welfare to work providers. All providers are contractually required
to operate in accordance with the Code.
Beyond this, it is for providers to develop a delivery
model which is regarded as fair by their supply chain partners.
The type of model may differ depending on the contract being delivered
and the organisations involved. The Department does not wish to
prescribe exactly what constitutes a fair supply chain, as this
would deny providers the flexibility to form an agreement appropriate
to their particular circumstances.
Sub-contractors will be consulted as part of Merlin
assessments, allowing them to help define what fairness means
to them, and highlight instances where they feel prime contractors
are treating them unfairly.
At Invitation to Tender stage, all potential bidders
are required to submit project costs. All completed Tenders are
subjected to separate formal quality and price evaluation against
published criteria and scoring system. In addition, the Welfare
to Work Terms and Conditions Payment Schedules are tailored to
meet the needs of an individual contract which is derived from
the Prime Contractor bids.
[Paragraph 164] 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.
Contracts state that providers must pay their supply
chain partners within 30 calendar days. Sub-contractors are expected
to do all they can to resolve any issues with the prime contractor
in the first instance. However if the sub-contractor does not
receive a satisfactory resolution they can approach the Department
directly through the Department's Account Manager responsible
for the prime provider.
Merlin will respond directly to the issue of provider
voice through the assessment process, by checking out if smaller
providers and other supply chain partners are being treated and
paid in line with the terms negotiated and agreed pre and post
contract award. The mediation and arbitration service will provide
a route for supply chain partners to report grievances where they
believe the prime may have breached the Code of Conduct, but only
when normal dispute resolution processes have been exhausted.
[Paragraph 165] 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.
The Department's market stewardship role is to create
an environment within which providers can deliver welfare to work
services, and which allows new organisations to enter and flourish
as the market grows.
Sub-contractors will be consulted as part of Merlin
assessments, giving them the opportunity to provide 360 degree
feedback up the supply chain, providing the Department with a
definitive view on prime providers' management of their supply
chain. The Department is committed to working with providers who
can demonstrate excellent supply chain management capabilities,
which is why the development of the Merlin Standard is so important.
[Paragraph 169] 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.
Recent pilot Merlin assessments have shown that excellent
supply chain management and the principles of the Merlin Standard
are becoming business as usual in prime provider led supply chains.
The assessments highlighted cases where preferable and supportive
terms are being used in supply chains. Through the new Department's
Account Management structure the Department works closely with
prime providers and is in a better position to detect any instances
of any perceived unfair treatment. Should this arise in the future,
the Department would work closely with prime providers to overcome
any concerns and take corrective action.
[Paragraph 172] 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.
The Department is keen that small specialist organisations
who have a valuable contribution to make to the quality and effectiveness
of services to claimants, are able to play as full a part as possible
in delivering the Department's services. The Department does not
require prime contractors to follow particular procurement processes
in deciding which sub-contractors to engage.
The Department shares information with providers
via the DWP website. The "Sub-contracting with DWP"
web pages give advice specifically aimed at smaller providers
and prospective new market entrants. Along with bidding opportunities,
networking events are publicised here, and a Standard Information
Sharing Form can be downloaded. This form has been designed to
facilitate initial contact between prime providers and sub-contractors
to reduce the burden on small organisations during initial discussions.
Furthermore, the Department is developing a web portal
as part of the Merlin project, which will enable providers to
share information with one another. It will act as a "shop
window" for the sector, and allow all providers to see whole
supply chains. This will give greater transparency and present
more opportunities for supply chain partners to network and have
more choice where they bid to work.
An easily accessible "expression of interest"
tool will help guide providers through the process of engaging
with potential primes and larger supply chain partners, and help
to standardise the process. This will replace the Standard Information
Sharing Form on the DWP website. The Department is working closely
with the Office for Civil Society to ensure that we reflect best
practice in involving voluntary sector organisations in welfare
to work delivery.
[Paragraph 173] 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.
All Departmental procurement exercises must comply
with the Public Procurement Regulations, ensuring all exercises
are all open, fair and transparent using competition. The Department's
published Commissioning Strategy details the procurement strategy
and the Code of Conduct which covers the values and principles
expected of providers in development and ongoing relationship
with sub contractors and small and medium employers.
The Department assesses all bids against the published
evaluation criteria, ensuring they have the capacity and capability
to deliver the programme and do not discriminate against the size
of organisation. This evaluation is based on key competencies
and evidence of a provider's track record. This is done so that
the Department can compare and contrast current providers and
new providers without disadvantaging either group. The Department
wants to create a dynamic market and it will do this through the
establishment of a framework of providers who will each need to
demonstrate the ability to manage complex diverse supply chains
in order to deliver a personalised service to customers with multiple
barriers to employment.
[Paragraph 182] 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.
From summer 2011, the Work Programme will replace
Flexible New Deal. The principles of how the Department manages
the relationship between prime contractors and their sub-contractors
will however remain the same. Sub contractors are expected to
do all they can to resolve any issues with the prime contractor
in the first instance. However, if the sub-contractor does not
receive a satisfactory resolution, they can approach the Department
directly through their designated account manager.
All providers and their sub-contractors have a route
for contacting the Department via "Supplying Department for
Work and Pensions" on the department's website, which includes
a link enabling the user to contact the supplier enquiry team.
Sub-contractors can and do contact the Department directly, and
meet regularly with both ministers and officials.
[Paragraph 183] 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.
[Paragraph 184] 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.
The Department remains the ultimate decision maker
on all provider contracts. These decisions will be informed by
the assessments made through Merlin, but the Department has yet
to determine how this will be realised. Any impact on a provider's
supply chain would always be considered.
Merlin will interface with internal provider assurance
and contract management functions. Furthermore, the Department
has made it compulsory that providers sign up to Merlin, the Code
of Conduct and the Supplier Charter. As part of the Merlin project,
the Department is also considering a range of appropriate measures
to be used where a prime contractor has breached the Code of Conduct.
Under the proposed Merlin assessment criteria, a
provider will be graded unsatisfactory if they have weaknesses
in meeting the requirements of the Merlin Standard and need to
improve to meet the requirements of the Standard. The Department
is considering as part of the Merlin Pilot what action should
be taken if a provider has an unsatisfactory Merlin assessment
result.
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