Session 2010-11
Publications on the internet

To be published as HC 718-ii

House of COMMONS



Work and Pensions Committee

Work Programme: Providers and Contracting Arrangements

Wednedsay 2 February 2011

Cllr Stephen Houghton, Jonny Boux, Caroline Taunt AND Christopher Knee

Kirsty McHugh, Rob Murdoch, Sean Williams, Richard Johnson AND Laurie Russell

Evidence heard in Public Questions 58 - 148



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Oral Evidence

Taken before the Work and Pensions Committee

on Wednesday 2 February 2011

Members present:

Dame Anne Begg (Chair)

Harriett Baldwin

Andrew Bingham

Karen Bradley

Alex Cunningham

Kate Green

Mr Oliver Heald

Glenda Jackson

Brandon Lewis

Stephen Lloyd

Teresa Pearce


Examination of Witnesses

Witnesses: Cllr Stephen Houghton, Leader of Barnsley Metropolitan Borough Council, Jonny Boux, Head of Employment Links, Community Links, Caroline Taunt, Head of Fundraising (Prime Contractors), The Prince’s Trust, and Christopher Knee, Chief Executive Officer, St Loye’s Foundation, gave evidence.

Q58 Chair: Welcome to the second evidence session of our inquiry into the Work Programme. May I welcome some of the representatives of the subcontractors for the Work Programme? Before I start, Harriett has a declaration to make.

Harriett Baldwin: Yes. Chair, may I declare my interest as a board member of the Social Investment Business, please?

Brandon Lewis: I need to declare an interest in the sense that I have had work experience placements in my office from the Prince’s Trust.

Q59 Chair : Okay, thank you very much. I wonder if you can, starting from you, Councillor Houghton, introduce yourselves for the record, just very briefly.

Stephen Houghton: My name is Councillor Stephen Houghton; I am the leader of Barnsley Council in South Yorkshire.

Jonny Boux: My name is Jonny Boux; I am the Head of Employment Links at Community Links.

Caroline Taunt: My name is Carline Taunt and I am Head of Fundraising for the Prince’s Trust.

Christopher Knee: I am Christopher Knee; I am the CEO of St Loye’s Foundation, a disability charity.

Q60 Chair : Well, thanks very much and you are welcome this morning. Just a very general question to get started. Do you support the Government’s decision to replace all of the various and existing contracted employment programmes with a single work programme? Is it the right thing to do? Is the basic structure that the Government has come up with, to deliver it through prime contractors, the correct structure? Who wants to start?

Christopher Knee: I think some rationalisation was required. It was a little confusing previously, as there were a large number of programmes. People in Jobcentre Plus were possibly themselves confused about in which direction to post customers, so some rationalisation was required. Whether to go down to one programme or two with work choice was the optimum, I am not sure.

Jonny Boux: At Community Links one thing we welcome with the Work Programme is the simplicity of one programme and the black box approach. We are a current New Deal prime contractor, but we recognised the complexity of the number of various programmes that were involved across the board. I am still unsure-and I share the view-that one programme is the sensible way forward.

Q61 Chair : Is that because you think that certain groups will get lost when it is one single programme?

Jonny Boux: There is a concern in that when we look at the Work Programme and the emphasis on benefits and the different payment structure for benefits, there is perhaps not so much the emphasis on need. Whereas we help an awful lot of individuals who may be homeless, who may be lone parents, exoffenders, that focus is perhaps a bit blurred in the Work Programme. Perhaps there should be a larger number of programmes homed in on different groups and different needs.

Stephen Houghton: Some of you will be aware that I led a review of the local authority partnership approach to tackling longterm unemployment and worklessness for the previous Government. One of our conclusions was that, yes, the system did need reform, so I do not think there is any doubt about that, but we did suggest that it would be better for services to be commissioned locally through local partnerships because of the local intelligence evidence and need for partners to work together at that local level. The single Work Programme does not quite do that, so on that basis, I am not quite sure whether it will have the desired effect.

Secondly, the current policy of a single work programme suggests that unemployment and worklessness is a supply-side problem, but in large parts of the country that is simply not the case. There is a huge shortage of jobs and no matter how you reconstruct or organise your programmes, if there are no jobs, there are no jobs. The consequences of that are clearly going to be picked up further down the track. What are missing in the current programme are demand-side measures.

Q62 Mr Heald: One of the problems is that if you look at the vacancies nationally, and particularly in the regions you are talking about, quite a lot of the jobs that are being advertised are those in skill shortage areas or those that are hard to fill. Is that an issue in your area?

Stephen Houghton: Well, there are two points to make. Firstly, don’t look at vacancies as necessarily the picture for how many jobs are available. Each year, one third of everyone in employment moves round in churn, so what you are seeing is natural movement in the labour market. It is not necessarily opportunities for the unemployed to come in; it is people moving around. But secondly, yes, there is clearly a point about skills and moving people into high skills where there are vacancies, and making people more competitive. But we have to be realistic: we have huge numbers now unemployed-the figure nationally is 5 million. That is an enormous number of people on various benefits, from IB, JSA, lone parent benefits and so on. When you look at the numbers, we need not just highskilled employment and high added-value employment, which creates the wealth-of that there is no doubt-but for other sections in the community we need other forms of employment that they can aspire to, and very often that is what is missing in the high workless areas.

Q63 Chair : Caroline, you were about to say something.

Caroline Taunt: Yes, I was going to agree with my colleague on the right here. We very much support the Work Programme. It is an opportunity to address some of the difficulties with programmes that have gone before. We too are a subcontractor on Flexible New Deal; there have been some issues with that, so hopefully this will be a chance to address that. But I would really support the fact that focusing solely on benefits, without being able to support particularly disadvantaged groups or look at other areas where clients in general-for us, that is young people-might need support, seems to us a real flaw. We focus, for example, on disabled young people, lone parents or young people in or leaving care, and I think there is a real risk with the Work Programme that those groups might be ignored. When you are solely looking at the customer journey from not being in work to being in work, you can omit those that need more complex support. As an organisation, we also support people into education and training, and sometimes that is the necessary step that provides the correct support for the individual, rather than supporting them directly into work.

Q64 Stephen Lloyd: But isn’t that where the black box comes in? Providers have the opportunity to be innovative, to use different subcontractors and to really think outside the box. That is what I thought that was all about.

Caroline Taunt: It is to a degree. I think that the black box is a very good idea because it means that you are not prescribed and can do what you do best. It just depends if there is enough money in it, and for us, in all our discussions with the prime contractors, it is difficult to see if there is the money to support, in our case, young people who really need more intensive interventions. Obviously you are not being paid on an education or a training outcome. For a young person who is getting nearer to the labour market but not quite there, you are solely being paid when a young person gets into work. That prescribes you just the same, to some degree, as a programme that does not take the black box approach would, because you have to deliver something that has that job outcome. It means that people for whom a different intervention would be better, or who would need something that was more intensive and therefore more costly, can well be ignored.

Q65 Chair : We have questions on the payment structure coming up. I think from what you are saying, however, that you feel that the old problem, even in Flexible New Deal, is the whole issue of either cherry picking or creaming and parking; that that might still exist in the new programme. Is that so?

Caroline Taunt: Yes, I think it could well still exist.

Jonny Boux: I think it probably relates to payment structure. It is important to note that we welcome the black box if it is applied to delivery, but it is not being applied to the payment structure, and that is one of the major issues.

Q66 Brandon Lewis: Without focusing on the payment structure, which obviously we will come back to, does the panel think that the design of the structure-with the prime contractors looking effectively at that strategic side of delivery but then having subcontractors focused on delivery to the client directly-has advantages, or should some of the voluntary groups and what will effectively be subcontractors have more opportunity to be the prime contractors and have an advantage in that?

Jonny Boux: It has an advantage in the sense that the larger primes that are coming into the market bring a wealth of expertise. Even we, who might be called a medium-sized voluntary sector organisation, could not aim to match their expertise in contract management or strategic management, given their sheer size. That is an advantage. However, there is a concern on our side that we have a strong voice, we have a very strong lobbying department called linksUK, who do an awful lot of work at a strategic level, and we might lose that voice and our seat at the table. That is where the concern lies.

Q67 Brandon Lewis: Can I just ask, particularly with the focus on that, and the same for anyone else when you answer, what do you think needs to be in place to ensure that sort of voice can still be clearly heard?

Jonny Boux: Perhaps something through the Merlin Standard, where there is an emphasis on the subs-off the top of my head, I’m not quite sure how it would work but I guess it would make sure that we have our place at the table, and that the primes make sure we do as well.

Christopher Knee: I think the supply chain length is an issue. You put a scenario of a prime going down to subcontractors, who may be charitable organisations, but there is sometimes an intermediate tier as well. I am concerned that the length of the supply chain may mean that the delivery organisations that many of us represent may be working on overly restricted budgets. That is one issue.

Secondly, there are some charitable organisations that are prime providers; I know of two in the south-west, and maybe there are others in other parts of the country, so there is some chance to have a relationship there. Most prime providers are aiming to get charitable organisations involved. Their difficulty is in risk management whilst being seen to bring us in. On the one hand, they have to show a return to their treasuries; on the other hand, they know the Government would like to see more charitable involvement, and how do you play that off? It is that dynamic that we are exploring at the moment.

Caroline Taunt: I would say that we are really positive about the move to subcontract with prime contractors. It is something that is reasonably new. For us it potentially offers real security. The alternative for us is bidding for smaller contracts, which have more of a tendency to finish and to turnover. With this we are seeing quite long contract value, potentially of quite significant sizes and, for us, that could offer real security, so we welcome it.

Also, it gives us the chance to build real strategic partnerships with these organisations; the voluntary sector is always talking about partnerships but I do not think we are always doing it. But we are seeing this as an opportunity, not just to build a partnership for the Work Programme but for other programmes that may come up, so we are not always starting from scratch and kind of scrabbling to get ready for things; we have some strategic partnerships in place that we can use year after year and build some strong foundations for our work with young people.

I would echo what others have said, though, that it does have to be a genuinely mutual partnership. The voluntary sector does have a huge amount to offer through this, and there is a phrase that is emerging through the bidding process about being bid candy-involving the voluntary sector just to make the bids look good and to persuade DWP to pick-and I think it has to be a genuine partnership with the voluntary sector that does have mutual benefit, rather than just being there for the show of the name.

Stephen Houghton: We know already that worklessness, long-term unemployment in particular, varies from person to person and place to place in terms of its causes and its consequences. If we are talking about strategic top-down solutions, they will not work. We know that from the past. What we really need to do is design programmes as close to communities and people as is possible and that means establishing local partnerships to see what the issues are and to try and develop solutions.

The worry that I have at the moment is that contracts are on a big regional level; if we are designing solutions in that context, they won’t work because even within regions, there are huge differences in terms of the context and the people affected. All the contractors need to be engaging not only with each other in this process but with local authorities and other local partners to see what needs to be done. If they do not, then it will fail and there is no question about that.

Now to be fair, contractors are starting to explore those discussions, certainly in my authority and I suspect elsewhere. But we cannot have a position where someone can design something, as we had in London previously, or in Leeds, as it might be-my region-and think they have the answer to it all because they won’t. We need to get into that kind of local detail, particularly in those high worklessness areas where we have huge volumes of numbers.

Q68 Harriett Baldwin: Just a question for the Prince’s Trust, because I know you work a lot with young people helping them set up their own businesses. Do you think becoming sustainably selfemployed ought to be an outcome that is paid for under the Work Programme?

Caroline Taunt: Yes, I think it should be, and with most prime contractors we have been talking to, it is being treated as that. Some have a separate pathway for selfemployment. But yes, I very much think so. For some of the young people we support, and I particularly look at young offenders under this, self-employment is a really positive option. A lot of the young people that we come across may not have the skills or qualifications for some employment pathways, but they are very entrepreneurial and selfemployment can be a very positive route.

The slight difficulty we are coming across is the benefits question. When a person sets up in selfemployment, it is a slow process to completely coming off benefits, and the young people we work with, despite quite intensive mentoring, may not get to that stage for a couple of years or more. That can obviously cause a little bit of tension through this programme because a young person will be required to come completely off benefits, but I definitely see selfemployment as being an option there, yes.

Q69 Chair : Is the Universal Credit going to help with that, do you think?

Caroline Taunt: Potentially yes, and there are other programmes around as well that selfemployment is an option for. So we are looking at, for example, the New Enterprise Allowance, which applies to a slightly different group of young people from those that will be coming through the Work Programme.

Stephen Houghton: Just to come back to the point about designing programmes and the black box approach. If we want to be innovative and we want to develop solutions for individuals who have got complex needs, the providers do not have the services that are required for that. They lie in other agencies. Those other agencies need to be engaged in the process to create new solutions but obviously in the design process as well, right at the beginning. Local authorities, health bodies, currently PCTs, soon to be GP consortia or whatever it might be, all need to be at the table and involved in designing the solutions. If you do not have them, you will lose the people who you are trying to bring back into the labour market.

Q70 Glenda Jackson: Just following on from that, everything we have heard to date, interesting though it is and we are grateful for it, is based on past experience but we are going into a completely new area. Some of us dispute whether this is actually about welfare to work; it is something, it seems to me, of reducing the benefits bill. How can you possibly put forward a programme, when you do not know how many people you are going to have to deal with? You spoke about young people, people leaving prison; we all know that the people who are going to be the most difficult to work with have a multiplicity of difficulties-they do not fit into neat boxes. How can you possibly know what you are going to have to need to plan for as a programme, when none of us know how many people are going to be coming through the door and how they are going to be coming through the door? Have you any idea at all of what the kinds of costs are going to be?

Jonny Boux: This is an issue for us in our negotiations with primes, in the sense that the flows or projections that are being bandied about seem very low to us.

Q71 Chair : What do you mean when you say the flows seem very low?

Jonny Boux: The predicted numbers of referrals through the door basically, when the Work Programme goes live.

Q72 Chair : Is that because there is going to be a slow start or a soft start?

Jonny Boux: It is based on DWP projections and we know, being a New Deal provider at the moment, that the flows that are coming through our doors are that much higher than what is being predicted.

Q73 Chair : And that is without all the new ones?

Jonny Boux: Yes, and therefore, when the Work Programme goes live, it raises all sorts of issues about planning because simply we know that the chances are, two or three months into the programme, that the numbers may go flying up.

Q74 Glenda Jackson: But surely the bottom line here is the assessment of the individual. People are going to be in danger of losing their benefit if they do not meet certain requirements and what I am asking you is, have you any idea at all of how many people that is going to bring through the door?

Caroline Taunt: We certainly do not.

Glenda Jackson: Thank you.

Caroline Taunt: That is a huge factor for us with the programme: the vast quantity of unknowns. We are quite a large voluntary organisation and we are quite well resourced, and even so, we do not necessarily know exactly the benefit groups that young people are in when they come to us and there is big cost difference there. We do not necessarily know the length of benefit claim that young people have had when they come to us. We do not necessarily know the length of time that it takes for each young person in a particular benefit group to move into employment. There are huge unknowns.

We are quite well resourced and we have an evaluation team and we do monitoring, so we are reasonably well set up for this. Other voluntary providers, I can imagine, will have even less knowledge. That all equates to an enormous financial risk. We are positive about the programme because it is large scale and, quite frankly, we have to engage with it because not only does it represent such big contracts but also there is a real risk that we would not be able to work with a lot of the young people that we do now and we do good work with now because they will go through the Work Programme and will not be available to us. We feel and I think other voluntary providers feel that they have to engage with the Work Programme, but it may come with enormous cost implications that we just do not know about yet. It is definitely a big risk.

Stephen Houghton: I agree with the point that you are making. Taking my own borough, we currently have 27,000 people on out-of-work benefits; 17,000 are on IB, around 7,000 or 8,000 on JSA and a couple of thousand on lone parent benefit. What we are being told is they are going to be moved back into the labour market to get jobs. What I also know in my borough is that there aren’t any jobs for them. So what are we going to do with them then, and what are the outcomes we are looking for when we put them on to programmes? Because history tells us, if you run people around on programmes going nowhere, they just become more disillusioned and disaffected and drop out of the system. We need destinations for them.

Q75 Stephen Lloyd: They also say, if you keep 17,000 on IB when not necessarily all of them need to be on IB, you completely wipe out the rest of their lives.

Stephen Houghton: Yes, and we need to get them off it. I come back to the point: this is not just a supply-side problem, it is a demand-side problem and we need to create some sort of employment for them to go to. Talking to the providers, if they are getting paid by results and results are jobs, how are they going to get paid? There is a huge risk for them here if they are not going to place them somewhere. Now what the providers are talking to us about is, guess what, creating a job creation programme so those people have a destination. So yes, it is worthwhile for the individuals and we would want to do that. FJF was one of the biggest successes we ever had, but the providers also need to put them somewhere in order to get paid, or they or their subcontractors have got a problem further down the track.

Coupled to this, those 17,000 on IB-and I want to get them off; it is not our aim and objective in life to keep them there-are all going to lose their benefits as well. They are going to lose Council Tax Benefit, they are going to lose Housing Benefit, and they are not going to be very happy people if they are mandated on to a programme that is not going to give them a job. Who is picking up the consequences of that? We are as a local authority. Our problem is we are having our budgets cut hugely and the biggest budget cuts in local authorities are in the areas of highest worklessness.

Someone has got to piece all of these things together and try and make it work, and we are not sure yet how this is going to play out. I come back to the fact that, at the very least, providers and local agencies are going to have to get their heads together around this to try and make some sense of it, or we are going to get some real problems in three or four years’ time.

Chair : We all have questions about the delivery of the Work Programme and we are steering into that as well.

Q76 Alex Cunningham: Just following on exactly from what you just said, Stephen, we are where we as far as the providers are concerned, that is sorted, but you are concerned about the gap between the local needs and perhaps the providers’ strategy. How do we close that gap? You talk about people talking to each other, but how do we close that gap? Do we perhaps compel the providers in some way to follow a particular system to address the issues that you raised earlier?

Stephen Houghton: The Government’s position is that the providers would be foolish not to engage local authorities and other agencies, and clearly that is right. Whether the providers will or not remains to be seen. There is a huge issue about sharing information and, in particular, performance information. Under the current system, our working skills board, which is private sector led, have written to the providers to say, "What are you spending? What is going on? How successful have you been?" They have refused to provide that information. We then wrote to DWP and said, "Can we have it?" and DWP said, "No." We then put a freedom of information request in and that was refused as well. We cannot have that under the new programme. We must share performance information to see what is being done locally, where the money is being spent, and whether it is effective. That is also about localism, transparency and scrutiny of the use of public money. At the moment, we do not have that, so the first thing we have to do is break down that barrier about sharing what is going on.

Secondly, we need to share data and information more generally about the client group that is out there because we will be designing programmes for people we haven’t got a clue about, to be frank. We go to DWP now and Jobcentre Plus and say, "Tell us the names and the addresses of the people who are out there, so we can go and knock on their doors and work with them." What they say to us is, "Well, we will tell you which estate they are on." Well I know which estate they are on; what I do not know is who they are, where they live and what their problems are so we can go and work with them. We cannot share that kind of information. I am told by the civil servants they are looking to do that on a regional basis; well that does not help at all because we need it literally estate street by street, house by house so we can get in and work with people. Because as you rightly say, we do not want them sitting on IB-it is the bane of our borough-but until we can get to that kind of detail and information, we are going to be designing programmes, which, to be frank, are not going to be suitable. Then there is the other problem of demand: are there enough jobs to go to anyway?

Q77 Chair : Can I just ask about what is happening-it has been raised quite a lot, and we picked it up when we were looking at youth unemployment-in the gap when the existing programmes come to an end? Flexible New Deal is all right because it has got a run on but something like Pathways to Work comes to an end at the end of March and the Work Programme does not get going until the summer. You must all be in that position now. What is your take on that and is there anything that particularly concerns you in terms of your own staff?

Jonny Boux: For us it is a major concern in the sense that, like you say, we are an existing New Deal provider and our starts wind up by the beginning of April and the Work Programme is due to go live three months after that, leaving a major gap in provision. When you set that off against many of the other programmes we deliver, finishing this financial year as well, we are left with a major problem to retain, even as a medium-sized voluntary sector organisation, the level of resource that we need for the offer that we are talking about on the Work Programme. Three months down the line, that becomes a major issue in terms of premises and staffing. So it is a concern.

Q78 Chair : Are you going to have to lay people off? Presumably you do not know at this stage if you are going to win any contracts anywhere, or if you are going to go into something with a prime contractor.

Jonny Boux: There is a risk. Unless something changes and there is some form of bridging arrangement over that transition period between April and July, there is a risk that we would have to lay people off. I am speaking as an organisation with a turnover of £10 million to £11 million a year, so for smaller voluntary sector organisations, I am sure that the issue will be multiplied.

Q79 Chair : Christopher, you represent one of the smaller ones in relative size. What is your position?

Christopher Knee: Yes we do, and we have about a £4 million turnover, so we are much smaller. We are not in the position, however, of being a deliverer on the existing programmes, except for one specialist programme, which is remaining, as is some European funding. For us the transition issue has not arisen.

Q80 Glenda Jackson: Where does this gap leave the people you have been working with? What happens to them?

Caroline Taunt: Yes, because that is a huge implication as well.

Glenda Jackson: Where are they going? Are they just dumped? Will they have to go through a whole new process before they can get on to the new programme? What happens to them?

Caroline Taunt: For us, we know that we are talking here about people who are not always particularly easy to engage.

Glenda Jackson: Exactly.

Caroline Taunt: They have become very disengaged and yes, exactly, if they are dropped and then picked up again, that has huge implications for their motivation, their confidence and their willingness to engage in future programmes. It means the work has to start again and it takes all that much longer and more resourcing to pick up those young people again. It is not so applicable to Flexible New Deal, but I think there is still an application there because, particularly where it is not the same current prime who are going to be delivering under the Work Programme, there will be a transition period. Certainly, it was our experience last time that contracting IT systems, all of those things, takes far longer than you would expect. Although the aspiration is very good for the Work Programme to start at the beginning of the summer, in reality there will be a longer gap than we expect. For us, that has a really profound effect on the people we are looking to support.

Q81 Chair : And is there a danger that some of the supply chain will drop away? They will not survive through that gap and so they will not be there when everything else gets fully geared up into the Work Programme?

Caroline Taunt: That is a danger, particularly obviously for smaller providers whose offices’ staff will be at risk. My impression is that some prime contractors do have ideas for dealing with that and possibly that is something to ask those who are following us. Perhaps some kind of advanced funding or something like that will be provided, but where there is a gap, small organisations just do not have the cash flow to sustain themselves for a potential delivery in a few months’ time. It is just not how the finances work.

Q82 Stephen Lloyd: There is one thing where I am a bit puzzled. Obviously I have addressed this to the Government, and one of their answers, which you touched on briefly, was that the prime providers will already have in place the sub primes that they are going to be dealing with. A lot of the responsibility will be on the prime providers to ensure that they keep those sub primes, because two months later they are going to roll it out in June. Now obviously there are cost implications for the primes, but what some representatives from the DWP have said to me is that it will be to the benefit of the primes to make sure that they hold those sub primes over the next couple of months because these are going to be exactly the same people that they are going to be using as subcontractors. Are you saying that that is just nonsense?

Caroline Taunt: Not nonsense. To a certain degree I think that is true, but I suppose, for starters, the Work Programme is not exactly the same groups that we have seen, certainly not age wise. I would hope that there were new providers coming into play to deal with the younger age group. Where DWP on the framework have selected new prime contractors who will not potentially be delivering at the moment, there is not going to be complete crossover. Where there is a concern is in those contract package areas where there is a change in prime contractor, which, given that there are two or three in most areas, will be a significant number of them.

You are absolutely right: in those areas where it is going to be the same prime contractor who has been delivering previous programmes, they will continue under the Work Programme. Again, that does come back to the financing of it, because there is such a delay in the payments under the Work Programme that, even where it is the same prime contractor dealing with the same supply chain, the payments might still not come through in time to support that supply chain remaining in the process.

Q83 Stephen Lloyd: Okay, I will take those points because they are important but then I will move on because I suspect you are all going to say the same, so that is useful. On the outcomebased payments, how do you all expect the Work Programme’s largely outcomebased payment model to affect the operation of your organisations? We touched on it briefly but now more specifically, if we start with Jonny?

Jonny Boux: The major implication for us is the capital requirements that we will need to successfully deliver the Work Programme. Even in the circumstance where primes would protect some of the risks of subs, the payment model dictates that they can only do that to a certain extent. What is coming down to us as subs is a diluted model of what the primes are receiving as their funding models. To give you an example, some of the primes have offered us a scenario where we may get some small payment for an immediate job outcome that is not reflected in their model, but they will retain some of the longer term sustainable payments to offset that. Even so, generally with the models that are being offered to us, you are looking at fairly large working capital requirements, certainly between year one and year three, which is challenging, even for an organisation of our size.

Caroline Taunt: I would echo that. I get the impression that DWP’s intention with the funding model they produced was that that there would be one payment structure for prime contractors, and that they would then vary their payments to take into account their supply chain. For example, larger subcontractors might be reflective of their payment structure, whereas smaller providers might get some kind of up-front payment. That has not been our experience. Our experience is that the vast majority of prime contractors are planning to pass down exactly as they find it from DWP, and that includes the reductions towards the end of the programme and the discount that DWP is asking for on the maximum potential figures. That is where the real concern comes in for us. Even at the front-end of the programme, there are real implications obviously for cash flow-the fact that you are waiting two years for payments for something you delivered a long time ago.

Almost the hidden concern is that a lot of the financial modelling that we are doing and talking to primes is about year one, year two; it is year three, four, five where the major concerns come in. By then, there is no attachment payments and everything is even more endloaded on the programme. Our programmes are tried and tested over a long period. We have very limited capacity to reduce the cost of what we do, so we are just going to be getting less money for the same expenditure towards the end of the programme. When you then take into account that we are being expected to offer a further discount on that, because that is what DWP are asking prime contractors for and they are passing it down, it becomes increasingly prohibitive the longer the programme goes on.

Q84 Stephen Lloyd: But on the outcome side, for people formerly on IB or whatever, the amount paid would be higher than it is currently, so that presumably would be a positive step.

Caroline Taunt: Yes it would, and there is some differential in payment between groups. I would say, though, that for us as an organisation, we support disadvantaged young people, but even so, most of them are coming from the JSA 18 to 24 or 25-plus groups. They are young people facing multiple disadvantages and who, quite frankly, we need to spend quite a lot of money on in order to be able to support them to take on work. It is even more expensive, obviously, to be engaging those who are coming off IB or the group that has now been included this week-those who are still on IB. My feeling would be that there is not enough differential taken into account but that there is some through the programme. I think very few organisations will be confident of supporting those most-hard-to-reach groups, so that is probably something to bear in mind-you cannot necessarily guarantee supporting those people into work. You cannot necessarily guarantee getting the job outcome and sustaining it for them.

Stephen Lloyd: Because of the challenges they face. Okay, thank you for that.

Christopher Knee: The financing and capital issues are obviously vitally important but as a question of principle rather than of design, I think the principle of payment by results should align the interests of the customer with the interests of the provider. If it is purely on a feepaid basis, it is not necessarily the case that the interest of the consumer and the interest of the provider coincide. As a matter of principle, it is very positive, but the design is another issue.

It comes back to an earlier question about the assessment and the characteristics of the customers coming through. Within each of these cohorts or within each of these groups there will be people, no matter what benefit they come from, who are very difficult to support. A payment by results in that environment does encourage a concentration on those who will move into work more quickly, will trigger a payment, to the disadvantage of those who are the harder-to-help. That is one of the big downsides of the payment-by-results model.

Q85 Stephen Lloyd: Right, I hear that. A couple of other things because we are coming to Stephen later on the LA, if that is all right. Just to focus on the three other bodies for the minute, what proportion of the payments made to prime providers, particularly on the up-front attachment fees, do you expect to be passed to the second and third tier? What is your anticipation?

Christopher Knee: In terms of how much risk?

Stephen Lloyd: What percentage do you think the primes are going to pass down?

Christopher Knee: I think they will pass between 85% and 50%, depending on the risk that the subcontractor is prepared to take and the amount of capital that the subcontractor is prepared to put in.

Jonny Boux: We are negotiating with several primes and our general experience is that the retention of the management fee is around 20% to 25%.

Stephen Lloyd: They keep 20% to 25%?

Jonny Boux: Yes.

Q86 Stephen Lloyd: Would you broadly agree with that, Caroline?

Caroline Taunt: Yes. Probably what we are finding is the best-case scenario; DWP’s model, minus a certain percentage. Some primes have been talking to us along those lines. It does get more difficult, as my colleague said, when you are talking about a programme that does not necessarily follow that threestage structure. We have programmes that are for young people who are not anywhere near ready to move into work. There we are looking at maybe more of an up-front payment or trying to talk to primes about something that moves away from that threestage model. There you are looking at an awful lot less. So yes, more along the lines of maybe the 50% or even more being taken by the primes. I would again emphasise that it is slightly confused by this discount point. The fact that there is the management fee and then the discount that the DWP are asking for on the job outcomes makes it hard to know the total percentage that is going from the top end of it.

Stephen Lloyd: Okay, this is clearly a key area, and I have spoken with a lot of training providers in my own constituency, including the FEs.

Q87 Glenda Jackson: To go back to the first point, the payment by results, as Councillor Houghton has already pointed out, the Government’s view is the result is the job, but we have been through the fact that there are not going to be sufficient jobs out there. To speak about your particular interest, although this applies across the board as we all know, is time going to be a factor in defining a result as far as you are aware? And the follow-on question to the one we have just heard: we are still talking, are we not, about funding for an illdefined number of people. Does anybody know how many people you are going to have to care for? If we do not, the arguments about where the money is and the percentages that are going down the supply chain become in a sense irrelevant, don’t they?

Caroline Taunt: Yes, I think you are absolutely right. Going back to Flexible New Deal, we know that the numbers that were estimated were far higher than the referrals that actually came through. Reading between the lines, what has happened here is probably it has been underestimated to ensure that does not happen again, which you could slightly look at as the better case scenario, because you will have more coming through rather than less and you will not have overstaffed and what have you. But it still leads to great uncertainty about who is coming through.

You are dealing also with young people, in our case, in benefits groups that you have not necessarily supported before. So yes, we have touched on this. There are cost implications and resourcing implications that we just do not have a handle on at the moment. So yes, to some degree we know in our organisation that we are not correctly costing the work we are doing because we cannot. We do not know how to build in the amount we will need for monitoring and evaluation, even down to things like aligning IT systems, which is incredibly complicated for new players in this arena. There are real difficulties with that.

Q88 Glenda Jackson: There is big black hole really isn’t there?

Caroline Taunt: There is a huge black hole, yes.

Jonny Boux: Just to echo that, one of the real challenges for us is not just the overall number but the split in benefit type. The level of support that we will have to give somebody that is coming off IB compared with, say, a JSA customer, who is what we might call very job ready, is very different. As you say, not being able to know how many might get through with a differing need will be a challenge.

Stephen Houghton: May I make one point on this? The ratio between the easy-to-reach and the harder-to-reach needs to be right because if it isn’t then clearly people are going to take the low-hanging fruit. There is another issue here in terms of payment by results in so far as the contracts for the primes are on a regional basis, so their outcomes are on a regional basis. The tendency will be, "Let’s get people into jobs in the places we can get them into jobs," but it is not the same across the regions. We could get huge disparities in that you may well have some success in Leeds, for example, because there are employment opportunities and we are getting unemployed people back to work there, but other parts of the region, where there aren’t the jobs, will get ignored. For me, as well as having a payment structure-that is the ratio between the easy to reach and those hard to reach, which is right-we need to have a payment structure place by place and give some incentives to work in those harder workless areas. Otherwise, the tendency will be, and quite naturally because you will be under pressure to get a return, to take it where you can, when you can, as opposed to tackling some of these ingrained problems.

Chair: I am conscious that time is moving on so Teresa if you ask your question and then I think Andrew wants to come in and then we are coming back to Stephen.

Q89 Teresa Pearce: You are talking about outcome-based payments and the delivery chain, and it is quite clear from what you are all saying that it is the subcontractors who have to do the delivery and achieve the outcome. Yet I think you are saying that 25% to 50% of the fee is kept by the prime. What do the prime actually do?

Caroline Taunt: One thing to mention is that some primes are doing delivery. There is a range of different prime contractors. Some will be subcontracting all of the work, and they are more managing agents, whereas others will actually be doing quite a lot of the delivery for more of the easier to reach, or whatever terminology you want to use, and then passing the rest down to the supply chain. So there is a range.

A certain management fee is usual in our experience for contracts like this. There is a certain amount of support that they can give, certainly with things like IT systems. There is some degree of overarching support, and certainly in terms of the referral process that comes through, but it is very high compared with the fact that we still have fixed costs to deliver what we do. I think it does come down, to a certain degree, to how much money is in the programme overall. If there is enough for us to be able to still deliver what we do to a high quality standard then that is one thing, but, as has been touched on previously, the nature of the programme and the way it is funded can lead to you taking the easy option or not delivering such high quality interventions, because there is quite simply not the money in it to enable you to do that. That is where the real difficulty comes in.

Christopher Knee: To be fair, to supplement that answer, I think it is only 50% where the finance is being provided, and where the risk is also being offset. I would say that if the prime provider is pushing down the financial requirement and pushing down the risk, then you would see it much less, and 17.5%, including the big discount, is the lowest that we have seen. When I have spoken to managers within big prime providers, they have said, "Well, we have got to go to our treasury to argue for this capital," and the cost of capital may be 15% within a large organisation. If they are covering that capital requirement then it is perfectly reasonable that they should charge for it. The question is, is there something in the design that could further offset the need to do that, so that more resources could be passed down to the front line?

Q90 Andrew Bingham: Jonny mentioned the categories that clients will be put into-I think there are seven. Do you think that is about right, do you think they are the best way of dividing them up, or do you think there should be more? Less? I am interested in all of your comments really.

Jonny Boux: We have a very strong view that differential payment should be based on need, and not just benefits. There is a real danger here, and I speak from experience of delivering to large numbers of people on JSA, particularly young people-I know my colleague spoke about it as well. We deal with large numbers of people who are homeless or at risk of homelessness, and they have multiple barriers that prevent them from gaining employment. The pricing structure at the moment does not reflect the differing need of the huge range of people you find on JSA, for instance, particularly young people, and there is a real danger that certain groups that are a real core of what we do at Community Links will suffer from that.

Caroline Taunt: I would completely echo that. Seeing JSA as the easiest to reach group amongst a range does mask different needs. For us a really fundamental factor is that, at their most disengaged, the young people who come to us are not necessarily even claiming benefits at all. They are so disengaged from the entire system that they would not be talking to Jobcentre Plus; they would not be engaged with any kind of statutory provision. They would have been at home for the last three years, so that is masking a potentially even more needy group, which is those who just aren’t coming into contact with any kind of statutory provision at all. A real concern for us is that some of those who we would see as most in need of support under this programme won’t be caught up through Jobcentre Plus for it.

Q91 Andrew Bingham: You are saying these categories could mask the real difficulties?

Caroline Taunt: Yes, and there is another unknown number for you; we will still be continuing our support for those young people, but obviously there won’t be any payment for it through this programme.

Q92 Andrew Bingham: The outcome payments for ex-IB claimants is almost three times that for JSA, and I think, Stephen, you mentioned earlier that you are not sure if that is right. What do the others think? Is that about right? I take what you said about regional variations, but just park that to one side; I am interested in the differential payments.

Christopher Knee: I think it is very much a proxy, because linked to the previous point, I know ERSA has made an argument that payment should be based on an assessment of the person, but the counter-argument was that the benefit from which somebody comes is a proxy for the need. I am not sure that it is a good enough proxy, and I suspect that the overlap of need between all those groups is fairly significant, so that there will be people within the JSA 25 plus group with very significant needs, but with very few resources, so they are possibly going to be overlooked. Whereas, in the ex-IB claimant group, there may be some who are relatively well positioned, so the proxy may only work at 60% or 70%.

Andrew Bingham: Okay, thank you. Interesting.

Q93 Kate Green: I just wanted to ask about the provision of the support for the most disadvantaged claimants, and those whom you will be receiving perhaps for the first time. I think, Stephen, you alluded to the need to work with a range of agencies to provide holistic support, perhaps including health; it could be in relation to mental health, it could be addictions, it could be housing, and so on. How well prepared are those services to work with you for a wider pool of clients, including lone parents, who will increasingly come into the programme as well as the Incapacity Benefit claimants, who will be coming into the programme? Do you see the services that you would not provide yourselves, but would be drawing on from other agencies are tooled up to and prepared for the new Work Programme?

Jonny Boux: We have a large network of agencies that we built up over years that support us in current delivery, so I do not think that is so much the issue; I think that they are well prepared to help people and essentially it is the same customer group coming through. The issue, again, comes back to funding in the sense that, for many of the agencies we work with, and particularly they tend to be smaller voluntary sector agencies, much of their funding is drying up through the local authority allocations they get. The initial indication was that they would be fairly well funded through the Work Programme, but when we get to the nub of it, the funding is very limited to specialist provision. We have a situation where some of them are under threat.

Caroline Taunt: I support that. My finding has been that prime contractors went into it with the intention that they would have their key subcontractors, who would deliver across the board, but that where more specialist help was needed they would have a pool, if you like, of money to refer people to. I think the further we have gone down the process, the more prime contractors found that there just simply is not the money in it for that. That might not be the case for all of them, but there is very, very little money for any interventions that do not have a clear job outcome. We offer support that comes into that category-the bulk of what we do does support people into jobs-but we do have some that does not aim to do that that is more about personal development, further training, and it is extremely hard to see where that fits in within a model where the whole purpose is a job.

Q94 Alex Cunningham: Is it really the same customer group that is coming through? I met Scope yesterday, and they are worried about the huge increase in the number of people coming off Incapacity Benefit coming into the system. Their complex needs and everything will be more substantial, and therefore the amount of capacity within the system to deal with those people is not there. That is a real concern to them. Are you telling us that the system will be able to cope with this new cohort? Is the expertise really there?

Jonny Boux: I think in our experience, in the agencies we work with, the answer is yes, to a degree. I agree that when talking of the group on Incapacity Benefit, that is potentially more of an issue, and it is difficult to know because, again, we do not know the numbers coming through within that group. Certainly, in terms of JSA customers we work with, and the customers on some of the other benefits, then yes, the expertise is there.

Q95 Alex Cunningham: So, for the specific new group of people who are going to move from one benefit to the other, there are real issues there?

Caroline Taunt: For us that is an unknown. We would find it very hard to be definitive that we have the resourcing or know how much it would cost to support those people properly to a position where they would be ready to take on a job. There may be knowledge out there, but I do not think we would be able to be so definitive about that.

Q96 Alex Cunningham: So Scope’s fear is well founded?

Caroline Taunt: I think so. I think that is a real concern.

Christopher Knee: As a specialist provider in the disability area, we deal with a lot of Incapacity Benefit people now, and we do run a DWP programme-residential training-and we are getting 39% of people into work-that is the average over the last four years, including the dip last year. These are hugely better resourced than this particular programme, so the specialisms are there, they can be mobilised, but with the financing available under this programme I suspect that some will not get the attention that they need-a lot will not get the attention they need.

Chair : Presumably you won’t know the volumes of anything until migration really gets under way and you see the proportions that are coming out the other end.

Q97 Glenda Jackson: Briefly, other evidence that we have received suggests, and certainly the Government has been loud in saying, that the changes are dependent upon an individual being worked with very, very closely, and in a flexible way. The evidence that we are getting back is that it needs people who are extremely well trained and skilled and flexible. In my own direct experience, from my own constituency, I would say this is most marked in people with mental health issues. What you seem to be telling me is that those existing organisations out there, which are in the main quite small, are going to lose out under this new system. Have you intimation of whether there are organisations waiting in the wings to come in and deal with this vastly increased client group, as far as you know?

Jonny Boux: I certainly do not think there are many organisations waiting in the wings.

Glenda Jackson: Thank you.

Q98 Chair : Finally, is the Merlin Standard sufficiently robust to protect subcontractors and other supply chain partners?

Jonny Boux: I think it is a bit of an unknown for us, because we really welcome the Merlin Standard. We think it is a very positive step in the sense that, in prior programmes, we have not had a similar standard in place. However, we have not been subject to it operationally, so we will wait and see.

Q99 Chair : So you do not know how it is going to work in practice? It seems quite vague to me.

Caroline Taunt: Yes, I second that. It is difficult to know exactly. Certainly we welcome something, because in previous instances we have found that we have been mentioned at the bidding stage, but you can end up not being used once it comes to contracting. I think that certainly should cease through the Merlin Standard, which is something that we see as a really welcome development, but-I think the questions centred on conflict resolution-it is less clear to me how it would operate. Certainly it is better than not having anything there at all.

Q100 Chair : It should lead to greater transparency as well?

Caroline Taunt: Yes, I think so, and certainly, in our conversations with them, prime contractors are referring to it, and so that is a step up.

Christopher Knee: It was the process of setting up the Merlin Standard that was so positive, and I think the worst abuses have gone; they have disappeared. Whether the standard itself is robust, I do not think it is. It is motherhood and apple pie really; a statement of a lot of good intentions.

Q101 Glenda Jackson: Just very briefly, I have read the Merlin Standard, and apart from fine words, what are its constituent parts? What do you have to be, or to achieve, or to do, to qualify for it?

Christopher Knee: It is insufficiently specific, I think.

Q102 Chair : A lot of nice management speak in it. Anyway, thank you very much. We could have gone on for a lot longer, but we only did have an hour. May I thank you on behalf of the Committee for coming along this morning, and for your answers. We will now get ready for our next panel. Thanks a lot.

Examination of Witnesses

Witnesses: Kirsty McHugh, Chief Executive, Employment Related Services Association, Rob Murdoch, Chair, Employment Related Services Association, Sean Williams, Managing Director, G4S Welfare to Work, Richard Johnson, Managing Director, Serco Welfare to Work, and Laurie Russell, Chief Executive, The Wise Group, gave evidence.

Q103 Chair : Thanks very much for coming along this morning. May I again, starting with you Sean, ask you to introduce yourselves for the record?

Sean Williams: I am Sean Williams. I am the Managing Director of G4S Welfare to Work.

Kirsty McHugh: I am Kirsty McHugh. I am Chief Executive of an organisation called ERSA, the Employment Related Services Association, and, just very briefly, as I am aware many of you will not know us, we have about 75 members. We represent primes and subcontractors, and we are split fairly evenly between voluntary sector members and private sector members, with a few public sector ones thrown in as well.

Rob Murdoch: Rob Murdoch, Executive Director of A4e, but here as Chair of ERSA.

Richard Johnson: Richard Johnson, Managing Director of Welfare to Work at Serco.

Laurie Russell: Laurie Russell, Chief Executive of The Wise Group-I think the only social enterprise that is a prime contractor in Flexible New Deal.

Q104 Chair : Okay. Thanks very much. Just to start off with a very general question about the design of the Work Programme: what do you see as the key differences between the Work Programme and the existing contracted employment programmes? I do not know who wants to start. Do you want to jump in first, Rob? We will go to ERSA with the overview, and then we will come to the specifics.

Rob Murdoch: In relation to the Work Programme, it was the first time that we looked at a system that did not define people by the benefit they received, but looked at providing services across all those groups in unemployment. It provides longer term contracts, it provides payment by results, and it also looks towards building on the invest to save principles. It also brings a range of differential pricing that other programmes previously had not, and looks towards the idea of personalisation. Those were the macro design issues in relation to the Work Programme that were different from previous commissioned programmes.

Richard Johnson: If I might add to that, it is also a move towards, a step towards, a different sort of prime contractor model-a different relationship between the prime contractor and the suppliers of the service. I think that what is effectively being procured through the Work Programme is an outsourcing of: a) somebody to come in and sit as an overarching commissioner of services in a locality; and b) someone in that role to take over the long-term risk of payment by results. It is this move towards the notion of paying for these services from the savings that are generated in moving individuals from long-term unemployment, long-term dependence on benefits, into long-term sustained employment.

Sean Williams: I would concur with that. I think that the previous session has shown that the services needed to support workless people into sustainable jobs in the UK already exist, what is missing is a framework for co-ordinating and managing that provision in order to really get it working together to meet the holistic and multitudinous barriers to people re-entering into employment.

Q105 Chair : Anything else to add Laurie?

Laurie Russell: I think the other addition is that there is now a target percentage for inclusion of the third sector, or voluntary sector, or social enterprise sector. There is quite a serious attempt to include that sector. There are other issues that came up obviously in the earlier session about whether there are sufficient funds around, and issues about that, but there is a clear attempt to push those prime contractors from the private sector to include a greater share of third sector organisations.

Kirsty McHugh: To add two words, if I may: scale and ambition. It is a very ambitious programme.

Q106 Karen Bradley: Keeping with the design of the programme and turning to the tendering process, do you have any comments about DWP’s assessment of the bids? Do you think it has been effective? Have you got any suggestions of how they might have had more appropriate ways of assessing bids that have come through?

Kirsty McHugh: Of course, we are only halfway through the procurement process at the moment, so you are talking to us at a point where all these gentlemen at the table will be going from this meeting room, back into their organisations, and they have got until 14 February to get in those bids. To some extent, I think we need to do a bit of a mop-up exercise afterwards to look at what has gone well, and what has not gone well. I think one of the difficulties has been that the invitation to tender came out prior to Christmas, but there has been some additional information that has been thrown into the hat as we have gone along. Earlier on you were talking about the seven payment groups; it is actually eight-an additional one was added on Friday afternoon. Some additional information coming through has made the complexity of this a bit more of a challenge for some of those people putting in bids.

Sean Williams: I think there are three ways that the bids are being assessed. The first is on quality, so what you are proposing to deliver and the strength and diversity of the supply chain; will it actually meet the needs of the customer groups? The second way that bids are being evaluated is a financial element, which is about how much of a job outcome discount you will give on the unit price. The third then is a risk weighting, which looks at what you have promised in the tender document; it looks then at your pricing proposals, and makes sure that everything that you have promised in the tender marries up to the costings that you have put through, to make sure that what you are putting forward is actually deliverable. That seems to me an enormously sensible way of doing the assessment, and we will see how that works in practice, but I think the design principles are absolutely right.

Q107 Karen Bradley: Does anyone else have anything to add?

Laurie Russell: I would hope that performance is taken into account; it is not part of the formal assessment, as others have described, but it seems to be strange if performance in previous programmes is not taken into account. None of us would procure anything else without looking at previous performance, and if you were performing that should be taken into account. There is a genuine feeling that infrastructure should be taken into account; if you want an organisation to set up the Work Programme quickly, they have to have the infrastructure in place. If you bring in a new organisation from outside the UK, or from a different region, then inevitably, although they may inherit staff from others, they have a longer period in setting up to build up infrastructure.

Richard Johnson: Not unrelated to that is that we have got to be careful about this transition phase from the existing contracts into the Work Programme, and I hope that the assessment is going to be able to take into account in some way the ability of organisations to migrate those services, both for the people delivering the services and obviously for the people that receive them.

Q108 Karen Bradley: Thank you. I have got a couple of questions on transition in a moment. Just going back, Kirsty, to your comments about changes. Since the original tendering process started, have there been many changes from the DWP in terms of what they are looking for from prime providers?

Kirsty McHugh: To some extent it has been positive, in that the Department has been listening to some of the feedback from ERSA and from the primes directly. The invitation to tender came out prior to Christmas, and the Government is moving very, very rapidly in relation to this. There has been some movement, most of it in a positive direction, reflecting what they are hearing from the primes, the subcontractors and the representative body. However, the eighth customer group is something quite new, and has come a bit out of the blue-everybody will rise to the challenge.

Rob Murdoch: Just to add to that, I mean, one of the challenges, especially for ERSA members, is the complexity of sort of the price differentials and the performance that the DWP have asked for quite recently. It is very complex, and the time for those organisations to respond to those tenders has been very challenging, which has put added pressure on those organisations, ERSA members, to respond effectively to it, and especially mixed with some of the issues about transition, that has been very challenging.

Q109 Karen Bradley: Turning to the regional nature of the contracts and, first of all, on competition. We have been told that there will be at least two providers in each region, possibly three, and that they will obviously start off with a random allocation of contracts, but the contracts will start to be specifically allocated once performance has been assessed. Do you think that this is going to create competition in the region, and what are the risks for the prime providers?

Laurie Russell: I do not think it creates competition. I do not think it is the way to improve quality. I think there are other ways that you can improve the quality of prime providers. I do not think there is any evidence from Flexible New Deal, certainly in the region that we work in, which is south Scotland, that having two providers creates a competition to improve quality. I think there is a duplication and potentially a waste of public money. I can take you small towns in Scotland where we have got an office at one end of the high street, and the other provider has got an office at the other end of the high street, and an individual in that town who is seeking a service from us does not know the difference between the two. The Jobcentre may be in that town as well, and you could have the local authority, all providing similar services, and the customer that we are seeking to support does not know the difference between us, and they are all funded through public funds. It is a potential waste of public money to have two providers.

Richard Johnson: I think the question is not how many prime contractors you have but how many providers do you have delivering the front-line service. Do you have sufficient providers to deliver the whole diversity of responses to the diversity of needs of the jobseekers? We manage the Flexible New Deal at the moment in Greater Manchester. We are a single prime contractor in that area, and we have 40 providers delivering the service across that area, delivering a range of different interventions. Under the Work Programme there will be three prime contractors in Greater Manchester, there will be three different management systems, three different interfaces with those providers, and three different relationships trying to form with all of the local authorities. I think the simplicity and the strength of that single contractor, as long as you have some distance between that contractor and the provision, and a diversity of provision, is the right way to go.

Sean Williams: I would slightly disagree with Laurie and Richard. The competition does work in driving performance, but only if you lose the providers who are not performing. Over the past decade in Welfare to Work delivery we have seen some competition, but we have seen no transparent performance information, and we have seen no loss of providers who are unable to perform. Whereas bid teams have got much, much stronger in the Welfare to Work space, I do not think delivery teams have got much, much stronger. If you compare that with the situation in Australia, where there is very transparent performance in league tables and a star rating system, top performing providers did not have to retender for their provision, and bottom performing providers just were not allowed to keep their contracts. Competition only drives performance if you do that. If you have competition without those elements-without transparent performance, and without losing providers who cannot deliver and rewarding those who can-then, of course, competition does not work.

Rob Murdoch: It is not just the primes but it is the subcontractors as well. From ERSA’s perspective, we looked at launching the Customer Charter two years ago to understand that customers have rights, and that is the right treatment, the right result, the right time, and the right accessibility to services, and it is empowering the customer in order that they can make better demands on that service as well. I think that is a part of it. Maybe it is not so simple as having two or three competing, although we need to have regular performance updates on how they are performing, but that customer, their rights and their satisfaction levels with the service they are receiving is going to be important. I would say that it is important we start collecting the metrics now, because we have promised this in many ways, but until we start to build up a history of customer satisfaction and the impact on them, it is going to be very difficult then to make those decisions.

Kirsty McHugh: I would just add, if I may, that the role of Government in relation to this is going to be very important. Frameworks only work if the organisation that has commissioned them and is managing the overall process is able to make the decisions and move contracts or provision around in a way that makes sense. We have to look to the commissioner and their role in relation to this as well.

Q110 Glenda Jackson: I am sorry, I am taking you back to some of the previous questions. Ms McHugh, you said that the gentlemen would be going back and examining what they have done. Can you define what you mean by "well"?

Kirsty McHugh: In terms of-

Q111 Glenda Jackson: Of examining what was the delivery of services, and what is "well" in the delivery of services?

Kirsty McHugh: What does success look like? What are the good contracts look like?

Q112 Glenda Jackson: No, what would be the actual "well" of meeting the requirements of the clients?

Kirsty McHugh: When I was speaking I was talking about the eighth group that has been inserted into this, and making sure that the bid is fit for purpose, and that is amalgamated and within the financial envelope, and can be delivered by 14 February. That is what I was talking about in relation to this. Generally, the customer has to be at the heart of this; if the unemployed people in the UK today are not getting good services out of this, this will have failed. For ERSA members and for ERSA, that has to absolutely come first.

Q113 Glenda Jackson: Yes, but your client body is expanding way, way beyond unemployed people. I mean, everybody on the benefits system is going to come walking through those doors. So what is your cut-off point there? I mean, Mr Williams spoke about submitting a contract. Presumably you have a figure above which you know you cannot deliver that service? Mr Johnson spoke about the increase in competition in Manchester, wasn’t it? Again, do you know how many more people you are going to have to serve? For all of you, correct me if I am wrong here, you do not actually have to deliver those services, do you? You have to apportion money to the supply chain who will. Have you any idea of how many more clients there are going to be?

Rob Murdoch: Touching on that first bit-

Glenda Jackson: Do.

Rob Murdoch: -about whether the people around this table deliver or not, there is a complete mix of what the prime contractor is-some do not deliver and others deliver a proportion. In direct answer to your question, this is a tender round for the Work Programme that sits within the framework, the ERSS framework, and we are being provided with volumes from the Department for Work and Pensions in relation to the customer cohorts that will come through on to that programme. We have been asked, as organisations, to submit tenders for the delivery of services according to those volumes. Those volumes have been calculated based on the Office for Budget Responsibility’s forecasts. The DWP statistics department then takes national figures-it does not take local figures in relation to Jobcentre Plus flows-and has come up with a number according to the seven cohorts. On Friday it introduced an eighth cohort. My point being that from a commercial exercise, we are submitting tenders to deliver to that number. Actually, as most of our businesses know, and especially ERSA members know, the evidence on the ground is very different from the volumes that have been predicted, and those volumes also do not show us the complexity of our customer groups, and the journeys that they need to go on in going back to work.

What you are asking is about two different things. There is a commercial process going on to bid for the 14th, but all of us as organisations are trying to get prepared for what we best forecast the unemployment situation will be, which we all know is going to be very different from the volume figure that we have. That is one of the biggest challenges for our industry and especially for a lot of ERSA members, who know that their customer groups, the specialists that they deliver, are evident and their volumes are going to go up, but they cannot secure funding through the current envelope of volumes under the Work Programme to deliver that, and that is quite challenging.

Sean Williams: If I might add, the one thing that we do know is that the referral numbers as predicted may not be as accurate as we want them to be, so we know that referrals can go up, we know that referrals can go down. I think it is extremely important that we can demonstrate we have contingencies in place for both of those eventualities. I think on the prime contractor model that we have heard about that is about having reserve providers in place, that is about having very clear plans for increasing staff and increasing premises, and similar measures for if referral numbers go down. We are planning, I suspect that all five contractors are planning, on the basis of the numbers in the tender, but with very, very clear contingency plans for if numbers are higher or lower than expected.

Q114 Glenda Jackson: But in the main, will not the increase of clients be from people who have never walked through your doors before?

Richard Johnson: I think the point is very well made, and I think we are able to make predictions on the basis of our experience across a range of client groups of the numbers that we will see over the next six to 12 months.

Glenda Jackson: Yes.

Richard Johnson: Beyond that it does become difficult, and it is important for us as an industry and for the Department to recognise that this is going to have to be a learning contract of some sort. As we go through the delivery of this, we are going to have to build an understanding of who the people are that we see, what their individual needs are, and what it is costing to deliver those services, and in order to build that understanding we have got to ensure we have got complete transparency from the outset-in terms of performance, in terms of what people deliver and how successful it is, and what they are spending their money on and how successful that spend is.

Q115 Glenda Jackson: But what about the client? What about the individual? What are they getting out of it? Forgive me, but we are looking at a situation at the moment where various job schemes are finishing, we have had this from previous evidence, and there is a gap, and the people who are going to suffer most from that gap are the clients. You are saying to us that you are actually hypothesising the numbers. Presumably you are hypothesising the amounts that are going to be required to deliver a service, which you say you can see only lasting, on the present definition, for a year, and then it is going to have to be recalibrated. What I want to know is, what is going to happen to those people who, for a year, have been working under this system when at the end of the year they may be told, as people are being told now, "I am sorry, this scheme is finished for you." Is that going to be part and parcel of your considerations, and your submissions?

Rob Murdoch: The first thing about the volumes-to touch on that bit-at ERSA we would really like to push for transparency about how that is calculated, so we can all have a look at the basis for those predictions. In relation to the transition, from ERSA’s perspective we have some really big concerns about the handling of the transition, because the volumes and the budget for the Work Programme make it very difficult for organisations who are delivering at the front-line to plan their future.

Glenda Jackson: I understand.

Rob Murdoch: Also, there are four areas where it is very, very challenging. As we have said, on a macro level the design is really good, but at the micro level the transition has a very negative effect on: our customers in the current programmes and what is going to happen; on staff, because there are a large number of staff in all our organisations who do not know how that transition is going to work; the commercial viability of organisations who have to wait two or three months in between the end of certain programmes and the start of the Work Programme; and also on our capacity to deliver on day one of the Work Programme, because those organisations who are starved of funding in between that transition, and whose customers go back to Jobcentre Plus and then come back to that provision, might not be fit for purpose when it comes to the first day of the Work Programme. So we have got some big concerns about the transition in relation to current programmes, for our customers, for our staff, and for our organisations.

Sean Williams: Can I come straight to the question about what happens to the customer? I think it is absolutely about the customer. On the G4S Work Programme model, the customer is met in a Jobcentre, they will go for a Jobcentre referral interview, and this might be a new customer group, this might be someone in Incapacity Benefit, or Employment Support Allowance-

Q116 Glenda Jackson: Could I just stop you there? That is not going to happen is it? The Government is arguing that these kind of contacts have to come through IT, through the web. We know Jobcentre Plus personnel are going to be reduced. That is just a point I would make.

Sean Williams: Sure, absolutely. On our model we want a warm handover in the Jobcentre, so members of our supply chain will be there, present, to meet that individual-a personal adviser. They will welcome that person on to the programme and explain the programme, because obviously this will often be quite scary if you think that your benefit is going to be gone. They will come up with a realistic job goal for that customer. They will ask them what it is that they want to do; they will look at the labour market and what jobs exist-and we have already heard about some of the demand-side challenges that we face going forward; they will come up with an individual action plan for that customer, based on needs assessment, and the best needs assessments are done by expert personal advisers; and they will say, "Okay, we know that we need to perhaps help you out with your housing, deal with the debt issue," or work on whatever it might be. Some of the basics: just give you a good CV and start cold calling employers on your behalf.

We then have a network of specialist agencies, funded separately by ourselves, and they will deal with specialist interventions that the job broker might not be able to do. Again, this is trying to come back to the idea that the services exist in the area, but they are not well co-ordinated, they are not well managed, and we need to get them working better together, and that is a lot of what G4S do in terms of managing that supply chain. So that individual jobseeker then has that action plan to employment. They stay with their personal adviser for the whole two years of the programme, until they go into work, and then until they have been in work for up to one or two years, depending on the customer group. They might be referred to, as I say, a debt advice agency or an organisation that might help them deal with their drug/alcohol issue, but that is still managed by the personal adviser at the job broker, who is responsible and targeted for getting that person into work.

That person has someone who they know is looking after them, who is looking out for their best interests, who is guiding them on their journey back to work, who has this menu of additional specialist provision that they can access for that individual where they do not have the skills themselves, and then who is doing some of the basic job broking stuff of filling in application forms, cold calling employers, and then when that person gets into work, supporting them through those difficult first weeks and months. So helping them with their in-work benefit calculation, helping them with childcare, supporting them with, perhaps, buying a travelcard for their first month in work.

That is what it looks like for the customer, and I think that is what it looks like regardless of what benefit that you are on. That is what the customer journey looks like; that is what we are trying to build through Work Programme, and I do not think we will get that exactly right to start with, but I am confident that through the learning contract, through working in very close partnership with the Department for Work and Pensions, Jobcentre Plus, other stakeholders, and, critically, with our customers, that we will be able, through the black box approach, to get a better journey for each individual customer.

Q117 Mr Heald: I just want to ask a question arising out of that. I mean, for many of the people who have been on IB and who are being migrated into the new system, this will be the first time that they have had this service available to them, won’t it? Looking at it overall, are you optimistic that this is a step forward?

Sean Williams: Yes.

Q118 Harriett Baldwin: Before I ask my question, I just have to know what the eighth cohort is.

Rob Murdoch: It is Incapacity Benefit clients-correct me if I am wrong-who have not gone through the Work and Capability Assessment, customers on Income Support-that includes some lone parent groups-and they are all going to be volunteers, who can come through to the programme, I think, at any stage.

Kirsty McHugh: England only.

Rob Murdoch: England only, and I believe it is also partially funded through the European Social Fund.

Kirsty McHugh: ESF, yes.

Q119 Harriett Baldwin: Right. Well, my question, leading on from Glenda’s question, is are there any regions, as far as you are aware, where the size of the contracts is really not allied to what you would see as being the need in that region?

Kirsty McHugh: I am wondering whether Laurie has a comment from a Scottish perspective and how that might work?

Laurie Russell: I do not know. I agree with a number of the points that have been made earlier about uncertainties, and just to add to that point, if I could, one of the main uncertainties-and I wonder if this was behind some of the earlier questions-is what happens to the customer in the explanation of the journey that Sean gave you, which is very similar across all the providers, if that customer does not get a job? Because, as you heard from the earlier session, there are parts of the country, and parts of Scotland are included in that, where we are very concerned about the number of jobs, and our overall performance of getting customers into work, over the last couple of years, has dipped by around 20% of the proportion of people that come to us that we can get into jobs and sustain them there.

There is a concern about that, and there is a concern, if you work with an individual, and put them through what might be a very positive process about building their self-esteem-some training, and some support to get round some of the issues in their life-then you build them up, and if that job does not exist, they go back down. I think there is a concern about that proportion of people, particularly for some of the new customer groups. Because we have not worked with them in the same way in the past, we do not know what those issues might be to the same extent as we do with people on JSA. Therefore, we do not know the impact of failing to get a job; although that is not obviously what we want to do, but there is inevitably going to be a proportion who do not get a job through this process.

Q120 Karen Bradley: Leading on from that, and about the regional aspect of the design, do you feel that you can cater for all the different needs within the region? I will cite the example of my own constituency in the West Midlands, which is the most northerly constituency in the West Midlands. We do not have a Jobcentre. The providers in the West Midlands are going to be covering from Birmingham, the Black Country, Worcestershire, Herefordshire, etc, and then all the way up to Staffordshire. I just wonder whether you feel, as prime providers, you can give the service that is required to cover that region, given the differing needs throughout it?

Laurie Russell: We all have to prepare to do that. I mean, Scotland is treated as one region, so we are bidding to run Scotland, and inevitably there are very rural parts of Scotland where we are not going to be opening an office and having a permanent member of staff on every Scottish island or the remote parts of Scotland. What I imagine we are all doing, and we are certainly doing, is thinking about how much of the one-to-one, face-to-face time do we need with customers? How much do we do on the phone basically, and how much do we do with new technology?

Allied to that, I think particularly in rural areas, and in small towns and other parts across the UK, we have got to use the existing local providers, and they will tend to be community-based and voluntary organisations. The issue for them is getting them into the system and making sure that they are moving towards a more outcome-based and results-based payment process, which many of them won’t be used to, because they will have tended to work with some of the clients on a needs-based type of approach in the past. What we are now saying is that has to change with this programme, because it is about finding somebody a job. It is getting those different relationships right, but inevitably we are not all going to be opening offices in every small town across the UK.

Richard Johnson: They are regional prime contracts, but these are localised services, and the response in each locality is completely different. The questions are not unrelated, actually, and Laurie’s response there-the big challenge is the rural areas. In Cardiff I can have a multiplicity of provision. Yesterday I visited my operations in north Wales, in Bangor and in Rhyl; you cannot have two prime contractors there. It is not viable to put two prime contractors in because of the volumes that you are working with.

Q121 Mr Heald: Just on the point that was made about this being a learning process: of course, there is nothing new in that. With Flexible New Deal we were suddenly faced with a very large increase in customers and there had to be some flexibility with the Government. Is that really the point you are making? That looking at the regional situation, looking at how many customers come through the door, over the course of the rollout of this there will need to be an element of flexibility to meet the demands that appear.

Richard Johnson: Absolutely. It goes back to a point you were making earlier on this morning around the lack of data, or the lack of information connected with some of the groups that we are going to be working with. We are accessing them for the first time, we are going to be learning what services work with them, and we need to be working closely with the department to ensure that the right resources are thereby attached to the heads of the right individuals.

Q122 Karen Bradley: A thought that hits me is: do you know whether there is going to be assessment of results within the region on different areas in regions? As I state for the West Midlands, Birmingham versus the Black Country, versus the rural areas, versus Stoke on Trent-are we going to be able to see transparently how successful prime providers are being in each of the regions?

Richard Johnson: You ought to be able to request information at a local authority level at the very least, and we at Serco currently publish on a weekly basis the performance information for every single subcontractor, all 70 of them, delivering our service. We should see that across the country, by subcontractor, by customer group, and by locality.

Sean Williams: That is one of the real advantages of the prime contractors approach; with single unified IT systems, reporting systems, you will start to get the transparency that is needed in order to drive performance, and Serco have been exemplary in this regard in their publishing of weekly performance information.

Q123 Chair : Are the Government doing enough to prevent the potential damage to the supply chain during the transition-this gap that we keep talking about? Are the Government alert to it? Are they doing anything? Are they helping?

Kirsty McHugh: The Government are definitely alert to it. They know what the potential issues are. We were very pleased that in terms of Flexible New Deal and Employment Zones there was announcement prior to Christmas that these would be extended. However, it does appear that Pathways to Work and New Deal for Disabled People will not be. The four issues, which my Chair outlined earlier, in terms of implications for customers, staff, commercial viability, and ability to deliver the Work Programme, are very real and very pressing. I have taken telephone calls in the last few days from both charity members of ERSA and from for-profit members of ERSA saying that they are going into 90-day consultation, they are potentially looking at TUPE to Jobcentre Plus, potentially redundancy. There is a lot of uncertainty about this, and it is a big issue at the moment out there.

Q124 Chair : And these are the specialist providers that are working with the hardest of the hardest to reach who Glenda has been talking about?

Kirsty McHugh: It has actually been both. I have had a large commercial organisation saying, "We have recognised the unions; we need to do a 90-day consultation, etc, we are doing that now-we need to tell you about it." I have also had small specialist disability charities ring me saying they are going into the same process.

Richard Johnson: Of course, it is not just the DWP’s funding; it is local authority funding as well. There are a lot of pressures coming down on these organisations at the same time. Government are certainly aware of it and I do not think the solution is impossible to create, but we do have to recognise the urgency of it, and get together, and start recognising who has got resources, where, doing what, and how do we ensure that they continue?

Q125 Chair : The worst thing that can happen is you start issuing redundancy notices.

Rob Murdoch: It has happened. As Kirsty pointed out, we have had a range of different reactions from large and third sector members of ERSA as well. Some are already issuing those letters to staff to give them notice; others have decided to take the hit and keep those staff on board waiting for those other contracts. The key thing is a lack of clarity from DWP exactly of the implications of that transition across the whole matrix of the different programmes, and I really do think all our members have said that they think they need to do more to clarify the position on that transition, for customers and for the capacity of the market.

Chair : I hope they listen to you. I am going to move on to Teresa now, if we’ve got time at the end you can come back in, but Teresa has got the next set of questions.

Q126 Teresa Pearce: The payments to primes seem to be sort of three stages: there is the walk through the door stage, there is the outcome of the job, and then there is the sustainability of the job. We have heard from subcontractors about the risk they feel from where they get their fund paid through. Where have primes identified that their risk lies? What risk management have you looked at to see where your risk in this payment pattern lies?

Sean Williams: If I can take that on, there is clearly performance risk, and I think that is absolutely right. To make more money than we spent from this contract, we are going to have to significantly improve performance levels. There is risk on referral levels, so the number of people coming through the door-there is obviously financial risk about that. Obviously prime contractors have an extreme responsibility to make sure that our supply chain is properly financed, and their financial health and well-being-obviously they will be the core deliverers of these services. I would identify those as the three core areas.

Q127 Teresa Pearce: So low unemployment is a risk?

Kirsty McHugh: There are no minimum volumes guaranteed.

Q128 Teresa Pearce: Right, okay.

Laurie Russell: The other risk is jobs-that the economy does not pick up and there aren’t jobs available for the customers that we have. There are two different models at the table, in a sense. Serco and G4S do not deliver any of the programme; if we win the Scottish contract, The Wise Group will deliver between 45% and 50%. The risk is slightly different in the subcontractor/supply chain issue, because we are doing some of the delivery, and if one of the supply chain members pulls out for some reason, then we can provide that delivery ourselves or find a backup. There is risk about some of the organisations in any bid that is coming in that may be new to this or that we may not have worked with before, about reaching performance targets or being able to cope with the volumes that they have for whatever reason, because it is a new supply chain. Inevitably there is a bit of a risk around that.

Richard Johnson: Right now, or certainly as we move forward and learn how these contracts work, we need to recognise that the prime contractor takes on a different sort of risk to their supply chain. That long-term sustained employment risk needs to sit up here, and they need to flow more money up front to purchase different steps on that path back to employment. If I might just move the question slightly, the biggest risk is getting the right relationship between risk and reward. It goes back to the differential pricing model, and it is ensuring that sufficient incentive is attached to those individuals who are furthest from the labour market, so that both the primes and the supply chain are willing to invest in the risks of delivering up front to those groups with potentially very expensive interventions, because they are likely to deliver a high return for them longer term. We have got to drive these services from those people who are closest to work out into those individuals and communities that have been excluded so far.

Q129 Teresa Pearce: One of the phenomena over the last five years in work has been temporary contracts. How does this sustainment payment stack up with temporary contracts? Is it a disincentive for somebody to take a six-month contract?

Richard Johnson: It is a good question, and many organisations delivering Welfare to Work have long argued that a temporary outcome is good, because at least it is giving somebody work experience, and they can built on that; it gives them something to put in the CV. What the Work Programme is going to ensure, of course, is that those temporary work placements are joined up, and have to become a genuine sustained outcome.

Q130 Teresa Pearce: So it is going to be like an over-arching contract-

Richard Johnson: Exactly, yes.

Sean Williams: Absolutely. So multiple temporary jobs would be fine in terms of helping someone sustain-

Q131 Teresa Pearce: There is no disincentive in this to placing someone somewhere for six months?

Sean Williams: There is, because you would not then get the sustainment payments if they had been in work for seven months, eight months, nine months and out through to, potentially, two years. This is absolutely focused on long-term sustainable employment. If a temporary job is a stepping-stone to that temporary employment, then you have always got the incentive to make sure that it is genuinely sustainable employment, and this is not low pay, no pay cycle-that it is actually genuinely transforming someone’s chances of remaining in sustained employment, as I say, for some client groups for up to two, three years.

Laurie Russell: There are different kinds of temporary jobs. There are seasonal jobs in more rural areas, where that is just the way of life; there are certain jobs that happen in the winter and some in the summer. There is also a trend by some large retailers, for example, to have zero-hour contracts, so they can draw people in when they need them.

Q132 Teresa Pearce: And pay for them.

Laurie Russell: Now that might suit some people, but there is the issue about benefits and whether that is a full-time job or not a full-time job. It suits the employer. It sometimes suits the employee, but certainly it suits the employer.

Q133 Teresa Pearce: One of the things that concerns me greatly is, where you have got a prime, is there any sort of underwriting? If that prime collapsed, what would happen to the supply chain? If you have got a group of companies where they have set up a sub-company to be a prime, will the group underwrite any risk? It is a big risk.

Richard Johnson: There will be protection in the contracts that we sign in terms of termination, which will include protection relating to the continuation of the service. I think the longer term strategic answer is that-it goes back to this prime contractor here, supply chain there-this supply chain in some way needs some co-ownership with the Department; they need to be co-guardians of the fact that a rich, diverse supply chain exists, even if the prime contractor were to be in trouble.

Q134 Teresa Pearce: Well, that brings me on to my next point, which is about the Merlin Standard. Obviously to have a standard is a big step forward, but having read through it, it is a lot of management speak and it is a lot about consulting and being all nice to each other. But where is the penalty in this?

Sean Williams: I think the penalty is not in the Merlin Standard, and I think the Merlin Standard is a very good framework for how primes and their subcontractors ought to behave with one another, but it is no substitute for a proper commercial contract. With everyone in our supply chain we will have a commercial contract, which sets out what flows people can expect, what payment terms they can expect, and what they can expect from us as a prime contractor. I tend to agree that the Merlin Standard is a good framework, but it is no replacement for a proper contractual relationship between organisations.

Q135 Teresa Pearce: This is all about relationships-as you say, it is not contracts or penalties. It is about relationships and about best practice, but the people who aren’t in here are the customers. Where would they sit? Where would the workers sit?

Rob Murdoch: As I mentioned before, from ERSA’s perspective we are very supportive of the Merlin Standard, and have been for a long time-from all our organisations. The work that we focused on was the Customer Charter, as well as looking at professionalisation in our industry. I think the Merlin Standard is important. I do not think there are any teeth to it. I do believe that contracting should cover quite a lot of those relationships, but within a code of conduct within our industry, as our industry matures, we need to make sure we have an effective system that looks at the relationships between primes and subcontractors. I think, from ERSA’s perspective, we are really keen to work with the DWP to look at how the Merlin Standard can be adopted by those in the industry, because without adoption by all of us across the industry, it is not going to be that enforceable.

Richard Johnson: I think it is the beginning of starting to set out some standards for positive relationships between both the Department as the ultimate commissioner, and the primes and the subs. I agree with your comments on it. I have sat on the advisory group for a couple of years now, and there is a considerable appetite in the industry, at all levels, for this to have significant teeth. Potentially for there to be an ombudsman, a regulator, for that regulator potentially to look at price setting, as we learn what needs to be paid for in the delivery of these services, to sit also in the whole procurement process, from start to finish, to ensure that we are getting the right rewards attached to the right risks, to target the right individuals, and the Merlin is a step in the right direction, but we do have some distance to go.

Kirsty McHugh: Richard and I are both on the Merlin Working Group, and there is a consensus in the Working Group that it is getting there, but it is not a finished product yet, but it needs to be fairly rapidly, given the Working Programme is coming in in the summer.

Chair: We’ll move to Kate, we are getting close to time, and she has got some more questions on the delivery of the Work Programme.

Q136 Kate Green: I want to ask about the minimum service levels for job outcomes that DWP is imposing into these new contracts. Learning the lesson from Pathways, where it was perceived that a lot was spent on funding support that did not lead to extra job outcomes, it has been suggested to us that the minimum performance standards that are being put into the new Work Programme are unrealistically high. Do you agree with that, and, if you do, what do you think are the rightful consequences?

Rob Murdoch: I think we have heard in previous evidence sessions that the minimum performance levels, based on past performance, are very, very challenging-you heard that from Dave Simmonds as well-and I think that ERSA’s members would agree. What we would really like to see is transparency about the logic behind those minimum performance levels, because through transparency and understanding the starting point, a lot of our members can start to share their data as well about local areas, regional variations, working with specific client groups. ERSA submitted a study to DWP before these performance figures came out, which was blind across all our members, from a whole range of different performance levels and working with different client groups, to try to get engagement about discussion about performance.

We have to learn. If we enter a contract, again, with high expectations but we are not meeting those performance figures, all of us, and most importantly our customers, are not going to get the right service. We need to make these into learning contracts; we need to understand what performance looks like. What is good performance? How do we make sure that we get the lowest performer to the highest performer? We do have concerns about how we have got to the logic of those performance figures.

Q137 Kate Green: How is that reconciled with not getting into a situation where people are just parked?

Rob Murdoch: Sorry?

Kate Green: Well, effectively what I think you are saying is, if it proves difficult to meet the standards, the standards would need to be changed-that would be intrinsic to a learning contract-but wouldn’t that leave people therefore left behind, not given support to move into work at all, because it was perceived that you could not get them to that point?

Rob Murdoch: Sure. There are some fantastic features of this contract in relation to differential pricing and the investment in those different customer groups. One of the concerns we have is about their performance figures in relation to a contractual process about a bidding. When you look at the work that a lot of our members do, it is quite clear that with the support they put into all of their customer groups, it is highly unlikely that any of the customers they are going to have are parked. The issue is going to be about whether there is funding for their services in the first place, rather than parking.

Richard Johnson: I think it is right, Kate, for there to have been high performance expectations set. Some of the services that have been delivered in the past have not met the needs of the individuals accessing those services. One of the challenges that we have is shifting an industry that in large part has no experience of outcomebased contracts, that has been delivering services with up-front service fees, to this far more performancefocused environment. That is going to require quite a lot of change.

You are quite right to highlight parking. We have to be absolutely clear that we cannot allow creaming and parking to be the response to challenging targets. I think the response to it comes back to this whole notion of a black box, which for me is often misapplied. The black box for me means that the procurer-the Department in this case-does not set out at the outset some sort of prescribed programme that every individual must go through irrespective of who they are; they leave it up to the contractor to determine and define the service that they are going to deliver-if you like, to populate the machinery in the black box, so you have here five different machines on offer. The Department decide which machine they are going to buy and then they hold us to the delivery of that machinery. As part of that machinery, we define a set of minimum service levels.

It is not unrelated to the Merlin question really; we have to commit to seeing each of the job seekers a certain number of times every week or every month, and every time we see them to do a certain number of things. The contractor who offers that commitment in their machinery has to be held to deliver it. If they are held to that delivery, then we mitigate some of this creaming and parking risk. The other mitigation, of course, is learning when we need to attach the right payment fees.

Q138 Chair: If one of your providers thinks that the person they have got who has come through the Work Capability Assessment has been wrongly assessed, should there be a mechanism to rerefer them to the system? Would that be a useful thing?

Kirsty McHugh: The Work Capability Assessment?

Chair : Yes. Anecdotally we have heard of people declared ready for work-or fully ready for work-and actually clearly when they get to the employment provider they are not.

Kirsty McHugh: Absolutely. We support the Work Capability Assessment. However, we know there are concerns about the way that it is being implemented. We support the Professor Harrington review, etc. There are particular issues about people with mental health and fluctuating conditions; that is quite clear. One of the concerns is that people who have been through that process and may, because of the nature of their barriers to the workplace, because of the nature of their mental health or whatever else it may be, have been quite damaged by something that has not gone well. Passing them to a Work Programme provider could be quite a difficult process and there needs to be a mechanism to rerefer.

Q139 Harriett Baldwin: Three times difference between the lowest level of payment and the highest level of payment. Is that going to be a correct proportion?

Richard Johnson: I am afraid that is a misunderstanding of the way the payments will work. That is the maximum amount that could be paid for the individual achieving their long-term sustained outcome, but then that total maximum has to be divided by the number of people who actually achieve that outcome and the number of people you deliver the service to. In effect what is being paid on that basis, for each individual on Jobseeker’s Allowance, is around £1,200. For each individual coming from IB on to JSA it is a little bit less than that, because the total amount that is payable-three times the amount-is only paid for the outcomes and you are going to achieve a much lower level of outcome rate for that client group.

Q140 Harriett Baldwin: So does that differential correctly measure the differential in terms of how difficult they are to place?

Richard Johnson: At the moment, I think we have to very closely monitor this. We have to have absolute transparency around the performance and the cost of that performance and we have to revisit the pricing mechanisms as we go along, because that may need to be reset.

Sean Williams: I think that is exactly the point. In isolation of having really worked with these customer groups before, it is very difficult to say whether it is the right price or not. At the moment it looks like a good starting price, but we have to look at this again through open accounting and dialogue going forward. If we have got that too high or too low, you will need to readjust it.

Laurie Russell: I think the earlier point this morning was correct, that we need to be looking at the needs of the individual and not necessarily the benefit they have previously been on, because the needs can vary. We do not know, but I think a lot of us suspect, the benefit is not necessarily only going to be the assessment of the needs and therefore the price at the end.

Rob Murdoch: Just to back up what Laurie said, it is really positive that we look at those differential pricing mechanisms at the start of the DEL-AME, but the way that we have used to regroup customers is based on the old system of benefit. We need to start to learn that a JSA customer could have just as many multiple challenging needs as an Incapacity Benefit customer. We definitely need to learn exactly the better way of profiling and putting the investment needed into those customer groups as we deliver the programme. It has to be iterative.

Q141 Harriett Baldwin: As primes, are you passing on the same ratio to subcontractors or are you able to vary those if you think that is more sensible?

Sean Williams: We vary the amount that we pass through, depending on the size of the organisation and the service that they are delivering. So for larger organisations, we pass through 80% of the attachment fee; for smaller charities we pass through 100% of the attachment fee; and for some organisations delivering specialist services, we will pay them exclusively. We have a variety of funding models.

Q142 Harriett Baldwin: How do you see the payments evolving in the future? Do you think the categories are likely to shift or the differentials are likely to shift? What about this regional difference that we have heard about today?

Richard Johnson: Good questions. I hope and I think we will have to move towards some sort of not regional variation but local variation, because we are going to see very different challenges in different parts of the country. I am sure we will continue with some sort of differential pricing but I think you have also heard this morning a clear indication that we think individuals are not necessarily best categorised by the type of benefit that they are on. My recommendation would be to move towards payments increasing as performance increases, recognising that as you reach further into the group of unemployed people and enable them to achieve long-term outcomes that meet their needs, that costs you more.

Q143 Chair: Are we still going to see the revolving door that was always a feature of previous programmes? One person, out the other end in two years, still does not have a job. The Government planning assumption for those who are coming off the IB route is that large numbers of them will not get jobs at the end of that process. What happens to these individuals?

Rob Murdoch: Well I think there is a fundamental question about partnership between Jobcentre Plus and the providers, which we have touched on in a few points today in relation to information, data and performance. If we do not have the right partnerships at a local level with Jobcentre Plus and the providers, we could get into a position where the customer does not get the best service again. There was another point brought up this morning very well by Stephen Houghton about local authority partnerships and developing those partnerships at a local level. It is not just that local authority commissioning is fantastic and a lot of prime providers and welfare providers do not listen to them; actually, there are some real challenges about commissioning at a local level as well as at a central level. Both local authorities and providers in the welfare market do have to look at coinvestment-coinvestment with Jobcentre Plus and coinvestment with local authorities around the customer. That is where we have to get to stop the revolving door and address the barriers that our customers face.

Kirsty McHugh: I think the Work Programme has the potential to be able to minimise the amount of revolving door. However, one of the big unknowns is the economy. We know that in some parts of the country the job market does not promise to be extremely buoyant for the next period, and in those areas it is going to be quite demanding, I think, in terms of Work Programme delivery.

Sean Williams: I would say three things on that. One is that the longer length of the Work Programme starts to take away some of the dangers of the revolving door; you have got two years to work with an individual. Tied into that is the longer length of sustainability; you are potentially responsible for an individual staying in work for two or three years. This is not get them a job and then forget about them, or get them a job for 13 weeks and then forget about them. Organisations are going to have to work very, very hard to stop the revolving door and keep people in work. There is a question for those people for whom the Work Programme does not work. What happens after their two-year participation? I would certainly suggest that the right answer there is potentially not to start on Work Programme again; the right answer is that this needs to then be a different sort of intervention at a higher level. Fairly obviously, you need more investment because those people are more difficult to help.

Chair: That is where the mandatory Work Programme might come in.

Q144 Glenda Jackson: One is a statement: people on JSA do not have two years. If they have not got a job at the end of 12 months, 10% is knocked off their Housing Benefit. But the central question that I really want to ask-Mr Williams gave a wonderful definition of what is best for the providers in this scheme and we have had the evidence that that is dependent on highly skilled, highly trained, expert, flexible individuals who are the first contact with the person attempting to find work. Where are they coming from? Who is paying them? Who is training them? A question for all of you. We are looking as a nation at a vast increase in people who are going to have to go through the process of getting off benefit and into work and that will automatically mean an expanding work force of the kind of experts that you hopefully would like to put into every single meeting with someone in that situation. Where are they coming from?

Sean Williams: I think a number already exist in the supply chain in the organisations that are already there. I think that the expertise, the attributes that you look for in those individuals, the types of people you recruit, the skills that they have-there is a great deal of learning that has happened in the past decade of Welfare to Work delivery, both in the UK and internationally. I absolutely agree with the need for proper training and adequate induction, shadowing top-performing advisers. Again, in our selection of which subcontractors we have in our supply chain, organisations have had to demonstrate that they have that robust training and that robust induction. Indeed, we are in a time where there are a lot of people looking for work-a lot of graduates looking for work. So I am reasonably confident that the base of potential new personal advisers does exist, that we understand the sort of training and induction that we need to make those people experts so that they can deliver the tailored intervention, but I absolutely 100% agree this is dependent on having well-trained personal advisers who are able to manage that customer journey for individuals. It is absolutely critical.

Q145 Glenda Jackson: I am already getting anecdotal evidence from some of the specialist smaller providers in my own constituency, most markedly in the delivery of services to people with mental health problems, that their programmes are going. They have gone. It may well be that part of the funding was coming from a local authority or from a PCT. That is scary, but I reiterate: who is going to train these people?

Kirsty McHugh: Three things, if I may, in terms of the skills. You are right; it is absolutely essential. If the front-line personal adviser gets it wrong, all the rest of it will not follow. First of all, there is an industrywide push around professionalisation of skills, from the front-line adviser to the top-level managers. So we are all involved in that in some shape or form. I understand Jobcentre Plus has been doing something quite similar but separate. Their model going forward-what they have been testing-is around giving their personal advisers more freedom and flexibility. Rather than a tick-box approach, they have to make more decisions about the individual. It is absolutely essential the Jobcentre Plus staff are able to do that. Those two exercises are going on at the moment but they are not connected in the way they should be. Given it is the same skill set and the same industry in the widest sense, they need to be connected.

The third point I think is around transition. The end of the current contracts mean the potential staff are going to be lost to the industry because they do not know whether they are going to have a job in a few months’ time and they could go off and get something else. At the same time, you are right, there are a lot of smaller, specialist organisations who have lost local authority funding, do not know whether they are going to be part of a supply chain in terms of Work Programme, etc, and they also may lose some of their specialist staff. So I think industrywide it is going in the right direction. However, I think the next few months do have quite a big pitfall in terms of transition and public sector retrenchment, which may have a negative effect in terms of maintaining staff in the industry.

Q146 Glenda Jackson: But is the industry going to cough up the money to train these people? Your client base is going to increase by hundreds of thousands of people. Is it the industry that is going to take on board the training to the level that Mr Williams very graphically defined for every single client? How much is that going to cost?

Kirsty McHugh: They absolutely have to. The long-term contracts actually provide more incentive to do that.

Q147 Glenda Jackson: But with respect, Mr Johnson said that he can envisage no further than the first 12 months of this programme.

Richard Johnson: I said I can predict the volumes with some accuracy for six to 12 months, because I can look back at how many people have signed on in the last 12 months and that gives me a very good set of data to say how many people are going to flow on to JSA particularly, which remains the principal customer group for this. Any predictions three to five years down the line require assumptions around the performance of the economy. The answer to your question, about whether we will take this on, is: absolutely. These are performancebased contracts. We only get paid if we enable people to secure and sustain employment. That means we have to invest in the capacity of our supply chain. We have to ensure that they have the right skills deployed in the right places and in the right numbers.

Laurie Russell: As an organisation that delivers and a social enterprise-I would make that point-we do not have a problem recruiting. There are lots of people who want to work for social enterprises because they understand the ethics and the values of a social enterprise. We, like any other employer, want to recruit people who are motivated by the business that we are in and there are a huge number of people who want to make a difference to people’s lives. We particularly target people who have had experience themselves of unemployment or exoffenders or have been through the issues that the customers who we are dealing with have been through, because that gives them a certain kind of empathy and an ability to relate to people, I think, that gives them an edge over simply a professional training.

I think we need to get better at training the people we recruit in the culture of what we are doing. It is not something where you are recruiting people in a technical way about how they deal with people. This is about people’s lives. The staff who we have at the front line have to be able to relate to somebody’s life, to understand that and then to cope with that and to bring them through a programme that will help change that life. It is a difficult one, but we have to train our own staff and we do it. We are investing increasing amounts-percentages of our turnover, if you like-in our staff training. Part of that is about selfesteem and selfdevelopment for staff, not necessarily technical skills about-

Q148 Glenda Jackson: But you still have not answered my question. Where is the money coming from?

Chair: Glenda, I think it is obviously part of the contract. On that actually positive note, I think we are going to have to leave it there. There is obviously this issue about the transition, and I think as a Committee we will write to Chris Grayling to get some clarity on that for you, because obviously that is the urgent thing. But may I thank you very much for coming along this morning? I suspect there are still quite a lot of other questions with regard to this and we will see as it develops. But my thanks on behalf of the Committee for your appearance this morning.