Conclusions and recommendations
1. We commend the Department for introducing
the Work Programme (the Programme) quickly. It now needs to demonstrate
that the risks of implementing the Programme at such speed and
against a background of difficult economic conditions have been
effectively addressed.
It was a significant administrative achievement that the Programme
was introduced in 12 months. However, the Programme was not piloted,
design and development phases overlapped, the business case was
devised after the decision to go ahead had been made, and the
IT system designed to support the Programme was not in place until
March 2012. The Department now needs to demonstrate that, in
the face of changes in the volumes of referrals to the Programme
and changes in economic conditions, it can still hold prime contractors
to the delivery promises they made. The Department also needs
to demonstrate that payments to contractors are valid and correct.
2. Achieving value for money will need to
go beyond a reliance on risk transfer. The
Department has transferred some of the financial risk of low performance
to prime contractors. Consideration of the Programme's value
for money should be wider than whether prime contractors meet
their contractual targets. In its on-going assessment of value
for money, the Department should include whether the Programme
is achieving all its objectives, including whether all participants
receive a suitable level of support, and whether the Programme
produces the expected wider benefits to society of getting more
people off benefit and into work. The assessment should also
take into account unintended consequences, such as the risk that
participants on the Work Programme are replacing existing workers.
3. Service standards vary between contractors
and are not always measurable. The level
of support that participants require from the Programme depends
on the complexity of their needs. However, prime contractors receive
an attachment fee on the basis of the participant's benefit type
and the Department will pay this fee regardless of the service
individuals receive. This raises the risk that prime contractors
'park' the hardest-to-help within each payment group as these
individuals may require more support. Conversely, in cases where
little input is required, contractors may get paid for doing very
little. The Department currently relies on each prime contractor
to set out the standard of services all their participants should
expect, but these are not always measurable. The Department should
require prime contractors to set measurable minimum standards
that all participants can expect. It should monitor the quality
of service provided by contractors to make sure that these standards
are maintained. As part of this it should seek feedback on the
quality of service provided from participants on the Programme
and should review the results of this regularly.
4. Reliable data on the performance of contractors
in the Programme will not be available before autumn 2012.
Accurate and detailed information is necessary to judge the Programme's
performance and that of each provider. The Programme will operate
for a full 15 months before participants, prime contractors, subcontractors
and Parliament are informed of, and able to compare, performance.
This is clearly less than ideal, and the information to be published
must show performance at the level of individual contractors.
This should include the minimum performance levels for each contract
and the level of performance achieved.
5. Recent press reports have highlighted the
possibility of fraud in welfare to work schemes.
Whilst many of the allegations relate to previous schemes, they
highlight issues with the Department's control environment. The
Department considers the risks of fraud to be low, even in the
absence, before March 2012, of its IT system that will carry out
automated checks on whether people prime contractors say they
have placed into work have ceased claiming benefits. The Comptroller
&Auditor General will examine and report to Parliament on
the control environment for welfare to work schemes. Prime contractors
should not be allowed to exploit subcontractors. In the Pathways
to Work Programme some prime providers retained a disproportionate
amount of the payment from the Department and 'cherry picked'
the easier-to-help claimants. The Department's Merlin standard
is intended to regulate the relationship between prime contractors
and subcontractors, and the Department plans to accredit each
prime contractor against the standard by June 2012.
The Department should make sure its audit of performance against
the Merlin standard will properly establish whether subcontractors
are receiving the agreed workload and that administrative
fees charged by prime contractors can be justified by the services
provided.
6. There is little transparency over the financial
affairs of companies which derive their income solely from government.
Where companies depend on public sector
contracts for the bulk of their income they can expect their performance,
profits and remuneration packages to be subject to proper scrutiny
by Parliament on behalf of the taxpayer. In other areas of government
spending the Efficiency Reform Group has secured significant benefits,
by for instance negotiating rebates from companies that have multiple
public sector contracts. The Efficiency Reform Group should extend
the scope of its challenge to contracts with companies which have
central government as their main source of income. We remain of
the view that in the interests of transparency, where private
companies provide public services funded by the taxpayer, those
areas of their business which are publicly funded should be subject
to the Freedom of Information Act provision.
7. The Department must be vigilant to the
impact Universal Credit may have on the Programme. Universal
Credit is due to be introduced from autumn 2013. It could lead
to major changes to the Programme—for example, to the definitions
of claimant groups and associated payments to prime contractors
and to the number of participants joining the Programme. The Department
appears not to have considered how the implementation of Universal
Credit will impact on the Programme and how this impact will be
managed. The Department should report to the Committee in November
2012 on the key changes to the Programme that will arise from
Universal Credit, the risks for the Programme, and the actions
it is taking to mitigate these risks.
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