UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE
To be published as HC 835 -iii

House of COMMONS

Oral EVIDENCE

TAKEN BEFORE the

Work and Pensions Committee

Work Programme: the experience of different user groups

Wednesday 13 February 2013

Dave Allan, MARTIN DAVIES, Michele Rigby and Jonathan Cheshire

Evidence heard in Public Questions 147-267

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Oral Evidence

Taken before the Work and Pensions Committee

on Wednesday 13 February 2013

Members present:

Dame Anne Begg (Chair)

Jane Ellison

Graham Evans

Sheila Gilmore

Glenda Jackson

Stephen Lloyd

Nigel Mills

Anne Marie Morris

Teresa Pearce

________________

Examination of Witnesses

Witnesses: Dave Allan, Managing Director, emqc Ltd, Martin Davies, Chief Executive Officer, The Pluss Organisation, Michele Rigby, Chief Executive Officer, Social Firms UK, and Jonathan Cheshire, Chief Executive, Wheatsheaf Trust, gave evidence.

Q147 Chair: Can I welcome you here this morning-a nice, bright but cold morning? Thanks very much for coming along. This is our third evidence session into our inquiry looking at the claiming experience of the Work Programme, so thank you very much for your attention. Can I ask, perhaps starting with you Martin, if you can introduce yourself and your organisation, just briefly for the record?

Martin Davies: I am Martin Davies; I am chief executive of Pluss. We are a social enterprise and a social firm, a specialist disability employment provider. We deliver services to DWP in the form of Work Choice. We are on the peripherals of the Work Programme, and we deliver specialist employment programmes for local authorities and health trusts. We deliver services to about 500,000 people a year who have disabilities, and we think that what is unique about Pluss is that of our 600 or so staff, around about 50% have a disability themselves. That is what we major in, but we are a specialist disability employment provider.

Chair: Okay. I meant a bit briefer than that. That was a good advert.

Jonathan Cheshire: Hello. I am Jonathan Cheshire. I am chief executive of Wheatsheaf Trust. We are a charity operating in Hampshire, and run a number of employment and training programmes and advice centres. We are an end-to-end subcontractor on the Work Programme, but we are also running the Troubled Families programme, the Youth Contract, the National Careers Service, and one or two other programmes funded by charities and the Big Lottery-things like that. We have been going about 15 years in various forms, and like Martin, I am quite proud of the fact that about a third of our frontline advisers are people who actually started out as clients, came through the system and joined our staff.

Dave Allan: Good morning, Chairman; good morning everyone. I am Dave Allan. I am managing director of emqc Ltd, a national business improvement organisation. We were appointed in January 2012 as the assessment body for the Merlin Standard. We also are the sole body for the National Standard, for the matrix Standard for careers information, advice and guidance, and other national quality standards.

Michele Rigby: Hello. I am Michele Rigby, the chief executive of Social Firms UK. Social Firms UK is a membership and support body for social firms and other work integration social enterprises. Social firms are social enterprises that seek to employ at least 25% of the people who are far from the labour market through disability or severe disadvantage. Work integration social enterprises are similar, but rather than necessarily providing jobs, they provide some steps along the way to integrated employment.

Q148 Chair: Apart from Dave, who is slightly different, you are all here because you are part of the supply chain for the Work Programme. Can I begin by getting the definitions right? I understand that the Wheatsheaf Trust is a Tier 1 provider, but Social Firms are classed as Tier 2 providers. What is the difference between those two? What are the differences between a Tier 1 and a Tier 2? What is the relationship between the two as well?

Jonathan Cheshire: I think it varies slightly, but as we think of it, we are a Tier 1 endtoend provider. Basically all the clients are passed through to us by the prime contractor and we are responsible for them throughout the whole period of the Work Programme, whereas I think a lot of the Tier 2 providers have specialist knowledge and expertise to help particular client groups.

Q149 Chair: So you are always a Tier 1 provider. Everything you do is end-to-end; you get the whole lot-the whole claimant journey.

Jonathan Cheshire: In the Work Programme, yes. If we have got a client with a particular need, we may then ourselves use another organisation to help them, but we are still responsible for the whole process.

Q150 Chair: So do you then subcontract further?

Jonathan Cheshire: They are not normally formal subcontracts. We work in partnership with a whole range of other local charities, so we will refer people on to them and if necessary, we will pay them. But we won’t normally have a formal subcontract.

Q151 Chair: Now that is an interesting phase-"if necessary, we will pay them". So you are actually using other organisations to deliver your service that you are not necessarily paying.

Jonathan Cheshire: No; if it is part of the Work Programme then we will pay them, definitely.

Q152 Chair: Is it a spot purchase payment rather than any formal contractual arrangement?

Jonathan Cheshire: It would be spot purchase. We would pay for the service, rather than paying by result. We get paid by results, obviously.

Q153 Chair: There will questions about whether that is covered by the Merlin Standard later. But in terms of Tier 2 then, what about Social Firms?

Michele Rigby: Social Firms UK as an organisation is not involved in the Work Programme, but our members are, and some of our members are Tier 1 while some are Tier 2. Some are end-to-end, some provide spot purchase opportunities, and others provide services for no payment at all.

Q154 Chair: If you are Tier 2, do you have a relationship with the prime? If you have come down the supply chain to Tier 2, do Tier 2s generally have a relationship with the prime, or do they only have a relationship with the Tier 1?

Michele Rigby: I have not come across any of our members who are in the Tier 2 category who have a strong relationship with their prime.

Martin Davies: But that is an option, and there are primes who actually hold lists of Tier 2 providers-specialist providers-that their end-to-end providers can call off. So I think it is a mixed picture of some Tier 2s contracting with Tier 1s, and some Tier 2s actually having a relationship with the prime.

Q155 Chair: I have got some figures here that there are 112 Tier 2 subcontractors listed as subcontractors to one prime in a single contract package area. That seems an awful lot.

Martin Davies: Yes.

Q156 Chair: How on earth can you have a relationship with all of them, or anybody have a relationship with all of them?

Martin Davies: I think the answer to the question is that I do not think you can. It is a result of primes and subcontractors wanting to paint as complete a picture as they can or they could during the procurement process.

Q157 Sheila Gilmore: I hope I am not stealing a question from later on, but if you are a Tier 1 contractor and you do end-to-end, how much of the eventually available fees does the Tier 1 contractor get and how much goes to the prime who appears to not do anything?

Jonathan Cheshire: There is no precise rule about that. Each contract is different. I am not sure whether I am supposed to say this under the terms of our contract, but I know that certainly a prominent prime contractor in our area takes 12% of the attachment fee. I am not sure how much they take out of the outcome payments. We would not know that as a subcontractor. We would not be told that necessarily.

Martin Davies: As a potential prime, we were not offered any terms that we considered viable, so we did not enter into any end-to-end provision on the programme.

Sheila Gilmore: As a tier 1?

Martin Davies: As a Tier 1.

Q158 Chair: We will be coming round, obviously, to the money side of things as well. Can I just tease things out about the number of subcontractors that are available versus the number of subcontractors that are finally used? 112 are available in an area, but some of the evidence we have got suggested that very few of them are actually being used to deliver any bits of the Work Programme. Is that a fair submission? There are a few nodding heads.

Michele Rigby: It certainly is an experience that is common amongst our smaller members, particularly. They would offer very specialist, very local, and very supportive services, but find that, although they might have been named in the initial bid, they get very little work. I have heard reports of where they are being asked to take work on with no payment, with perhaps the chance of a payment for other work coming later but not for the initial work. Certainly, one of the organisations that reported that to me has since gone out of business, because clearly they could not keep providing a service without payment.

Jonathan Cheshire: I think DWP and Ministers have made a big play about the numbers of voluntary sector organisations involved, for example. A more realistic measure would be how much was the value of those contracts, at the end of the day, and how much money has passed. If you measured that, I think you would get a very different picture.

Chair: I think at the moment we are just trying to get the number of organisations and whether they are actually involved or not.

Q159 Jane Ellison: This is to Mr Davies about Pluss, because you are delivering something quite specialist in the Work Choice programme, for unemployed and disabled people with more severe barriers. It would be helpful if you could tell us a little bit about how the Work Choice supply chain is configured, and also how that responds to individual needs, in terms of helping disabled people back to work.

Martin Davies: I can only respond as far as Pluss is concerned. We deliver two out of the 28 programmes on Work Choice, but we also deliver as a subcontractor in two other areas. The whole concept of Work Choice is different. Work Choice is a programme that is designed to work with people further from the labour market, so it recognises elements of support that possibly are not recognised in the Work Programme, such as the potential in some cases for some ongoing support in work-and that is not only for the individual, but also for the employer. As a Work Choice provider, we work with, I suppose, smaller volumes, which allows us to be much more targeted at the individual needs of both the individual and the employer.

As far as the supply chains are concerned, when Pluss entered this seeking to be a prime, we were quite experienced within the market of disability employment programmes, and we were very careful in how we selected our subcontractors. We looked for subcontractors that shared our values, had a performance history and were specialist. We offered set minimum values of contracts and guaranteed referral levels, and that meant that we were not able to offer the whole range of existing providers contracts, so there were disappointed subcontractors in the areas where Pluss was successful.

The types of organisations we work with and ourselves have teams that either have specialists embedded within the teams-for example, mental health specialists or specialists in autism-or we then use call-off contracts from specialist organisations. We have made sure that when we deal with subcontractors, subcontractors have viable contracts, both geographically and in numbers, because part of the issue if you are not careful is that you can end up with a very remote area in geography, so we try to be very fair in that. We also look to work with subcontractors who have a wider remit in those areas, and will have other contracts such as specialist contracts, disability contracts with health authorities or local authorities. Work Choice itself is actually delivered through some very proven delivery methods that are accepted both nationally and internationally, and there were the supported employment mechanisms, and also using individual placement and support, which is a mental health-type provision. So they are very specialist.

Q160 Jane Ellison: Can I just ask you to expand a bit on the employer support? You mentioned that one of the things you do is supporting employers. I am quite interested in this area because I employ a disabled person. When I first started, I found it very hard to get any support or advice. There was a lot of advice about empowerment, etc, and helping people into work, but some of the quite specialist advice I needed I found was not there from some of the charities I approached. Can you give us an example of how you support an employer to help get a disabled person to work?

Martin Davies: You can help an employer by doing simple things: identifying reasonable adjustments, training employer’s staff, providing them with support for their procedures and policies, job coaching in particular, and mentoring. Most of the employers we deal with are SMEs, so wherever possible, we identify natural support within the workplace, but when that is not available we actually put in our own support through job coaches and mentors. In a lot of cases, that is a fluctuating thing, so we are in and out as and when needed-when natural changes happen, either in workplace or the individual’s home environment or life-and being very much there to support the employer and building up a personal relationship with their employer. We have our employment brokers, who would have a relationship with the individual and the employer. It is that personal approach.

Q161 Jane Ellison: That is very helpful. A question to all of you now: before some of us joined the Committee, there was another inquiry into the Work Programme, and the view was expressed that by drawing lots of different programmes together into one single scheme, some people might be driven out of the market; some Welfare to Work organisations might leave the market. There was a view that that might perhaps be a good thing if those were the people who were not really delivering or were weakest. I just want a view from all of you quickly about whether you think the number of people in this provision of services has contracted, and whether that is a good thing or a bad thing.

Martin Davies: I was particularly worried about the issue of there being a single programme. I am relieved that, at the moment, there continues to be a specialist programme for people with disabilities. In my view, the general programme works from the jobready individuals upwards, and the specialist works from the hardertohelp downwards. Combining those two means you should be able to close that gap. If you just had one single programme, every pound you put into that programme will automatically help, in my view, people closer to the labour market. You would move up, but you need to do that in a squeezing way.

Q162 Chair: Can I just ask whether, if Work Choice had gone into the Work Programme-I understand that the Minister had half an afternoon to decide whether it would go into the Work Programme or stay outside, and the decision was that it would stay outside-do you think you would be delivering what you are delivering today?

Martin Davies: It would have been extremely difficult within the financial models to be delivering the type of service we are delivering if Work Choice were within the Work Programme. That is not necessarily the payment mechanisms. We have modelled, and we believe that through the payment model that is in the Work Programme we could actually deliver to the same customer group for the payment mechanisms in that. It is actually the motivation behind which the customers are actually provided a service. If you look at payment by results, which is an excellent and right concept, what is important is, "What is the result?" If the result is purely a person in work, that is the result you are going to get. If it is a person in work with a different measurement-say, a social value measurement attached to it-it is about how long that person has been out of work, how far that customer group is from the labour market, and so forth. If you can find a way of actually making the differential payments more sophisticated, you could actually have something that worked.

Q163 Stephen Lloyd: How is it decided which people with disabilities go to the Work Programme and which people with disabilities go to Work Choice? I know that there are some disabled customers who go to my local Work Programme in Eastbourne. How does DWP manage that split?

Martin Davies: Jobcentre Plus has disability employment advisers who refer to Work Choice. The issue with Work Choice is that it is a capped programme, so therefore there are only a limited number of people that can be referred to it. Demand way outstrips supply, and therefore, in my view, the same types of customer go to both.

Q164 Stephen Lloyd: Are you national? Is Work Choice available around the whole of England or just in parts?

Martin Davies: Work Choice is a national programme across the UK.

Q165 Jane Ellison: For the rest of the panel, could you just refer to the general point about whether coming down to a single programme, excluding Work Choice, has driven some people out of the Welfare to Work market, and in some cases was that a good thing? Did it find out the weakest links, as it were?

Michele Rigby: There is no doubt that some organisations have been driven out of the market. We know that because we have members who have closed down in the last year and cite the arrangements for the Work Programme as being a large contributing factor in that. My issue there is that, from my knowledge of those organisations, I would say that they were actually extremely useful and experienced organisations, and were able to take people who were very far from the labour market. We did have a problem with one of our members, in terms of beliefs, behaviour and attitudes, and supported them into having better beliefs, behaviour and attitudes.

Q166 Jane Ellison: That is a big category. Is that because of lack of referrals?

Michele Rigby: Yes. There was also a great deal of confusion and misunderstanding, which goes both ways, in the setting up of contracts. Organisations were perhaps depending-and had no reason to think that they could not depend-on referrals, which then did not come, or, if they came-I am thinking of one particular instance of an organisation in Liverpool-they came without any payment attached. They certainly wanted to help and tried to help for quite a long time, but eventually it drove them out of business.

Q167 Jane Ellison: Was there an expectation of payment or was somebody trying to get them to provide a service for free, basically?

Michele Rigby: They were trying to get them to provide a service for free, with a sort of carrot that if they took this tranche then the next tranche might be paid for.

Q168 Glenda Jackson: Was that a prime?

Michele Rigby: That would be from the end-to-end, I think. I cannot be certain right now. They were certainly in the Tier 2 category.

Q169 Glenda Jackson: So they were subcontractors.

Michele Rigby: Yes. I think the issue that is important about all of this is that that organisation had at least 20 years’ experience of working with people who were very far from the labour market, and was seen as being extremely effective and a real star in the social enterprise movement. They do not exist anymore, so that level of expertise has dissipated and cannot be recaptured. It is not the same for all of our members. We have other members who are doing okay, who perhaps were better informed about the programme and are starting to take better decisions, and crucially were better capitalised, so that enabled them to take a position in the contracting hierarchy that was more stable for them because they thought they could manage the cashflow. As it happened-I am thinking of one particular example-the cashflow was much more difficult than expected. They were able to ride it out, but if they had really gone to the edge on that they would not have been able to.

Q170 Glenda Jackson: Why did they go? If they had been going for 20 years, what was the fundamental change?

Michele Rigby: There was no other way of funding the support that they were giving.

Q171 Glenda Jackson: Where had the funding come from before, for the previous 20 years?

Michele Rigby: It would have come from different Government programmes.

Q172 Glenda Jackson: So it was the creation of the Work Programme.

Michele Rigby: Yes. It took all of that potential of getting small parts of money away from them. They were no longer in control; there was nothing for them to go for.

Jonathan Cheshire: The introduction of the Work Programme coincided, of course, with a whole range of other reductions in public expenditure generally. A lot of small local organisations would have been supported by local authorities, possibly some small corporate sponsorships, other regeneration programmes, and things like that. There was a cut across the board, as we all know, in times of austerity. The Work Programme was introduced at the same time.

Q173 Glenda Jackson: Mr Davies said that there is a cap on people with disabilities, or the most vulnerable, needing the support that they can derive. I cannot work out how this can be. If the money is there, which we have been told by the Government it is, where is the gap in the chain here?

Martin Davies: The Work Choice contract, where the cap is, was not really viewed within the DEL/AME process. The Work Programme is based on the premise that savings on benefits will pay for the programme, but that is not really how Work Choice was designed, although I would say that it should be viewed in that way, and therefore I don’t see the logic in a cap on a specialist programme.

Q174 Graham Evans: Several witnesses have highlighted the issue of bid candy to set up applications to make them attractive and sweeten them up for DWP. But once they have got the contract, they are not being used or rarely being used. How widespread do you think this practice is, in your experience?

Dave Allan: From my point of view of the assessments that have been carried out so far, I have to say it is not an issue that has come out in any of the assessments that the assessors have carried out, and we did 18 on the Work Programme. We were aware of that, Mr Evans, but that certainly is not something that we have found so far, from an assessment point of view.

Q175 Chair: Do you think you were ever used as bid candy? Were any of your social firms used as bid candy?

Michele Rigby: Some of our members do feel that they were used as bid candy, yes.

Jonathan Cheshire: In the case of a prime contractor who actually won a contract and with whom we are now working, they were very keen to work with us and we had worked with them before, so that was not true of our current prime contractor. But as I think I pointed out, we had to write bids with nine other prime contractors in the bid process in order to stand a chance of getting the work. I am fairly sure we were used as bid candy in some of those bids.

Martin Davies: Pluss’s concern were restricted to two subcontracts. One we considered was an end-to-end, which afterwards turned into a Tier 2. Subsequently we have withdrawn from it because of a lack of referrals. The other was an arrangement where we had a full cost recovery where we placed our specialists in a prime’s team. That model has now been subsequently changed and we now no longer provide that either.

Q176 Graham Evans: If you are invited to participate in the bid as a Tier 2, do you have the conversation about how much business you are going to get from that, and what are the numbers expected?

Martin Davies: In Pluss’s experience, the figures that were issued by DWP were always indicative, never guaranteed, and we have always entered into discussions with primes knowing that. That is why, when we analysed our position in the market, we took a very riskaverse position.

Q177 Stephen Lloyd: Can I pile in there, if that is all right Graham? Mr Davies and Ms Rigby have said slightly different things to Mr Allan. In the research or survey that you were doing with a lot of organisations, you felt that the case for bid candy did not stand up, but the others seem to be saying that there was or is a sense with some organisations that they were used as bid candy. How do you square that?

Dave Allan: I am just saying the assessors did not find much evidence of that in the assessments that were carried out.

Q178 Chair: But you would be hunting for a negative-in other words, they are not there. If they were used as bid candy, they would not be what you were looking at. They are there to get the bid, but they do not end up at the end of the process. Did you marry who was there on the framework initially in order to win the bid and who ended up delivering down the line?

Dave Allan: In terms of the assessment process, our assessors were going in there and talking to a sample-a selection-of contractors and so forth and gathering evidence through talking to people. Subcontractors have the ability to input to the assessment, so it is just based on what assessors find in there.

Q179 Stephen Lloyd: I think you have a problem; I really do, because I think some organisations have been using bid candy. Some say they have and they have not, and it is just some wishful thinking, but I am very sure with the conversations I have had, not just locally in my own patch, but across the piece within the industry. Off the record, I have had it from some of the primes, with a nudge and a wink: "We probably did do that, Stephen." From some of the subs, I definitely have. So my suggestion is that, as the assessor, there is something that possibly needs tightening up with your own process, because I cannot believe that where I have got this many groups and bodies saying, "Hang on a minute; we have got an issue here with bid candy," they have not been spotted, so I would suggest to you that you revisit something.

Dave Allan: We are certainly looking at process all the time. We are not saying everything comes up positive. There are lots of subcontractors saying, "We did not feel that we treated right", or "We did not get any feedback as to why we did not get a contract", and that kind of thing. I am not saying that does not come up at all. What the assessors have to do is look at the evidence in balance and see they are able to make a decision on the evidence provided to them. Some of the organisations have many, many subcontractors, so it has to be a sampling process; otherwise it just would not be cost-effective; it would go on forever and ever. You could not talk to everybody. The assessors are very experienced and very qualified to be able to not just ask a question and get an answer, but to dig into it and get to the roots of it.

Q180 Stephen Lloyd: I do take your point, but on a pure actuarial basis, if I have got a prime who has got 92 subs, and another prime who has got eight subs, I could be completely wrong here, but my hunch is that the 92 subs is where the problem lies.

Dave Allan: In terms of the assessment process?

Q181 Stephen Lloyd: In terms of, I suspect-I could be wrong-looking at it from an actuarial basis, if I have got a prime with dozens and dozens and dozens of subs and another prime with, say, 10 subs, my hunch is that the bidcandy bids are with the prime with dozens and dozens and dozens of subs. So that might be an area I would focus down on. Certainly, just on the table here, Michele and Martin-and we have not even heard from Jonathan-are indicating that it would not shock them to their bootstraps that they or others that they know were used as bid candy.

Dave Allan: The standards are very much about measuring the excellence in supply chain management. It is not the assessor’s role to get into the issue of how contracts are given and any of the commercial aspects of it. It is about the four principles of what they are demonstrating in their behaviours and how they manage the supply chains, how they set them up, and how they communicate with them-it is all of those areas. It is not for us to get into how the contracts are given.

Q182 Graham Evans: Would it be useful if it was more transparent for Tier 1, but also Tier 2 in terms of the actual amount of business given? You used the example in the evidence, Jonathan, that it costs you an awful lot of money to be part of the bid process, and management time and so on and so forth. Then your return on there is not really worth your while. When I used to do that, it took an awful lot of time to put a bid in, and you know that up front. You are not always going to win it, but if the expectation is that you are part of a bid to enable Tier 1 to win the contract, if I was you, I would be saying, "Okay then; what is in it for me? I am not going to hold you to an actuality, but give us a rough figure." You have a business and organisation to run, and you would have expected some income from that. Is it not possible for the Tier 2 providers to say, "We are going to put our name to the bid. We would like to have not a guarantee, but give us an indication of what we are going to get from you, Mr Tier 1"?

If we could have those figures in the open, then everybody could see that the expectation is, or your expectation is, that you do get some of the business, whereas if it is now, you put your name there, it is regarded as bid candy, but you are not actually putting your business case up front, are you? You are just being part of the candy and then they are ignoring you. But it is worse than that. They actually expect you to do it for nothing, perhaps, without being paid, and you end up with a situation where businesses go out. The point I am making is we should have the openness, but don’t you think you need to push it?

Jonathan Cheshire: Yes, I do. We would not have accepted a Tier 2 contract. We had to negotiate with nine different primes. In fact, it was worse than that at the framework stage: we had to work with 40-odd in order to be sure that whoever finally got the contract in our area would be the one we were working with. So when it came to the detailed bids, we worked with nine. Talking about the contract we eventually won, in the contract there is a percentage of the attachments in each of the areas we are working in, so we know that 50% of the referrals will come to us in a particular area. That is in the contract.

One of the things I would actually commend about our prime contractor is that they were prepared to negotiate. We had four or five weeks of very detailed negotiations over the contract, and we ended up with a seven or eightpage letter of variation that was part of the contract. I think a lot of smaller charities did not quite understand that process and just signed the contract and sent it back. So I think there was a certain amount of naivety amongst particularly a lot of the smaller charities, because how on earth do you negotiate with someone like G4S or Serco if you are a £50,000ayear local charity? You are just not in the same game, are you?

Q183 Sheila Gilmore: If these contracts were being awarded, say on a localauthoritylevel basis, would you have bid to provide the service as a whole? It is still a bidding process but effectively you would have been a prime for a local government area. Would you have been able to take that on?

Jonathan Cheshire: Yes, I think I understand your question. So, if the contracts came in smaller lots.

Sheila Gilmore: Yes, basically.

Jonathan Cheshire: Yes, we would. We are actually a relatively small organisation. Our turnover is just under £2 million-something like that-so we are not a huge charity and we are very local; we operate in Hampshire. We have very good relations with the local authorities that we work in. We work in five different local authorities, and they all support us themselves, which is very important to us, both financially and in other ways. So yes, in our case we would have gone for smaller contracts. In some ways it would have been slightly easier to define what we were doing.

Michele Rigby: I want to answer both of those. If I could do the smaller lots one first, I think that would make a huge difference to a lot of our smaller members who are unable to provide services now, because they are known in their local authority area, they have a reputation for delivery, their structure and their means and their capacity is fairly well known, and so they would be working with people who understood the local delivery structure and how it connects. Part of the problem with these larger contracts was that a lot of our smaller organisations, who are very key to the process of getting people far from the labour market closer to the labour market, are lost because they are small and quite frankly they are also cheap. I know that sounds a bit counterintuitive, but the fact that they do feel they can deliver better services for less means that they are not necessarily that good at providing the business negotiations in a very hard way.

What they really are concerned about is the delivery to the end consumer-to the person who needs their support. That does make it quite difficult for our smaller organisations. We have a very wide range of members, so I am talking about the very small ones who find it much harder to put the capacity into the negotiations and to put themselves, if you like, into the hard commercial negotiations when actually they really believe that because they are delivering good services, they will continue to deliver good services and they will continue to be required.

Q184 Jane Ellison: Can I just jump in there? Is that not where organisations like yours and some of the other representative groups bring that capacity?

Michele Rigby: That is my very next point.

Jane Ellison: We have all met those sorts of charities who are in it because they like delivering the thing they deliver and the businessacumen side is not why they went into it.

Michele Rigby: That was going to be my very next point, and obviously it depends on a number of things. Do they have the capacity to stick their hand up and say, "I need some support on this"? It also depends whether that support actually can continue to be available. Over the last three years, that level of business support to thirdsector organisations has decreased considerably as well. So as much as we know it is our job to do it, it is not as simple as: we do it.

Q185 Graham Evans: There is £95 million, according to the Minister, going into the voluntary and community sector, so it is up to you to get your slice of that, rather than the tier 1, who rig it all up. It is an opportunity for the Tier 2 organisations to get their fair share. As they are specialist service providers, they really do need to perhaps make sure they get their slice of that.

Michele Rigby: I do not disagree, and in a previous job, which was a regional job but similar to the one I am doing just now, I had some quite intense discussions with primes at the time and said, "What we can offer is the ability to make sure you are getting the best out of the contracts with the smaller social enterprises", and we were used as bid candy.

Graham Evans: Could we have a note from this? Is it possible to have the statistics for Tier 2? That would be useful for us to be able to monitor that.

Chair: Are there no referral statistics at all for Tier 2 that you are aware of?

Stephen Lloyd: What about ERSA, or whathaveyou? Would they have them?

Q186 Chair: A lot of what we are working on is anecdotal, and you are being anecdotal this morning as well, rather than giving any hard figures in terms of the referrals. Can I just ask: you are saying subcontractors have not got as much. In some cases they have, if they have good working relations with the prime. Is it not that, as the Work Programme has developed, actually the primes are able to deliver it perfectly well in-house, so they are all just keeping it to themselves, and they are not putting it down the supply chain at all? Are they able to do that? Is that was is happening, and if it is what is happening, are they being able to provide the sort of specialist service that your organisations would have expected to provide, but are clearly not being contracted to?

Martin Davies: The flow of different categories is totally different than was envisaged, and it is definitely the case, I feel, that primes are able to deal with the more generic labour-ready candidates, and that is where the volumes are coming from at the moment.

Q187 Chair: So the homeless, the ex-drug addicts, the ex-offenders, the disabled people-we are coming on to questions about that-are all being left out; that is basically what you are saying.

Martin Davies: First of all, the referrals, particularly for people with disabilities, are much lower than expected, so that would be the case, and I actually cannot speak for the other groups, so I would assume that is the case.

Q188 Chair: So the problem is not that the primes are doing this work; therefore it is not coming down to the subs. It is that this work is not being done in the volumes that were originally anticipated.

Martin Davies: I think there is also an issue that, within each category of referrals, there are people who are more job ready than others. With every category, there will be people who with a limited amount of intervention can get into work. With the first year of volumes coming in, that is what you are going to see.

Chair: I think we call it cherry-picking.

Q189 Glenda Jackson: On the issue of the primes getting the contracts, the Government has consistently said to us that they were well aware of the most vulnerable, hard to reach and the most difficult to get into work. They were the ones that it was going to be a requirement upon the primes to be able to say, "We will be able to service these clients", and yours-this is broad-are the specialist organisations that the primes apparently put up and said, "Look, we can absolutely make sure that we are going to be able to reach the most difficult outofwork claimants".

Mr Davies said that there was a cap-that for people with disabilities, there were far more than were actually being put into any kind of programme. What I am trying to dig down here is, is it that with the primes-as Mr Davies has said-it is simply that the easiest get into work, which we have also had evidence on? Is it simply that they have reneged, in essence, on those contracts-that they are not actually actively attempting to get the hardest to get into work into work, or into some kind of work-related programme, which is why the specialist organisations are not being referred? Who decides on the referrals?

Martin Davies: You have to go back to a comment Jonathan made in his statement-the fact that the labour market was totally different when the Work Programme was designed. It was designed then, in a buoyant labour market, to address people with significant barriers to employment. That is not the case now. Although the labour market is bucking the trend and there are jobs there, there are more people than there are jobs.

Q190 Glenda Jackson: No, I am sorry; that is simply not acceptable. The Government’s argument is that one of the thrusts of their changes, as far as the programmes for work are concerned, is to get those generations of people who have never worked back into the jobs market. Nobody would argue with that. They also added, as a rider, that within this process, those people who had been ignored as far as the buoyant employment market was concerned because they were disabled, had to be included in this process. They acknowledged that that required specialist assistance from organisations, many of them charities, voluntaries who over the years have worked with these people. We are now being told that that is simply not happening. What I am trying to drill down is why that is. Is it that the primes have simply reneged on their commitments? They are not targeting the people that we have been consistently told were the prime focus of Government policy.

Silence-answer comes there none.

Stephen Lloyd: I think what is happening-it is coming in one of my further questions-is I do not think you are getting the ESA referrals, but can I come to that in a minute?

Glenda Jackson: Can I have an answer?

Chair: They are not the enemy in this case.

Glenda Jackson: No, no. I am not for one moment believing that they are the enemy but they are people who have, I presume, day-to-day contact with the primes. I am trying to find out why the primes seemingly, as far as I am concerned-this is my humble opinion-are reneging on the commitment that they gave in order to obtain contracts.

Jonathan Cheshire: I was trying to give you a reflective answer.

Glenda Jackson: No, give me a straight one.

Jonathan Cheshire: The primes don’t get any choice about that. At the attachment referral stage, people are referred by the jobcentre and they all then go to the prime. The prime will then refer those on. In the case of an end-to-end provider like ourselves, we will get what is supposed to be a random allocation of, depending on the area, 50% of those, so all of those people referred will come into the system.

There are two problems. First of all, there are very large numbers of people on JSA who are the low reward clients who actually should not be there. They should be on ESA because the assessment system for whether you go on ESA or JSA is seriously flawed, as we have seen. There are huge numbers of people on JSA who are actually far more difficult to get into work than some of the people on ESA, so that is one thing.

I think the other thing is the judgment that a commercial provider would always make. It is not so much necessarily about the differentiation between the price, if you like, of the different benefit cohorts; it is about the time. Before the Work Programme came in, we did a lot of work with people with quite a lot of disabilities-probably not quite as severe as Martin’s organisation. We would work with people for three or four years and then get them into work. If you know you have only got 104 weeks, then certainly a commercial provider is simply going to look at anybody that comes through the door, and make a judgment as to whether this person, regardless of which benefit they are on, stands a chance of getting a job in 104 weeks. If they are not, looking at it purely as a commercial activity, which the primes by and large are, that is the sensible judgment to make. I am sorry, but that is the way it is.

Martin Davies: The labour market will affect that.

Jonathan Cheshire: The labour market massively affects it, yes. A lot of charities will not take that attitude; I very much hope we do not. The only reason we can work with pretty much anybody is that we have five or six funding streams, and in one sense-it sounds a bit silly-we do not particularly care which programme they are on. We will try and give them a service, because we can pick a bit up out of the Youth Contract and a bit from the Work Programme.

Q191 Glenda Jackson: So it is referrals and time that is impacting against some of the hardest to reach?

Jonathan Cheshire: I think, personally, time is just as much a factor as the differential rewards.

Q192 Stephen Lloyd: The Papworth Trust told the Committee, as have a number of others anecdotally, that they were still receiving inappropriate referrals because of the work capability assessment erroneously finding some people fit for work. This is subsequent to the Harrington changes. Is that the experience, or not, of your members still? Is it going down, up or whatever?

Michele Rigby: Some of the members that I spoke to in depth said that the referrals were getting better and more appropriate. There were a number of horror stories that were still relayed to me, but I really could not say at what point those horror stories happened; I did not deep enough. There are things like people trying to commit suicide after their first interview because they feel that their situation is not being understood or people’s mental health is deteriorating through the process. Most of our members would say that once they were able to find out what the issues were, particularly with an individual, they were able to come to a supportive relationship and everybody felt better.

Certainly, there is still a feeling that our members are not always getting enough information about the people that are referred to them to know how to best help them, and that takes some time. Some of those referrals are still inappropriate. Overall, there is a real feeling-this came very strongly from all the members I spoke to in depth-that more transparency would really help the process. That is both transparency about the individual being referred and transparency-I think this goes back to an earlier question-about how the whole process works, how the money is being spent, and where the costs go, so that they would understand better their role.

Q193 Stephen Lloyd: Do you accept that the challenge with that is, on the one hand, some or all of your members will be saying DWP need to be more transparent about the whole process. One of the challenges is, as well as that, how does the industry generally, both the subs and primes, deal with the enormous fear that is out there? Some of the stuff on the internet is frankly off the Richter scale in terms of a factual database. What do you think your members would have to say about that, other than it is DWP’s job to be more transparent and get as much information out there to try to counter the fear factor?

Michele Rigby: I do not think that they necessarily think that the entire burden for transparency lies with DWP. I think they see it as being spread along the whole chain. I think that they locate that need for transparency much more with the prime.

Q194 Stephen Lloyd: That is very useful. Let me keep on the WCA theme because, as you know, there has been a lot of work by the Government around the Harrington report and the implementation and the re-training with the change. Going back to what the Papworth Trust and others have told us, they have said that they are still receiving inappropriate referrals because the WCA were erroneously finding some people fit for work. I do not think this is Dave’s area, is it?

Dave Allan: No.

Stephen Lloyd: Jonathan and Martin, this is a really important question because the Harrington changes only started taking place eight, nine or 10 months ago-something like that.

Chair: About a year ago

Stephen Lloyd: A year ago. But, it takes time to change all of this. A lot of the anecdotal evidence may well be from before then, but in your own experience at the sharp end, are you still getting the same level of inappropriate WCA referrals, or more or less?

Jonathan Cheshire: I think Martin has probably got more expertise than I have in this, but my feeling is that it is getting slightly better, but of course we still have huge numbers of people who were referred in the first year of the programme that we are still having to deal with, so from the point of view of our frontline advisers it may not necessarily feel very different.

Q195 Stephen Lloyd: Because you are still dealing with that tranche?

Jonathan Cheshire: There are still a lot of people on the books, so to speak, who are in that situation, but I do think it is getting slightly better.

Stephen Lloyd: Okay. I do take your point about the long tail. Martin?

Martin Davies: I would concur with that. It appears to be getting better. There are still groups, such as people with mental health issues and fluctuating conditions, that are always going to be difficult to provide that service for, particularly when we talk about transparency. When people are not in a rational place on a particular day, that is always going to be an issue. I think there is also an issue as far as the Work Programme is concerned about the larger number of people who are now being put on JSA rather than ESA, even though their conditions would have previously meant that they would have been on a disabilityrelated allowance.

Q196 Stephen Lloyd: Do you have any authority? Again, it is a very important anomaly in the system. Do the subs or even the primes have the authority or opportunity to go back to JCP and say, "Hang on a minute, folks; this person should really be on ESA or JSA," or do you just have to lump it? Is there any opportunity at all to go back and give a red flag on Mr or Mrs Smith?

Michele Rigby: I have members who have said that once they realise that somebody has been inappropriately referred, it is extremely difficult to get them off the programme. That is as much as I can say.

Stephen Lloyd: No, that is very useful.

Q197 Chair: It is about the tagging, as well. Jonathan, you are saying that there is a lot of people coming in as JSA who previously would have been IB or ESA, but it appears then that they should be coming in JSA ex-IB, or JSA with a health-related problem, but not bad enough to get ESA. That does not seem to happen. They just come in as straight JSA, and it is only when they hit your advisers that you realise that this person has got a lot more barriers than a conventional JSA claimant would have. But they do not have the money attached to them.

Jonathan Cheshire: No.

Q198 Chair: Is that what is happening?

Jonathan Cheshire: Yes, that is true. I would defer to Martin, but I think there is a particular issue with mental health issues, which are more difficult to spot in the Atos assessment.

Q199 Chair: Even if they have come through that route, they are still not tagged. Where is the tagging meant to happen-in Jobcentre Plus? Somebody who fell out of work because of a health issue-let us say a mental health issue-who is not bad enough to get IB under the old system and not bad enough to be on ESA under the old system, but still has an ill health route, because that is how they ended up; they were on statutory sick pay or whatever. That person does not seem to have any kind of label to say they are anything but JSA when they get into the Work Programme.

Jonathan Cheshire: I don’t think so. I would need to think about it.

Martin Davies: I don’t think so.

Q200 Chair: They don’t. Even if they are ex-IB and have been moved over to JSA, they should have a tag, but they don’t seem to have that tag either. The tag seems to get lost somewhere. The tag that makes them attractive to your subcontractors because they have got money attached to them seems to have got lost somewhere in that process. Is that true?

Jonathan Cheshire: They will be in one of the-whatever it is-six or seven cohorts at the point they are referred to the prime contractor.

Q201 Stephen Lloyd: I think what the Chair is alluding to is that if they are ex-IB JSA, they get extra money. Are you finding that some of these JSAs who should be ESAs and were IB, the actual fact they are ex-IB is dropping off and somehow that extra poundage is not following it?

Martin Davies: I have not come across that.

Jonathan Cheshire: No. I might need to go back and ask the frontline people.

Q202 Stephen Lloyd: That is fine. Just going to a couple of things on this, again, back to Martin: Michele pointed out that in her experience with the organisation she represents, if someone who clearly should be ESA and has come as JSA, you are stuck with it. Is that true from your experience or do Pluss, who are very well known in this area, have the authority to go back to DWP and say, "Hang on a minute"?

Martin Davies: No; no authority. We can support people through an appeals process if they are on our books, but that is it.

Q203 Stephen Lloyd: They are going to be parked then, aren’t they?

Martin Davies: There is another aspect of this tagging-or whatever we want to call it-that I feel is quite pertinent as well. It is on the other side of it: that we work on a presumption of employability, so anybody could work with the right level of support. We deal with customers and clients who have, throughout their school life, home life or whatever, been conditioned that they cannot work. We are now starting to reinforce that by putting them through a process that, at the end of it, says, "Actually no, you are right; you cannot work." We are having to then pick up people to whom we are saying, "With the right support, you can work," so we need to be careful how we categorise people, and I can give an example. Last Friday, a young gentleman and his mother went for a work capability assessment. The first thing that happened was the doctor sat down and confirmed that the young gentlemen had Down’s syndrome and therefore obviously would not be able to work. That gentleman actually is in part-time employment and wants to work. So we have the reverse effect of it as well.

Q204 Stephen Lloyd: Yes, that is actually why the specialist subs are supposed to be there.

Let me move on. The volume of ESA referrals in the first 14 months of the Work Programme was only 34% of that predicted in the original invitation to tender. How has that impacted on specialist disability subcontractors? It is back to what we were talking about earlier, and what my colleague Glenda Jackson was talking about. If it is only 34%, then that is 66% short on a business model. What sort of difference has that made?

Michele Rigby: One of our members actually had the opposite problem. They were expecting 650 referrals in the first year and got 1,000.

Stephen Lloyd: That is very unusual.

Michele Rigby: But it still caused them huge problems in terms of cashflow and planning. I think I do have another end-to-end who did not particularly mention that, but then obviously Pluss is one of our members and might be able to answer that. Mostly, with the spot providers, it is the lack of referrals that is the issue.

Q205 Stephen Lloyd: Is that true, Martin?

Martin Davies: There are various ways of looking at it, depending on where you are as a specialist provider. For specialist thirdsector providers that are end-to-end, Tier 1 providers in an area, we have to remember that the primes also deliver themselves, so you could be delivering as an end-to-end alongside the prime. I think the technical term in that case is a doublewhammy because you actually get a reduced level of referrals, because that is the client group you want to work with, and the nature being as it is, the primes might well also be dealing with the most job-ready in that group of people.

As far as I can see on that, I am not sure how that arrangement can be sustainable in the longer term. You have also got issues if you are a Tier 2 specialist. It depends in that case whether you have actually built up an establishment and an infrastructure to deliver to a volume, or you are being more prudent and waiting for referrals to come in and then expand. But if you have expanded, you have got a serious problem.

Q206 Stephen Lloyd: On that, one of our expert witnesses told us it appeared that the measures the DWP has started to take to increase ESA referrals, including by mandating those with longer prognoses of ill health and disability to the Work Programme, were beginning to work. Jonathan or Martin, over the last few months are you beginning to find that this is tipping up a little, or is it too early to tell?

Jonathan Cheshire: A lot of the answers on the Work Programme are going to be that it is too early to tell actually, and that is true of that one. One of the issues around referrals that we are finding is that I find it extraordinary that jobcentres cannot predict roughly what the referral rate is going to be next month and possibly two months away. It just goes like this, from month to month.

Q207 Stephen Lloyd: Is one of the reasons for that that it is very difficult, particularly when you are working with people who are longer away from employment, some decades? The challenge that Jobcentre Plus had was that they had no idea about what was going to happen in the appeals process because so many folk in that situation, for perfectly understandable reasons of fear and anxiety-boom-go straight to appeal.

Jonathan Cheshire: Sorry; I was talking about referrals across the board, not just ESA.

Stephen Lloyd: Oh, okay.

Jonathan Cheshire: It ought to be possible to predict roughly. We have got figures about how many people in every local jobcentre are on JSA and how many have been on JSA for more than six months. They must know how many are coming up to 12 months, for example. It is incredibly difficult for us to plan our work if one month we get 60 referrals and the next month we get 200.

Q208 Stephen Lloyd: Is that a fairly common issue across the piece: that there is not a consistency of the level of referrals, it spikes and there is not a particularly good feedback from the Jobcentre Plus to let them know going forward that, "Next month, the month after that, you should be getting X, Y, Z"?

Jonathan Cheshire: It is not that we necessarily want a completely flat flow. We just want a bit of warning if they are suddenly going to send three times as many referrals next month. That is all. I cannot believe that that is not predictable to some extent.

Q209 Stephen Lloyd: Is that a fair comment across the piece, Michele, with your members, do you think?

Michele Rigby: I do not think I can comment on it, other than a more general thing that has come through from all of the people I have spoken to. What they need is more transparency and more ability to have their concerns heard when they think things are not quite right, but I cannot comment on that particular point.

Q210 Sheila Gilmore: I want to ask a further question about this business, particularly people who are in this Work Related Activity Group. Up to now, we have understood that people would only be mandated into the Work Programme if they had a sixmonth prognosis of being ready to go back to work. The Government-I do not know if they have actually implemented it yet-were talking about making that 12 months. Does taking people into the Work Programme who are not expected to be fit for work for as long as a year present any problems in what is a two-year package?

Jonathan Cheshire: Yes, it does. Yes, obviously, I think.

Martin Davies: I would suggest that is what the Work Choice programme is there to deliver, because Work Choice can work with a customer for a long-term, indefinite time if that is the requirement or the need of that individual. So I would suggest that within a twoyear period, it is difficult to get those people into work.

Q211 Anne Marie Morris: Dave, understandably the Merlin Standard is very much an area we are looking to you for some guidance on. In terms of the Merlin Standard, which is supposed to ensure that we actually get constructive working relationships between the primes and Tier 1 and Tier 2, what does "good" look like? What should that relationship look like, because I think we are getting a picture from Martin and Jonathan that actually it is quite patchy? What should it look like?

Dave Allan: Absolutely. I think some issues have come around like the bid candy, the transparency and so forth. The Merlin Standard was primarily worked up in the Welfare to Work sector with DWP. To put it in its context, it is to promote and recognise excellence in supply chain management. It is very much about behaviours. My company has worked with the national quality standards for 20-odd years, with Investors in People, with matrix and with this. I have a genuine belief-you may say, "You might say that; you are the assessment body"-but I have a genuine belief in the power of this standard. There are over 50 criteria in four elements that have to be met to achieve the standard, and it digs into all these areas of communication. That is a very strong point-how do you communicate with the subs?-to ensure that, in being assessed against that standard, you must be demonstrating that that is what you do. They can achieve three parts. They can be judged as "excellent", "good" or "satisfactory". There were 18 Work Programme providers that were assessed, and this is just the first year of the formal launch of the standard. 11 got "good" and seven were deemed as "satisfactory".

Q212 Anne Marie Morris: What is the difference between "good" and "satisfactory"?

Dave Allan: There is a clear scoring system.

Q213 Anne Marie Morris: What does it feel like? In a sense, you are giving us the theory. I want to know what it feels like.

Dave Allan: If it is "good", the organisation will certainly be demonstrating, through the evidence gathered, that they are meeting all elements of the standard. In each one, they must achieve a scoring of three, under the elements. We have a lead assessor and two people who are called team assessors.

Q214 Anne Marie Morris: Can I just take you back for a minute, because you are giving me an answer about the process and I can read what the process is supposed to be? What I want to know is what it feel like on the ground. Can you articulate to somebody who knows nothing about Merlin what is a good relationship going to look like? What is the prime going to be saying about their relationship with Tier 1 and Tier 2? What is the Tier 2 going to be saying? What are the characteristics? What does it look like?

Dave Allan: If I flip it around and see what the subs are saying, "We feel that communication has been better; in the past where the prime might have said, ‘You are not delivering effectively; you are in breach of contract,’" they have started introducing performance improvement plans, so that they will talk to them and say, "Look, what are the issues making the contracts not be delivered? Is there something we can do to help you? Are there some people improvement issues that we can work together on? Are we ensuring that we are getting the messages across right?" A "good" would be meeting those areas, but there are still areas for improvement. But there are certainly examples of good practice that have been seen within that organisation.

Q215 Anne Marie Morris: So what is "satisfactory"?

Dave Allan: "Satisfactory" would mean that they are meeting the standard but there are definite areas for improvement. It is not enough to pull them down; we cannot get into advice, but can say, "You may like to consider looking at this part in this area; you may need to look at the environment and sustainability." That has come up a lot through the assessments. "Satisfactory" would be happy that they meet the standards but there are areas where they can improve. "Good" would be where there is good practice.

Q216 Anne Marie Morris: Okay, I think I understand where you are coming from. The thing that worries me is, when you look at Ofsted and schools, "satisfactory" is now considered to be not acceptable. I am a bit concerned that what you are talking about is actually a standard that I am not convinced should be acceptable. That is why I am trying to dig down into what "satisfactory" is because one of the things you said was that there were quite a large number that were satisfactory", rather than further up the scale.

Dave Allan: There were seven out of the 18. Eleven were "good".

Q217 Anne Marie Morris: Yes, that is quite a lot. That is my concern. If I was a Tier 2 provider and I had a relationship that you deemed to be top score-"excellent"-what would my experience be? Would I feel that you had been liaising with me regularly? Would I feel that you had been looking to see whether or not I was being considered properly for these contracts?

Dave Allan: Yes, absolutely. With "excellent" you would feel that they would be able to talk about examples of best practice in how well they are doing.

Q218 Anne Marie Morris: When you do the assessment, do you ask all the parties-the Tier 1, Tier 2, and the prime?

Dave Allan: Yes. The lead assessor would make contact with the organisation who will have submitted a self-assessment questionnaire. The assessor has therefore got something from the organisation about how they feel they are doing. Obviously, it has got to be validated, so they would get all the information of who they contract with. As colleagues have said, there can be huge amounts of supply chains, so there has to be sampling.

Q219 Anne Marie Morris: That is what was said earlier. How do you pick who you use to sample? As the point was made earlier by Stephen, sometimes the number of Tier 2s is huge-unrealistic in my view.

Dave Allan: This is an area we certainly need to look at to develop. We feel we have gone as far as we can, in that we publish when the assessments are going to take place, and we invite anybody that has dealt with that organisation, whether they have had a contract, have got a contract or have been refused a contract, to submit their views on that organisation.

Q220 Anne Marie Morris: Do you do that by a public notice?

Dave Allan: We put it on the website.

Q221 Anne Marie Morris: So you don’t go directly to them. You don’t send them an email?

Dave Allan: Because it is, as I say, in the first year, we have made it a requirement now that the primes must contact all of their people to say that this assessment is taking place. ERSA have run some surveys, and we have done some surveys and had feedback from my team, because we are about quality assurance and we always want to improve the process.

Q222 Anne Marie Morris: Have you asked how many? If an email has gone out, or however they have communicated with their Tier 2s and Tier 1s, how many responses have they had back? If you are looking at a prime and you are going to do an assessment of the prime, and you say to them you need to contact everybody whom you are contracting with.

Dave Allan: Yes, that has just been implemented.

Anne Marie Morris: How many of the people contacted then actually took the trouble to reply to say, "I have got this comment" or "I have got that comment"?

Dave Allan: It varies for organisations. We have had some saying, "We did not know the assessment was going to take place and we wanted our view to be known". We have got to look at how we can improve the awareness of the assessment taking place. Equally, to be fair, we have had comments that said, "We have seen the report"-because we publish the reports of the organisations; they are in the public domain- and subs have said, "We do not feel that reflected our experience". All we can do is try to make sure that we get a greater contribution and we get as much evidence across the piece of who they contract with. What we have to appreciate is that we cannot talk to everybody because it would go on forever, and there is a cost involved to the organisation, so it has to be sampling. But not only are our assessors familiar with the sector, they have gone through lots of training, they are familiar with lots of other national standards like Investors in People, and they are able to not just take answers at face value; they are able to get underneath it and really validate. That is where the benefit of the team comes together. At the end of each day, they will say, "What have you collected, how have you scored it and how does that come out as a percentage?"

Q223 Anne Marie Morris: Do you sense from the feedback you have had from Jonathan and Martin and others, that, while you say systems can be improved, there is definitely room for improvement and something substantially different has to be done to ensure that you get the right feedback so that you can make a proper value judgment? There seems to be this disconnect between the experience of the Tier 2s, particularly, and what is coming out of the results through Merlin.

Dave Allan: I do believe substantial improvement. There are always things we can look at to see how we can do things better and how we can make sure we are getting the full amount of evidence. But we have got lots of positives to say, "Yes, we have seen behaviours change", like the examples I have given of performance improvement plans and development activities. There are lots of positives coming through, and that is genuine feedback.

Q224 Anne Marie Morris: I am going to ask Jonathan and Martin and go slightly offpiste. What is your experience of Merlin? Have you been involved? Have you been asked? Have you volunteered?

Jonathan Cheshire: Yes, yes, yes. I think probably Dave would agree with this. What we need to remember about Merlin is that it is not about the service to the clients, and it is not intended to be. For us, that is actually much more important. We have been involved in Merlin assessments. I did talk to one or two other subcontractors about this, and one of the comments was, "Well, we do not bite the hand that feeds us". If you are in a contract, you may be slightly reluctant to criticise your prime. I was told-Dave may contradict me here-that in fact the people that Merlin talk to are largely chosen by the primes. I don’t know whether that is true or not, but that was certainly a comment I got.

Anne Marie Morris: In my view, that is not truly objective.

Dave Allan: The primes will tell us who they work with, and the assessor will make that call. They decide who they talk to. Everybody who has worked with that organisation has the opportunity to input to the assessment. But at the end of the day, we cannot guarantee that everybody will be spoken to.

Q225 Anne Marie Morris: No. What about the ones that were on the list and have not actually then done the work? Do they get asked questions?

Dave Allan: Absolutely. It must cover who they are currently working with, who they have worked with, and who they have said, "No, you are not working with us".

Q226 Anne Marie Morris: In terms of the selection, your assessors are given a list of the ones they are contracted with and then they decide which ones. What about the ones they have not done any work with?

Dave Allan: Yes, that comes into the sample.

Q227 Anne Marie Morris: Do they select from that group? Are questions asked?

Dave Allan: Yes, absolutely.

Martin Davies: I can only comment on Pluss’s experience. We are no longer involved in the delivery of any subcontract on the Work Programme, as from December. We had discussions with the prime in the area we deliver in and they wanted to change the terms and conditions. We did not think that the changes were viable, so we are not working with them anymore. We would not consider invoking Merlin in any way, shape or form. We have other subcontracts with that prime, and we view primes basically as the commissioners of the future. I think we need to be quite pragmatic when we look at the relationships between subcontractors and primes. It is very difficult to understand how Merlin can be all things to all people and give that level of guarantee because it is a commercial relationship.

Anne Marie Morris: That is a very important and valid point.

Dave Allan: It is not DWP’s view and it is not our view that it can solve every problem between primes and subs, but it is a tool for change and to drive change.

Q228 Anne Marie Morris: So what happens if there is a dispute between a prime and a subcontractor? Where does that role fit?

Dave Allan: It is not our role as the assessment body, but we would refer that through a mediation service, and we would refer that to DWP. We cannot get into disputes between the primes and subs.

Q229 Anne Marie Morris: How many disputes have you referred?

Dave Allan: There is only one, I think, at present that is going through.

Q230 Anne Marie Morris: It seems odd that there is only one dispute. It just seems like an incredibly small number.

Dave Allan: As I said, the number of assessments done on the Work Programme has only been 18, which has just been in the first year.

Q231 Anne Marie Morris: Okay. That still does not feel quite right, but I guess if there is no further evidence there is no further evidence. What you are saying is you are purely an assessor; you have no role in trying to ensure that relationship works better?

Dave Allan: We are assessing how the relationship works and how they can improve that. It is not about passing or failing, or whether you have got the standard or not. Whether they are "excellent", "good" or "satisfactory", they get a report and they will get areas to help inform continuous improvement, so they can always get better. We are not just saying you have got the standard or you have not. The teeth in the standard is that, yes, it is a contractual requirement, but it is about changing behaviour and driving improvement through meeting the standard.

Q232 Anne Marie Morris: What then would be your role in trying to assist subcontractors to re-negotiate? Would you have any role in that?

Dave Allan: No. Again-I am sorry-I will have to refer back to the criteria of how you meet the standard and what policies you have in place. It comes under conduct and how you design your supply chains.

Q233 Anne Marie Morris: Jonathan, I wonder if you can help me here, because I am getting a sense that it is a measure of process, and there does not seem to be anything that actually deals with what happens when the process identifies or these checks identify that things are not quite working. There does not really seem to be a mechanism to put that right. As Martin said, because this is a commercial relationship, it is actually quite difficult. You have commercial, which is about money, and you have quality, which is something completely different.

Jonathan Cheshire: We have signed a 125-page contract with lots of small print in it, saying what we can do and what we cannot do and how we are supposed to resolve disputes. I think Merlin is a good thing and I am glad it is there, but it is still relatively early days and I am sure it could be improved.

Dave Allan: Yes, sure.

Jonathan Cheshire: We would not see it in the first instance as a method for dispute resolution. We would first have a good old hand-to-hand with the prime before we took it outside the relationship, if you see what I mean. I am not sure I can be more helpful than that.

Q234 Anne Marie Morris: Is there any problem in the relationship, then? If you are a sensible, feisty organisation and you can see a benefit in just trying to have the debate, trying to get it right, keeping the assessor out of it, having nothing to do with the assessor, that is fine. But if you are not, and you actually do provide a goodquality service, but you do not have the commercial will and fight to want to have a go and sort it out so you are there for the people who have got alcohol problems or drug problems who actually really need you, then do we not all lose out? What happens then?

Jonathan Cheshire: I suspect you will, yes.

Q235 Anne Marie Morris: Michele, you look like you have a comment or two here.

Michele Rigby: Just before I answer, could I just pick up on something. It is not necessarily that organisations do not have the commercial will or understanding to take the fight. They do not often have the capacity; that is the issue. They are very focused on delivery and are undercapitalised by nature. If they have to make a choice between putting in the effort on this or getting somebody else a bit closer to the job market, they will always choose getting somebody closer to the job market. As organisations get bigger, they start to separate those functions out much better, but if we are talking about very small specialist ones, that is often the choice that they have to make. Everybody that I spoke to was very aware of Merlin. We have done quite a lot of work to make sure that our members are aware of Merlin. They all-almost without exception-said they wish it had more teeth, and if they did not use that phrase, they used one very similar to it.

Q236 Anne Marie Morris: What would teeth do?

Michele Rigby: I am going to say, "Make life fairer". I know that sounds quite wishywashy, but I think it is quite important, in that what they are talking about is not fairness necessarily for them, but fairness in the delivery of services to people who are very far from the labour market, to make sure that people get the best deal they possibly can. Where they feel it is not happening or that they could be delivering more or they could be making more of a contribution to it and are finding that hard, they would like to be able to make that point to somebody. They see Merlin as being the only organisation they can make that point to, but they feel that there should be something that could, in a sense, champion-I am trying not to say "cause"-their contribution to getting people back to work and make it a bit clearer how they operate, what their restrictions and their limitations are, and what their potential and their possibilities are.

Martin made the really important point that for our members, we believe that everybody has the right to be employed. Our members set out deliberately to help those that are furthest from the labour market get into jobs that suit them and that they can sustain. The fact that they feel sometimes they are not able to make that contribution under the Work Programme is frustrating, to say the least. From the interviews I did, it comes out that this is not good value for the taxpayer. We can make this happen. It is what is required to happen, and we can make it happen, but we feel we are not always able to take part in the process.

Q237 Glenda Jackson: How does Merlin help that?

Michele Rigby: Listening to Dave, it is hard to see how it can, but basically what they are saying is they would like Merlin to have a role in making their voices heard to the primes and increasing that level of understanding. Possibly it goes both ways, but obviously I have only been talking to our members. Again, reiterating what has been said, they feel there is no point making much of a fuss and making their point more clearly, because it will not be heard or nothing will happen. Certainly one member made it very clear that it is a question of either doing what we do well, or taking some of our energy away from that and trying to make the system better, but we do not think that will work, so we will just put our energy into doing what we do well.

Q238 Glenda Jackson: Sorry to interrupt you here, but I still don’t know what constitutes an accreditation under the Merlin whatever it is. I am not clear why Merlin was introduced in the first place. I do not know whether you can be taken out of Merlin-whether you can lose that accreditation-and if you can, what the punishments are. But to come back to your group, I don’t think Merlin actually-I don’t know; I hope someone will explain it to me. They think that it should be part of a Merlin accreditation process, whereby, say, the primes-I am just waffling here to try to find exactly what I mean-should give a clear commitment that they would employ or use or communicate with your client group before they could have that accreditation. So it ceases to be a process but actually becomes: "There is no money unless you do this".

Michele Rigby: I think it is much more about clarity than forcing people-

Glenda Jackson: Clarity on what level and between whom?

Michele Rigby: Between the primes, the end-to-ends and the spot contractors. It is at all of those levels. The lack of transparency is something that came out very clearly. Those that are in the position of providing spot purchases do not feel they get enough information about what might be coming down the pipeline, what their role is, what they might expect etc. Something that came out quite clearly, which is interesting, is that they do not necessarily understand what is not being done, so they could then say, "If this it is not being done, we feel it should be and we will seek funding elsewhere", because the assumption is that everything that needs to happen will happen within the black box, and it does not. But what is not clear are the bits that will not happen within the black box, so that organisations with a local capacity can say, "We are going to seek funding to provide that bit because nobody else does, and we think it is really important in terms of getting people back to work".

So they understand very, very clearly that Merlin is overseeing what is happening, but they would like something that has more ability to say, "This relationship is not working well"-probably, I would say, reading between the lines, it is a lack of understanding of what each side can deliver and where their restrictions are-and to tease out that relationship so that it can be a better one. At the end of the day, a better reason why it is important is because our members are good at getting people into jobs and that is what we want to happen.

Q239 Sheila Gilmore: Dave, if I heard you right, you said you had carried out 18 assessments. I was wondering whether that an assessment of a prime and all their contractors or just an assessment of a particular individual relationship. How many would you normally expect to do as this gears up, and is this going to be published so we can see what is actually happening?

Dave Allan: Yes, we have already published the report of the first six months because that included the assessment of the Work Programme providers, and that has covered all of the things we found, the feedback we have had, and how we are looking at improvements like improving awareness of assessments taking place.

Q240 Sheila Gilmore: How many assessments was that based on?

Dave Allan: We did 18 for the Work Programme. They were the ones required to have it by June; we were required to assess them by June.

Q241 Sheila Gilmore: Is that between an individual and a prime?

Dave Allan: That has been a mixture of organisations: primes and subs, and private and public, were in that mix. Since the launch, we have made it more of a generic standard. We are actually getting more interest from the private sector as well, because it represents good practice in supply chains.

You raised the question of fairness, and that has come up a couple of times. Fairness, in terms of the standard, is picked up under the "commitment principle", the criteria under cooperation, how they work, how they communicate and so forth. That comes in to your question. If they do not meet one of those principles in the scoring of that, they will not meet the standard. If they do not meet the standard, they have six months in which they must produce an action plan, and they have to show that they can meet the standard within six months.

The teeth with that is the implication is that if they don’t meet the standard, they don’t get a contract. They have to be reviewed within two years, so it is not just that you have got accreditation and you have it forever. You must maintain it. When the assessor comes back they will look at the areas that were suggested for improvement. It is not to say that they would have to do them but they would have to demonstrate that they have moved on. Equally, although the standard was only launched last year, there has been a lead-in time of about three years in the piloting of it, so the primes that were coming up for assessment have been really working at it for a long time, so behaviours have already changed. This is why some of the issues have come about. Primes and subs are saying, "We have been looking at this, we have been adopting the principles and there is change happening". That is what the standard is all about.

Q242 Glenda Jackson: Who awards the contract? Is it the Government or the prime?

Dave Allan: The commissioners would award the contract; we just award the accreditation. The award of the contract is not our remit.

Q243 Glenda Jackson: No, I understand that. I am trying to find out who would award the contracts within the context that we are talking about.

Chair: The DWP presumably?

Dave Allan: Yes, the DWP.

Q244 Glenda Jackson: This is for all of you, on measuring the quality of the Work Programme. There have been three ways to measure this that have been suggested to the Committee: a systematic approach surveying participant satisfaction; increased monitoring of quality by DWP; and the reintroduction of an independent quality assessment regime. In your opinions, which would be the most effective?

Martin Davies: If I had to choose from those three, it would be the participant survey, but I would say that you would have to take that quite guardedly because of the mandatory nature of some of the Work Programme. I don’t see the value of doing the other two, as they would increase an already burdensome auditing regime on the sector. As a Work Choice provider, in the last three months we have been audited by DWP provider assurance, we have had an audit by their quality team and we have had an audit by DWP ESF teams. All that is costly and, for me, the bigger goal is to get the outcome specification right in the first place so that providers are paid for actually delivering what the Government wants. It is not necessarily just jobs; it is jobs for specific people.

Jonathan Cheshire: I would probably have all three.

Q245 Glenda Jackson: You cannot have all three. Which is your favourite?

Jonathan Cheshire: In that case, I am still going to compromise. I would have an independent quality assessment like, possibly, matrix, which is also by Dave’s organisation. We use it anyway. We want to have that quality standard for all kind of reasons

Q246 Glenda Jackson: What would be the definition of quality in that context?

Jonathan Cheshire: This is where my compromise comes in.

Glenda Jackson: Yes, but Martin says his preference is that you know that it works and people are getting jobs. That is a form of quality. What is yours?

Jonathan Cheshire: Mine would be an independent assessment talking to the customers as part of it. Matrix talks to the customers, and I do not think an independent assessor can make an assessment just on process. They need to talk to those who are receiving a service, so that would be my favourite, but I think there needs to be a strong element of customer feedback. However, like Martin says, this is a mandatory programme so there are an awful lot of people who have been told they have to be on this programme, who do not want to be there. They are not satisfied; they are extremely dissatisfied with the whole thing and may see that as the fault of the subcontractor or the jobcentre or whatever. They are going to be dissatisfied for reasons other than the quality of the service.

Dave Allan: Thanks for that lead in Jon. You might expect me to say matrix, but I genuinely believe in the approach of matrix, which is an outcomebased standard. What that does is talk to the people who have received the service. It is that mixture of whilst they have criteria to meet, like the Merlin standard, they have to demonstrate leadership, management, and the objectives that they have set. What we have done in making it more outcomesbased is that we have to say, "How do you define the client outcomes?" We speak to the client and ask, "Did you understand what you could expect of the service?" Where we have moved it-to give the analogy-to make it more outcomesbased, is that where a provider might have a contract to provide 18 CVs for people, what we are saying is, "Well fine, you might have delivered the 18 CVs, but what is the impact of those CVs? How many people went on to get a job from that?" Because that is the real impact of the service.

Q247 Glenda Jackson: That is the defined achievable goal that you would be looking for-whether people actually got a job?

Dave Allan: Yes, absolutely. They have to show us-the assessor-that they have clear objectives for the service and that they are understood right through the organisation. The outcomes are defined for the client, and the client can say whether they feel those outcomes have been delivered.

Michele Rigby: Our members say the participant surveys are key. They have all said that.

Q248 Nigel Mills: Can I take you back to financial terms and risk, and how you all deal with that. I think we dealt with it a little bit earlier. Do you actually think as specialist subcontractors a system of payment by results or outcomes can ever really work for you?

Jonathan Cheshire: I do not think we would fall within the definition of a specialist subcontractor, along the lines we have been talking about this morning. We deal with a lot of people with serious disadvantages, but we also deal with anybody that comes through the Work Programme. So the answer is we think we can make it work financially, but that is not our prime reason for doing it. The outcome for us is that at the end of whatever contact a client has had with us, their life is better, and in a lot of cases that will be a job-and we hope it will be a job, because we happen to believe that employment is one of the most effective ways out of poverty and deprivation-but there will be some people for whom a job is not the right immediate outcome. We want the latitude to be able to work with those people as well. If all we had was the Work Programme, I do not think we would be in the business; it narrows the focus too much. We can make it work because we have got other funding, so we can be a lot more flexible and provide more of a customertailored service.

Martin Davies: Payment by results for us is a mechanism that we agree with, so the issue is not payment by results; it is actually what we have been asked to deliver. As a thirdsector organisation we are set up to invest those surpluses into a social aim; we would not be in a position to risk those reserves for people who are not our customer group. We are very specific in the areas we can and need to work. If we could have viable contracts that would not risk that money, that would be fine. We would be more willing to risk that money if it was for our customer groups, but the way it is set up at the moment is that we would be risking that money for much more generic customers.

Michele Rigby: Building on what Martin has said, our members do not have too much difficulty with the concept of payment by results. It is quite a compelling argument. They have difficulty as to what constitutes payment and what constitutes results. When they work with the most difficult clients-those who are really far from the labour market-and do so from a very under-capitalised position, the great result for everybody is getting somebody into a job that they can stay in. There are many points along that journey that make a big difference, and understanding that the journey does not necessarily happen in 12 months, but you can make very significant progress towards making somebody’s life different-having different attitudes, beliefs, and behaviour, for example-that will eventually lead to them getting a job, is very significant. It is also a saving to the taxpayer in itself, even if they do not get a job in that time.

Q249 Nigel Mills: The reason for using large prime contractors who have strong balance sheets was that the cashflow risk of being paid somewhere down the line, rather than regularly, was too much for many small organisations to bear. Do you think the prime contractors in their contracts with subcontractors have actually tried to mitigate that risk for you guys, or have they just effectively said, "Well, we get paid, blah, blah, blah, so you get paid, blah, blah, blah"?

Michele Rigby: It is worse for some. I understand the administration is getting better, but to begin with, the administration meant that the paymentbyresults payment came 18 months later. They had worked out their cashflow on the basis that it would be late, and bargained for that. So they left it for 12 months but they actually got paid 18 months at the very beginning of the contract. They say it has got better. But that is the kind of thing that really does drive the most specialist providers out of the business because they are under-capitalised.

Q250 Nigel Mills: What is the appropriate level of risk the primes should pass on? Presumably, the kind of thing that might soften the risk but perhaps take some of the reward as well, so they might give you some more money up front but keep some of the success fee. That is not how they work, in your view.

Michele Rigby: All my notes say mirror contracts.

Q251 Nigel Mills: Do you think that is the right thing for them to do?

Jonathan Cheshire: There are some interesting experiments going on with areas like social impact bonds at the moment, in other fields of social welfare work, where there is money to actually do the jobs and there is a bonus at the end of it if you get the outcome. I would have thought, certainly for smaller organisations, that some version of that would be a much healthier climate really.

Q252 Nigel Mills: When I look at the Merlin Standard, and I look at criterion 2c, point 2, it says the "funding arrangements are fair, proportionate and do not cause undue financial risk for supply chain partners". What does "undue" mean? How do you test "undue" in that situation? I am thinking the reason why we said you could not give them a prime contract is because you were too small to be able to take that cashflow risk. Yet you are ending up getting effectively the same cashflow risk dumped on you by somebody in the way taking a bit off the top. Is that not just passing on a risk that was thought to be undue in the first place? Do not most arrangements just fail because no attempt has been made to support the subcontractor’s financial position?

Jonathan Cheshire: We deal with four different primes on different contracts. We have only got one on the Work Programme but we run the Families contract and the Youth Contract and various things, so we are dealing with four different primes and they all have slightly different relationships. Most of them basically, in our case, on paymentbyresults contracts pass the risk pretty much 100% to us. I do know of other primes that are helping their subcontractors rather more in other parts of the country.

Q253 Nigel Mills: Martin, you refused to work on this, because you thought the risk was too great, presumably.

Martin Davies: Our analysis showed quite slight variations in outcomes would put the organisation at financial risk. If that was guaranteed to be delivering to the customers that we are there to serve, that would be fine. We were not willing to take that risk.

Q254 Nigel Mills: You are not all sitting there saying, "Actually, they should be paying us up front, and taking the risk on payment by results themselves". You are not saying that is what should happen. But are you saying that there should be a bit of that around?

Michele Rigby: There should be a more appropriate level of risk and reward. I would like to make a further point, which is that without that more appropriate balance, what has started to happen, and is at great risk of happening, is driving out innovation. It is one of the areas that the third sector in general prides itself on-being innovative. If you are risking your final payment on innovative practices, you are less likely to give them a go and you are more likely to stick with the very narrow criteria, so that you can prove that you have got the result. So if that innovation has been driven out, the results become more and more mundane, quite honestly, and less effective, and we are not trying out new practices and we are not finding out what works better. That is a real risk.

Q255 Nigel Mills: Dave, can you just talk me through how you test what undue risk is being passed on? Is it just as simple as, "Well, you are passing on the same risk as you have got; that must be fine," or is there more to it than that?

Dave Allan: I think that the assessors have to go in and look at the processes that would define how they operate under those criteria. So they would talk to them and say, "How do you do this? What are the arrangements?" It is really just getting that feeling of how it works and how they can feel that they satisfy those criteria.

Q256 Nigel Mills: Okay, but if you found evidence that a subcontractor withdrew from the process because the risk was too great, would that not set some alarm bells ringing?

Dave Allan: Because it is a sample, if that was one bit of feedback, they would have to look at the validation across the whole of the sample to see if that was happening right across the piece, or whether it was just an isolated incident. That is where they have to weigh up whether it would meet that part or not.

Q257 Nigel Mills: I think sometimes when a prime contractor passes someone on, they keep a bit of the attachment fee, presumably for the work they have done. Do you think that is something that is fair or do you think that should not be happening?

Jonathan Cheshire: It depends on how much, I guess. Can I just make one other comment about this? One of the other elements of the equation as to how much risk gets passed on and how much money gets passed on is how much freedom you have to do it your way. One of the things that I find particularly galling about the Work Programme is that there is a black box at the prime contractor level, but below that we are still being micro-managed. So we are taking all of the risk, but they are still telling us how to do the job. As far as we know, we are performing at least as well as their own direct delivery offices, but they are still telling us how to do the bloody job. If we are taking all the risk, I think we should just be left to do it; that is the principle. It seems very, very bureaucratic for a paymentbyresults system.

This is an interesting example about putting someone out on work experience, which we do quite a lot, as it is quite a useful way of easing someone into work. If the jobcentre is placing someone directly into work experience, they have a one-page document that the employer signs to say they have all the health and safety in place and they have the right policies, etc. When we do it, we have to get the employer to sign 11 pages of detailed documentation. If you go into Marks & Spencer or John Lewis, who have got all this stuff in place, that is great. If you are going to the guy down the road who employs two people and his brother-in-law, and you are asking them to take someone on work experience for three weeks, we are quite good at building relations with those SMEs, they say, "Yes, we will do that." You then say, "Oh, by the way, would you mind filling this out," and that kills it dead. If we are taking all of the risk, I think we should be allowed to do the job the way we know how to do it.

Martin Davies: On the question you asked about the retention of money, I think it really depends on the overall model of provision, but the primes are well used to having very sophisticated financial modelling processes, and therefore they can reduce their risk quite considerably by the volumes of subcontracts that they put out compared to the volumes that they deliver themselves, and then also combined with the retention money they hold back. In essence, you could have a subcontractor having a disproportionate amount of the risk because of that equation.

Q258 Teresa Pearce: Just to go back to Martin, you said that you declined to take up the Work Programme because it was too risky, but you do work through a consortium. How does that work?

Martin Davies: We work through Disability Works UK, which is a consortium that was set up to work within the Work Programme. We were never going to be direct delivery ourselves; we were going to be a partner.

Q259 Teresa Pearce: Did that lessen the risk, going through the consortium?

Martin Davies: No, it increased the risk. It was very appealing at the tender stage, but, if you can imagine, every reduction in flow to specialist areas was compounded by the fact that we had members all trying to deliver.

Q260 Teresa Pearce: So it is not the model going forward.

Martin Davies: It has its challenges.

Q261 Teresa Pearce: I will just go to the last question. We talked about attachment fees, and they are going to be withdrawn in April 2014. To Michele and Jonathan, what plans have your primes made to cope with that, and do you expect this to have an impact?

Michele Rigby: I cannot answer for the primes; I can only answer for our members. They are all quite concerned about that. They do not think it is a good idea; they think it will have a significant negative impact on them.

Q262 Teresa Pearce: Do they fear that it means that if there is no attachment fee, the primes will just hang on to work themselves, rather than flow it down?

Michele Rigby: I don’t have that level of detail, I am afraid.

Teresa Pearce: But they are concerned?

Michele Rigby: They are very concerned about it.

Jonathan Cheshire: We have known about this for a very long time, so we have planned for it. It depends to a large extent on how much we can earn in outcome payments before we get to that stage so that we have got a bit of a cushion. I do not think the primes have particularly planned for it. In a sense, we have not, other than accepting that it is going to happen. The only effect it might have, across the system as a whole, is that it may very well increase the amount of parking that goes on.

Q263 Teresa Pearce: Given that a lot of the organisations involved at different levels of the Work Programme are organisations without capital, without getting that attachment fee, how are they going to finance? Is there more risk that those middle organisations might collapse?

Jonathan Cheshire: I think there probably is, given that the level of outcome payments has actually been lower than the original expectation nationally, so I think that yes, there is a risk.

Martin Davies: There is potential that the business cases that some subcontractors have been using have not totally realised and recognised that reduction. Therefore, what seems to be a viable option now may not be a viable option as it goes forward.

Q264 Chair: That could be the straw that breaks the camel’s back in terms of the financial model for some.

Martin Davies: It could be, but they should all be aware of it.

Chair: But they thought they were going to get a lot more attachment fees up until then.

Teresa Pearce: They are already on the edge.

Chair: That activity has been lower; the referrals have been smaller.

Teresa Pearce: What we have heard is that it is stifling innovation, people are not making the money they thought they might, and now there is this other thing as well.

Q265 Nigel Mills: Maybe I am labouring this point. Presumably, if I worked for a prime contractor, I get paid a salary; I do not get paid a success or outcome fee, as far as I know.

Jonathan Cheshire: I don’t think on the Work Programme-on some earlier contracts there have been individual bonuses, in the big primes.

Q266 Nigel Mills: Effectively when I subcontract to you guys, I put you on a paymentbyresults thing with no attachment fee going forward. Is there not a strong argument that when I am using a specialist small provider that I should effectively be, as a prime contractor, recreating an attachment fee to make it viable for you to do this? Is that something that you think they ought to be looking at doing?

Jonathan Cheshire: Yes.

Martin Davies: That is within their gift to do.

Jonathan Cheshire: Yes, it is up to them under the system.

Q267 Nigel Mills: Do you actually think that would be good practice for them to do, Mr Allan?

Martin Davies: Maybe that would go back to the original design of the Work Programme.

Nigel Mills: You would be disappointed if you did not see contractors doing this when you were looking at your Merlin audits. I think that was a yes.

Chair: Thanks very much for coming along this morning. Thanks for your time in answering our questions. Your evidence will be extremely useful for us when we come to write our report.

Prepared 20th February 2013