7 Availability of specialist support
and regulating the market
139. As noted in chapter 2, the consolidation
of almost all welfare-to-work provision into a single, centrally-contracted,
mainstream programme represents a wholesale reorganisation of
the sector. DWP chose to contract with large primes capable of
bearing the financial risk of operating on an outcome-based payment
model. The explicit intention was that primes would subcontract
with a range of private, public and voluntary sector organisations,
including small niche providers, to ensure that the diverse needs
of the wide range of participants on the Work Programme could
be met from within primes' supply chains. Here we consider whether
Work Programme supply chains are operating as intended; whether
there are sufficient and effective mechanisms in place to regulate
supply chains; and whether there are sufficiently transparent
data available on which to assess the effectiveness of the market.
The prime provider model
140. Work Programme primes are required to be
members of DWP's Framework for the Provision of Employment Related
Support Services (ERSS). The ERSS is an umbrella agreement between
DWP and potential service providers who are in effect pre-approved
to bid for Work Programme and other DWP-commissioned welfare-to-work
contracts. DWP stipulated that organisations bidding to be part
of the ERSS had to have "the financial capacity to deliver
large scale contracts which require a significant amount of cash-flow"
due to the outcome-based model. Bidders for a place on the ERSS
were required to have an annual turnover of at least £20
million.
141. In November 2010, DWP selected 35 organisations
to be part of the ERSS, following a competition launched in June
2010. In April 2011, 18 of these organisations won 40 separate
Work Programme prime contracts in 18 Contract Package Areas (CPAs)
across Great Britain.[130]
Subcontracting models
142. Almost all of the primes deliver in-house
"end-to-end" services for some—in some cases most—participants
i.e. the prime supports participants throughout their two-year
attachment to the programme, all the way through from the initial
referral, through pre-employment support and ideally to a job
outcome and in-work support to ensure a sustained job outcome.
143. Primes also deliver services through subcontractors
and have configured their supply chains in diverse ways. Two of
the largest primes, Serco and G4S, subcontract all service delivery.
All other primes subcontract to some extent, either to "Tier
1" subcontractors, who generally deliver the end-to-end process
and/or to "Tier 2" subcontractors who can deliver specialist
interventions for particular types of claimant, often those with
more complex barriers to employment. Individual contracts between
DWP and the 18 primes set out the types of services specialist
subcontractors would be expected to provide, for example debt
counselling, health and disability advice and work on offending,
or for specific routes into the labour market, such as vocational
training or self-employment. The number of specialist providers
identified in contracts varied greatly. Primes can also buy in
specialist support on an ad hoc basis, outside the formal
supply chain. This is often referred to as "spot purchase"
provision.[131]
Volume of referrals to specialist
subcontractors
144. Much of the evidence to this inquiry suggests
that specialist Tier 2 and spot purchase subcontractors are not
being used in delivery to anywhere near the extent they had expected.
145. St Mungo's told us that it had entered into
subcontracts with three primes but had not received any referrals
and had therefore subsequently decided to withdraw from the Work
Programme. Charles Fraser, St Mungo's Chief Executive, believed
that his organisation had been used as "bid candy",
to make the primes' bids look appealing to DWP. We identified
this as a potential risk in our previous Report.[132]
Charles Fraser felt "betrayed" that referrals had not
materialised. St Mungo's is one of a number of specialist voluntary
sector organisations which have withdrawn from the Work Programme
due to lack of referrals.[133]
146. DWP publishes on its website a list of Tier
1 and Tier 2 subcontractors in primes' supply chains. There are
several subcontractors of both types, in some cases a very large
number, listed against every prime in every CPA. After its most
recent "stock take" of subcontractors in November 2012,
DWP listed a total of 785 organisations as part of Work Programme
supply chains: 292 private sector organisations; 125 public sector;
and 368 from the voluntary and community sector.[134]
In November 2012 DWP issued a press release under the headline
"More voluntary sector organisations join Work Programme",
in which the Minister stated:
These figures show just how big a role the voluntary
sector is playing in the Work Programme. I'm delighted so many
organisations are joining forces with us to help people back to
work.
Voluntary sector organisations have the specialist
skills and expertise in helping the hardest to reach in our society.
They are crucial partners in helping those at risk of long term
unemployment find a sustainable job, and I applaud them for their
work so far.[135]
147. However, the DWP list shows only the organisations
which had been named as subcontractors by primes; there are no
official data to show how many Work Programme referrals subcontractors
have received. A BBC Panorama programme in January 2013
called into question the extent of voluntary sector specialists'
involvement in the Work Programme. The BBC contacted 341 of the
348 voluntary sector organisations listed by DWP as Work Programme
subcontractors in July 2012 (seven "could not be located,
or had gone out of business"). Of those contacted, 184 responded
to the BBC survey, which found that:
- 74 (40%) did not consider themselves
to be part of the Work Programme;
- Of the 110 organisations who considered themselves
to be part of the Work Programme, 80 (73%) had received fewer
referrals than expected and 45 (41%) had received no referrals
at all; and
- Of the 56 organisations who considered themselves
to have specialist expertise in supporting unemployed disabled
people, 43 (77%) did not feel the Work Programme was "correctly
utilising and maximising" their expertise to help disabled
people back to work.[136]
148. In the absence of transparent official data
on referrals below prime level it was not possible for us to assess
with any certainty the extent of specialist subcontractors' substantive
involvement in Work Programme delivery. Jonathan Cheshire of Wheatsheaf
Trust felt that DWP had "made a big play" of the number
of specialist voluntary sector organisations involved in the Work
Programme. He believed that an assessment of specialists' involvement,
based on the financial value of referrals, rather than simply
the number of organisations listed, would be likely to present
"a very different picture".[137]
149. ERSA agreed that the scope for specialist
involvement in the Work Programme had been over-played by DWP
from the outset. On the "bid candy" point, Kirsty McHugh
of ERSA believed that some of the complaints had come from organisations
which had had initial discussions with primes during the relatively
rapid commissioning process but had subsequently not entered into
contractual agreements (although this was clearly not the case
for St Mungo's, for example). However, she also conceded that
some primes had not been clear enough about the volume of referrals
specialist subcontractors were likely to receive.[138]
150. Sean Williams of G4S told us that in his
experience many organisations named as Tier 2 subcontractors were
excellent at tackling particular social problems but were often
not being used in Work Programme delivery "because the services
that they provide make no difference whatsoever to an individual's
employability prospects." He also claimed that G4S had made
clear to its Tier 2 subcontractors that it was possible that they
might receive no referrals at all.[139]
Use of alternative and external
funding streams
151. The initial report of the official Work
Programme evaluation noted that primes also tend to make use of
local providers whose services can be obtained free of charge
because they draw on funding streams outside the Work Programme.
This was intended to some extent; DWP guidance to providers lists
a number of external funding streams to which Work Programme providers
were intended to have access, including Access to Work; European
Social Fund provision; Learndirect courses; Prince's Trust programmes;
and Skills Funding Agency provision for those over 19 years old.[140]
Some providers told us that they would not be able to deliver
Work Programme services without calling on other funding streams.[141]
In Brent, Shaw Trust and CDG said that up-front funding in the
Work Programme was insufficient to support participants with some
disability-related needs, such as interpretation for deaf people.
DWP told us that:
One of the things we wanted Work Programme providers
to do was to innovate and to enhance services to unemployed people.
Some of the best providers are bringing together a whole host
of services, funded by other agencies, and delivering them coherently
to Work Programme participants. There is one centre in Birmingham
where they have justice, skills, health and education monies,
all in the same place. They have the credit union in there as
well. Work Programme participants get the blended help that they
need, not all funded by the Work Programme.[142]
152. However, it was not intended that providers
should utilise, free of charge, the employment services provided
by a wide range of charitable organisations. A number of witnesses
believed that this was happening routinely. St Mungo's told us
that, despite the lack of official Work Programme referrals, charities
continued to offer employment services through other funding streams,
including private donors and the European Social Fund. Charles
Fraser reported that homeless Work Programme participants were
sometimes referred "surreptitiously" to charitable organisations
such as St Mungo's, which received no funding through the Work
Programme. His view was that primes were therefore claiming job
outcome payments in cases where St Mungo's or other charitable
organisations had "done most of the work" but not received
any funding from the Work Programme. This view was also held by
Crisis.[143]
Financial risk and the flow of
funding to subcontractors
153. In 2011 we highlighted the possibility in
a prime provider model that primes might pass on insufficient
funding to subcontractors. We acknowledged witnesses' concerns
about the risk to the financial viability of smaller, financially
insecure subcontractors if this were to happen. Our view was that
a key aspect of the primes' role in the Work Programme was to
bear the financial risk of operating in an outcome-based model.[144]
154. Ian Mulheirn believed that DWP's reasoning
for limiting bids for Work Programme prime contracts to organisations
with annual turnovers of at least £20 million was "sound".
His view was that the Work Programme was an inherently "risky
project" and that "if you do not have a big enough balance
sheet, you cannot carry the risk." However, he believed that
in practice primes were passing on financial risk to financially
insecure subcontractors, in some cases a greater risk than was
being passed by DWP to primes themselves. He believed primes were
taking a significant top-slice of the up-front attachment fee
and not providing sufficient financial support to subcontractors
to deliver specialist interventions.[145]
155. It was clear in 2011 that negotiating practicable
terms with primes would be crucial to subcontractors' financial
viability. Some witnesses expected primes to take around 50% of
the gross payments from DWP as a management fee. Others expected
that management fees of 20-30% would not be unusual. G4S told
us that the proportion of the fees passed on would depend on the
size of the subcontractor and the type of services they deliver.
Sean Williams told us at that time that G4S would pass on 100%
of the attachment fee to smaller charities, for example.[146]
During this inquiry he clarified that he did not think it was
realistic to expect primes to shoulder all of the financial risk
of operating on an outcome-based model:
Prime contractors are not banks; they are very good
management organisations. The funding at the top level will inevitably
reflect, to a greater or lesser degree, the funding for subcontractors.
[...] If you want to have upfront funding for subcontractors,
you have to have upfront funding for primes. It is simply not
realistic to expect primes to sit in the middle of that and carry
100% of the risk.[147]
156. The Pluss Organisation, a prime contractor
in the specialist disability programme, Work Choice, which is
much less outcome-based, told us that it had declined a number
of Work Programme subcontracts as it considered them "extremely
high risk". The primes had proposed top-slicing the up-front
attachment fee, which Pluss felt would have left insufficient
funding to provide an effective service. It had calculated that
achieving financial break-even was "dependent on meeting
very challenging targets with a customer group who faced multiple
and complex barriers to entering and sustaining employment."
It also noted that it would have had no control over referrals,
with the risk that "we would only receive customers who the
prime regarded as being too far from the labour market to warrant
resource allocation in their 'mainstream' provision."[148]
157. Wheatsheaf Trust, a Tier 1 specialist subcontractor,
described its financial terms as "harsh but clear".
It reported that it was only able to enter into its Work Programme
contract after very carefully assessing the financial risks, which
it described as "considerable", and because it was in
a strong cash-flow position. It was also able to support Work
Programme provision through other funding streams. Wheatsheaf
supported the view that the Work Programme is not suitable for
small, financially insecure organisations unless primes were prepared
to bear most of the financial risk.[149]
158. Social Firms UK told us that some of its
members reported receiving insufficient financial support from
primes and that this, combined with a lack of referrals, was threatening
their financial viability. Michele Rigby of Social Firms UK told
us that two of its members, which had been subcontractors in the
Work Programme, had gone out of business.[150]
We also received evidence from Anna Burke, previously Managing
Director of Eco-Activ Services, a Tier 2 subcontractor, which
stated that her organisation's demise was partly due to the weakness
of its Tier 2 position in the supply chain, in which it had no
guarantee of referrals and received only £210 of the £400
attachment fees.[151]
159. ERSA, the industry body which represents
primes and subcontractors from all sectors, acknowledged that
the financial viability of smaller subcontractors was a concern,
particularly those for whom the Work Programme was their only
source of funding.[152]
The Minister acknowledged that the transition to outcome-based
funding had proved challenging for a number of contractors and
emphasised that it was important that contractors had the capability
to manage the commercial negotiations necessary to enter into
Work Programme contracts.[153]
160. We believe that reporting
of official Work Programme data at prime level only is inadequate
and does not allow us to make an assessment of the effectiveness
of the whole market. In the absence of transparent official data
on Work Programme referrals below prime contractor level, we cannot
assess with any certainty the level of specialist subcontractors'
involvement in Work Programme delivery.
161. We recommend that official
Work Programme data show both job outcomes and referrals at subcontractor
as well as prime contractor level. It is fundamentally important
to know which organisations are most effective at supporting the
long-term unemployed back into work; it would facilitate effective
scrutiny, and help the welfare-to-work industry to establish optimal
supply chains, if this information were transparently available.
162. Much of the evidence
to this inquiry suggests that specialist providers are not involved
in the Work Programme to anywhere near the extent anticipated.
There is also evidence that some voluntary sector providers are
funding specialist Work Programme provision from their own resources,
including from charitable donations. This needs to be taken into
account when calculating the overall cost of the Work Programme,
including in comparison to previous welfare-to-work schemes. It
may also indicate that the specialist support some jobseekers
need is not available within all supply chains to the degree envisaged.
DWP must ensure that it draws more extensively on the expertise
of specialist providers so that the Work Programme meets the needs
of participants with complex barriers to work effectively. It
should also use part of the unspent Work Programme budget to commission
the specialist pre-Work Programme provision for particularly disadvantaged
jobseekers that we recommend earlier in this Report.
Regulating supply chain relationships:
the Merlin Standard
163. The relationships between primes and their
supply chain partners are governed by the Merlin Standard. This
is a "standard of behaviour to which prime providers are
expected to adhere in their relationships with their subcontractors."
The standard is intended to "encourage excellence in supply
chain management by prime providers, to ensure fair treatment
of sub-contractors and the development of healthy high performing
supply chains".
164. The Merlin Standard contains four broad
principles, briefly summarised below:
- Principle 1: Supply chain
design. Primes should
ensure variety in supply chains and promote innovation. Supply
chains should be "enriched" by public and private sector
organisations to "address the holistic needs of customer
groups and local demographics". A prime should also ensure
it has strategies to deliver "comprehensive support services
to customers through the use of wider networks outside of supply
chains".
- Principle 2: Commitment.
Primes "should look to establish relationships with their
supply chain partners to mutual advantage." Commitments made
when supply chain relationships are formed "must be honoured
and any changes made by mutual agreement".
- Principle 3: Conduct.
Primes have a responsibility to manage supply chains "with
integrity and openness". Subcontractors should be "clearly
informed of the [prime's] expectations, managed in a transparent
way and supported via clear communication and guidance."
- Principle 4: Review.
Primes should be able to demonstrate that they actively seek and
use feedback from all stakeholder groups. They should also produce
an annual Self Assessment Report.
Merlin is an "independently managed accreditation
standard".[154]
DWP has contracted emqc Ltd to assess and monitor primes against
the standard.[155]
165. Despite the issues around referral volumes
and financial terms highlighted by subcontractors and other witnesses,
all 18 primes have achieved Merlin accreditation. Dave Allan,
Managing Director of emqc Ltd, was very clear that it was not
within the remit of the Merlin assessors to intervene in these
kinds of contractual issues between contractors. His organisation
had referred only one dispute between a prime and a subcontractor
to DWP.[156]
166. Kirsty McHugh of ERSA told us that it was
early days for the Merlin standard. She believed that there was
room for improvement but that it was "fundamentally a good
assessment tool". Her view was that Merlin could not address,
within its current remit, the issue of lack of referrals to specialist
subcontractors. She also noted that it could not "stop subcontractors
signing contracts that are not in their best interests."[157]
167. The Merlin standard's
current remit does not allow it to address subcontractors' grievances
in relation to lack of referrals and the alleged imposition of
unfair financial terms. We repeat our 2011 recommendation that
Merlin's remit should be extended to address such issues and that
it should be given more "teeth", with the power to impose
financial penalties on primes which treat subcontractors unfairly.
The Merlin standard's scope should also be extended to include
the assessment of other stakeholders' satisfaction with the behaviour
of prime contractors. We recommend that the Merlin process include
an assessment of the levels of satisfaction of Work Programme
participants, local authorities and local employers with the service
provided by Work Programme primes.
130 See Committee's 2011 Report, chapter 3 Back
131
DWP, Work Programme evaluation: Findings from the first phase
of qualitative research on programme delivery, November 2012,
para 2.1.1 Back
132
Committee's 2011 Report, para 43 Back
133
See "Work Programme under fire as charities shut down",
BBC News, 4 October 2012 Back
134
http://www.dwp.gov.uk/policy/welfare-reform/the-work-programme/ Back
135
"More voluntary sector organisations join the Work Programme",
DWP press release, 8 November 2012 Back
136
BBC, Panorama, 28 January 2013 Back
137
Q 158 Back
138
Q 370 Back
139
Q 369-370 Back
140
See DWP, Work Programme Provider Guidance, chapter 13. It should be noted that The Prince’s Trust is a charitable organisation and its programmes are not available to Work Programme providers free of charge Back
141
See, for example, Wheatsheaf Trust, Q 190; Ev 162 Back
142
Q 503 [Julia Sweeney] Back
143
Q 135 [Duncan Shrubsole] Back
144
Committee's 2011 Report, para 129 Back
145
Q 69 Back
146
Committee's 2011 Report, paras 127-128 Back
147
Q 381 Back
148
Ev 140 Back
149
Ev 162 Back
150
Ev156 Back
151
Ev w10 Back
152
Q 290 Back
153
Q 536 Back
154
http://www.dwp.gov.uk/supplying-dwp/what-we-buy/welfare-to-work-services/merlin-standard/ Back
155
Ev 122 Back
156
Qq 228-229 Back
157
Q 386 Back
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