FND phase 2 released, may be cancelled by Conservatives

The PQQ for FND phase 2 was released today, with an announcement by new Work and Pensions minister Yvette Cooper at the CESI Welfare to Work conference. Later on at the conference, however, it became rather less clear whether this FND2 round would even lead to a contract award. Theresa May and David Freud, representing the Conservative front bench, although not speaking with one voice, made it clear that the current FND model was not what the Conservatives would choose.

Quick index
What Theresa May said
What David Freud said
Press coverage
FND 2 specs - which regions, what's different?

Theresa May - 'We don’t want contracts to be dominated by large providers'

Theresa May, Yvette's shadow counterpart in the Conservatives, was also speaking at the conference. In the Q&A following her own presentation, she stated that if Flexible New Deal isn't awarded by the time of the election (next May at the latest), and the Conservatives get in, then they will let contracts on the basis of their own proposals rather than the existing Labour government ones. The Conservative changes to FND include:

  • Starting FND at 6 months rather than 12. It's not immediately clear whether the adviser-led stages of FND would be abolished, or moved back to day 1 of claim
  • A stronger emphasis on paying for job outcomes
  • Payment on 52 week sustainment
  • More, smaller contracts.
  • Countrywide DEL-AME (it's not clear if this would be implemented immediately in FND)
  • Possibly some kind of differential payments to reward getting more disadvantaged customers into work (it's not clear if this would be implemented immediately in FND)

Theresa also stated that existing FND contracts would gradually be transferred to the Conservative model. In response to further questions on whether the current FND procurement would be cancelled by the Conservatives, she said that they would be able to confirm the Conservative position by the autumn, once they had a better idea of the FND2 timetable.

David Freud - 'Bluntly? Bleeding heart emotions are a complete waste of time'

David Freud's fireside chat with Dave Simmonds was the last session of the conference, and it was the view of more than a few delegates that he really hadn't picked up on the significance of Theresa's comments the previous day. He'd read the speech, but evidently wasn't aware of what happened in the Q&A, and spent much of the discussion trying to show that current Conservative party thinking and the original Freud report findings were entirely compatible. This led to some interesting interpretations of Theresa May's statements.

The points to emerge from the discussion included:

  • Why David Freud defected from Labour to the Conservatives
    A somewhat convoluted explanation which boiled down to 'because I think they'll win the next election'
  • How Freud's six big providers model fits with Theresa's 'don't want contracts to be dominated by large providers'
    David stuck by his long-term commitment to the vision of six large super-providers (compared to the big four supermarkets) delivering all welfare to work activity in large-scale contracts, with Theresa's commitment to smaller contracts being explained in terms of responding to the increased numbers during a recession, needing to build such a market slowly (20 years was mentioned), and giving British firms a chance to catch up with the large international ones
  • Wouldn't customers under a super-provider regime might find themselves disempowered and pressured in the same way as the big four supermarkets' suppliers?
    David highlighted the important of a regulatory regime developing alongside the market, and criticised the current contracting structure as haphazard, and without rigour, professionalism or control
  • Discussion of differential pricing
    David pointed out potential issues with the accelerator payment model, both in accurately defining the payment curve, and in the potential for providers to still knock out entire groups according to type of need. He took the (hypothetical) example of tranquilliser addicts, and argued that although it was ok to park individual people who were very difficult to help, accelerator model pricing could lead to all tranquilliser addicts being parked. He advocated investigation of a segmentation apprach, where claimants are categorised into severity of need or length of unemployment at the point of entry onto provision, with higher payments for harder-to-help people.
  • Did Theresa destabilise the FND marketplace with the planned recontracting of FND2 and changes to the FND model?
    David repeatedly committed the Conservatives to not ripping up any FND contracts, and not forcing contract changes on providers without their consent. He argued that the direction of travel was still the same, and that the Conservatives were committed to FND, AME-DEL, and the accelerator model
  • Backing for Theresa's comments on outcome payments
    David agreed that an 80:20 split was better than 60:40, and said that changing the split was a mistake
  • A denunciation of the target-setting approach to management and the complexity that results from it
    David argued instead for putting lots of work into the grind of getting the system set up well so that people receive the help they need as a natural consequence. He was also very pro benefit simplification – 'there's a 1500 page book to figure out what someone's entitled to'

Further coverage

Incidentally, the Freud discussion also highlighted the limitations of taking notes in longhand. I was so busy catching the basic meaning of responses that some apparently very indiscreet turns of phrase passed right over my head. Stuff about some current providers being rubbish and so on. There was at least one journalist in the room with a dictaphone, though, so there may be unfortunate further coverage coming up. I'll update this list as it does, and probably edit this article some more over the coming week.

Main points from FND2 specification

In the meantime, the major points of note about FND2 as it stands include:

  • Smaller areas than phase 1 due to increased numbers of JSA claimants
  • Co-commissioning will allow local bodies (City Strategies, Local Authorities, Multi-Area Agreements etc.) to pass funds through FND for additional services
  • Delivery from October 2010. I haven't found any indications on the rest of the timetable yet but will update the story when I do
  • An eventual target payment split of 20% service fee, 50% short job outcome, 30% sustained job outcome
  • Market share variance in customer choice areas - giving the better performer a higher proportion of available customers, similar to the Australian model described in the Star Ratings article a while back

The FND2 single provider areas will be:

  • Highlands, Islands, Clyde Coast and Grampian
  • Forth Valley, Fife and Tayside
  • Cumbria and Lancashire
  • Cheshire and Warrington
  • North and North East London (Barking and Dagenham, Havering, Redbridge only)

The FND2 dual provider areas will be:

  • Glasgow
  • Northumbria and Gateshead/South Tyne and Wear Valley
  • Halton and Merseyside
  • West Yorkshire
  • Essex/Bedfordshire and Hertfordshire
  • Dorset and Somerset/Gloucestershire, Wiltshire and Swindon/West of England
  • Olympic Host Boroughs and City of London
  • West London (Brent, Ealing, Hammersmith, Harrow, Hillingdon, Hounslow only)
  • South London (Bromley, Croydon, Kingston upon Thames, Lewisham, Merton, Richmond upon Thames, Sutton only)

This leaves only two areas of the country not covered by FND phases 1 or 2. The Personalised Employment Programme will use Barnet, Enfield and Haringey
Hampshire and the Isle of Wight, and Thames Valley (Berkshire, Buckinghamshire and Oxfordshire) as pilot areas for a provision that delivers across all benefit types.

The full FND phase 2 documentation is available here. The specification is 76 pages long, so you might need a mug of cocoa.


I'll be putting more analysis up over the coming weeks - there are some fairly simple calculations to be made that would yield interesting results around contract values and unit costs. I've also yet to plough through the spec, and it'll be interesting to see if more clarity emerges on whether the Conservatives will cancel the existing process or build on it, if it's not completed in time.

Where is Bexley?

Is that not in South London??

If this starts October 2010... same time as IDEAs?

Wont that be a lot of work for providers delivering both?

Update 18/6 - I'm going to split this story in two within the next day, with FND2 analysis in one, and analysis of what the various politicians have said in the other. David Freud got into rather a tangle trying to square his own comments with Theresa May's. The smaller and more contracts, the protection of small voluntary provision, and the 6 months start were all decidedly non-Freud, and Theresa essentially said that she had a basic lack of trust in a super-provider model.

Update 19/6 - I didn't split this story in the end, so it's a bit messy. I'll just have to publish new stories with further analysis of the current government and Conservative proposals for FND separately as it goes on.

Why is David Frued still allowed to have ANYTHING at all to do with benefit decisions?

His lack of knowledge of benefits (even by his own admission he knows little about them) is frightening, with several completely untrue statements made by him in a previous report.

For example claiming that people on incapacity benefit are only assessed by their own GP, clearly untrue.

Another example - claims that only around one third of claimants are genuine, when the official statistics indicate ZERO point five percent, or even less in some years.

This man has previously caused great damage to a large community of people by telling the public these untruths, yet he is still allowed to comment and be involved in decisions he is clearly not qualified or experienced enough to even begin to understand?

Have you all gone crazy?

update,above should read zero point five percent were fraudulent.

I would be interested to read Freud's full comments on why he defected to the Tory party. His lack of political loyalty may prove to be an omen regarding his commitment to his own position on FND.

Other reasons he gave included:

  • He didn't defect, as he only became a politician when he joined the Conservatives
  • His work with Purnell was essentially done in any case
  • His thinking was in alignment with the Conservatives

Interestingly, he didn't put up any kind of robust defence of Conservativism or suggest that he was a 'true' Conservative. He quite specifically mentioned that open political affiliation was not an option for much of his career.

Is he actually quoted as mentioning his prediction that the Conservatives will be in power after the next general election?

He's boiled down as mentioning that. I didn't make a word perfect transcription, but he was plain spoken on that point. Actual words may have been 'i thought they were more likely to win' or something similar.

In the opinion of many senior people, in both the private and public sector, David Freud is the worst thing to have happened to Welfare to Work in the last 20 years regardless of his political allegiances. His thinking is seriously flawed which will be demonstrated by the failure of the FND contracts in the mid term e.g. post 12 month funding cushion and General Election.
He was (and still is) a political appointee who lacked the credentials to independently assess the market and propose the correct solutions and is further evidence of the current Governments almost blind belief in Bankers. However, many suspect his brief was already sketched out for him by his political masters in line with their already discredited dogma that lead to that other great white elephant PFI.
I can understand the Conservatives welcoming a defector of his seniority and high profile and can only assume they were equally sceptical of what could be a purely opportunistic play.
His proposals (and the above statistics) are irrelevant - the fact is that his proposals and FND are already obsolete due to the recession which has removed the key principles of his proposals - mass unfilled job vacancies and a hard core of benefit dependants. As to large private sector companies carrying the financial burden and acting in the public interest remains to be tested - at the funding rates proposed I know for a fact that the large providers he consulted and often unprofessionally quotes in public(as at last years Welfare to Work conference) privately share the above belief but are now hamstrung with it being the only game in town and are relying on the integrity of the Civil Servants to sort the mess out when it occurs.
With circa 4.5 Million unemployed (multiplied by 3 for their direct family and friends aware of their plight) now dependant on our world class Welfare State the Conservatives run a real risk of losing a substantial block of votes by continuing Labours politically motivated dedication to FND.

Thanks for posting this. It's interesting to see the other side of the coin - there's often an assumption that providers are 100% behind FND, the Commissioning Strategy, and the whole kit and caboodle. While there are lobbying groups keen to give that impression, the reality is always more complex. In the case of the medium and smaller providers, it seems a bit like turkeys voting for Christmas.

Freud has repeatedly used the supermarket metaphor for his 'six superproviders' approach. As another conference delegate pointed out, this completely ignores the actual situation in retailing, which also includes a range of other supermarkets (e.g. Aldi, Netto, M&S), specialist retailers (Boots, various clothing stores), independent local shops and associations (Spar), and hundreds of other types of outlet. If anything, it's arguable that the situation in welfare to work right now is close to the reality of supermarkets, with a few dominant players complemented by many smaller and niche providers.

It is certainly the case that it's best of a bad job. The name of the game for emerging providers is to try and become part of the "inner circle". Those being Primes who stitched up the market by arranging subcontracts with other primes, leaving the 3rd sector and and other providers out in the cold.

FND, unfortunately, has set a presidence for all other programmes and I imagine this closed shop will be repeated in the JC+ Support contract round as well as the SDEP and others and will be the manifestation of how the "big six" develops.

It would be interesting to find out if any politician/DWP senior member of their family holds shares in the big private providers....

A good analysis of the position Daniel and one which again highlights the fundamental flaws in Mr. Freud’s beliefs. It is hard to understand that Civil Servants, Government Departments and Tax Payers actually want to replicate a commercial supply chain model that only significantly financially benefits a select few at the top. Whilst most people would express the view that the ‘big six’ super-markets squeeze their supply chains and quality levels to maximise profits they still exercise their choice and shop there to save a few valuable pence or just for the convenience of a one stop shop. If they do disapprove they have the choice of the other providers you illustrate. If you are an unemployed person you do not have that choice or access to a whole range of services regardless of what may be written in the bids. You are there because you have to be (or your benefits stop), you need to be (having a range of barriers to address) or, as we are now seeing more and more, you have no choice because the local labour market has collapsed in the recession. For me, to liken unemployed people in need with consumers choosing to spend the money they control is as wrong as believing that the supply chain model is appropriate. This is Tax Payers money being spent to deliver a needed public service for the benefits of it’s citizens. If the Government just handed the Welfare to Work Budget to the big 6 supermarkets tomorrow, seeing all existing long term Welfare to Work providers disappear either for good or into the supply chain, thus removing genuine competition, I would suggest that after 12 months the uproar over profits, salaries and secrecy over the use of public funds would make MP’s and BBC spending look like good, honest value for money. And yet in effect this is what is happening.

Bizarrely enough, and in the interests of balance, I should point out that I'm not a complete sceptic on the Commissioning Strategy. A lot of people for years beforehand were thinking exactly the stuff that Freud and the Commissioning Strategy said, albeit with more providers and smaller contract areas. ERSA's founding report was essentially a proto-Freud, and even smaller providers could get grumpy about the rats nest of provision, process-driven delivery, and complete lack of joined-up services.

I guess the question I would ask is, what do you think is good about the Commissioning Strategy? I'm deliberately focusing on the issue rather than the person here.

Seems to me the Tories have a rather schizophrenic relationship with David Freud. On one hand they like the thrust of his report and welcomed him into their fold, and he was happy to be there because he thought they liked him. However they also seem to be mumbling under their breaths about how the mega-contractor model he envisages would restrict the market and kill off competition by effectively debarring companies without a solid balance sheet and lots of reserves from even contemplating bidding.

The comm strategy as a whole is okay as far as it goes, but it still leaves a bit too much room for maneouvre in my book for huge monopolies which constrict and prey on the market, and that also potentially present a huge risk in terms of market failure. (For example, if a4e were to fall flat on their faces how many provders would be needed to pick up the pieces? The answer is either a: loads, which would blow the minds of the DWP procurement teams and mean they would have to rebuild their spreadsheets, so that's not an option or b: one - Serco.)

David Freud has to be the least qualified person I can imagine to have been given the job in the first place. Then again New Labour like nothing better, or at least they used to, than getting cosy with bankers as a way to solve all our economic woes.

I think that's a wee bit harsh, sceptic. His background isn't in welfare delivery, but it's arguable that this allowed him to look at structural issues more easily. I'm not sure that someone steeped in welfare research would be more suited to looking at market creation and management. Of course, there are economists and researchers who do specialise in precisely that...

"His first job - writing research on companies from whom he was also soliciting money for advice - would be illegal today" - although now he claims he wishes to run things ethically, many people claim a leopard never changes its spots....

"he moved into advising companies, and was involved in piecing together extremely complex deals such as the flotations of Eurotunnel and EuroDisney, which cost investors millions, and the financing of the Channel Tunnel rail link. "


"Eurotunnel opened in May 1994 one year behind schedule and £2bn ($2.9bn) over budget.

Sir David later admitted the deal was a "shambles" and that he had "successfully sold the market a pup". "

Hmmm.... what happened to being ethical....


"Freud recalls a fraught meeting in January 1998, at which he confessed to the deputy prime minister that his team had got its sums so wrong over the Channel Tunnel Rail Link that it was desperately seeking £1.2bn of public money to bridge the gap. After a “careful and extended cross-examination”, Prescott declined the request."


"It was a similar story for Euro Disney. I had engineered an extremely hot issue which was consequently overpriced and encouraged a level of overspend by the Disney organization that led to the subsidiary’s collapse and rescue.”"


His welfare reform paper showed a basic lack of research, even a student using google to conduct some easy searches on the topic would have been hard pressed to make the factual errors that Freud made. It really showed how little effort was put into the (very rushed) report.

Regardless of his background, or experience (which does seem rather dubious) the fact that he released a report without checking basic facts, even by the looks of things completely guessing on things (no evidence base for some assumptions, sorry statements he made- even stated by the Social Security Advisory Committee that it 'lacked a evidence base') casts serious doubt on this persons competance and suitability for the task.

Think of it this way, what if he came along and wrote a paper reviewing this very site, didnt know the first thing about it, probably didnt even visit the site, wrote several serious untruthes about the site to cast it in a bad light, and made many huge suggestions about how it should be changed, based on made up evidence, assumptions and untruthes, how would you feel if people and the press were beleiving his report rather than the truth, and this site was vilified in the press? After all he has experience as a banker, so he must be good.....

http://news.bbc.co.uk/1/hi/uk_politics/7891213.stm (bbc news - comments and work history)
http://www.liberalconspiracy.org/2009/07/14/fit-to-work-but-cant-work/ (blog comment about Social Security Advisory Committee comments on freud lacking an evidence base)
http://www.cpag.org.uk/press/020208.htm (child poverty action group press report on David Freuds innacurate report)
http://www.moneyweek.com/investment-advice/how-to-invest/moneyweek-book-... (moneyweek article re freud and tunnel) (google cache of dowjones online financial news article re disney and tunnel etc)

when will phase 2 results be available?
I work in a phase 2 area (dual provider area)

FND2 contracts are due to be awarded around election time next year, call it March or so. There's some uncertainty with this, as if they're not awarded before the Conservatives come in, then they'll be modified to fit Conservative proposals. This could introduce a further delay. Delivery start is October 2010.

May warns of welfare-to-work rethink

By Alex Barker and Nicholas Timmins

Published in the FT: August 2 2009

In the article Theresa May outlines her proposals in relation to contacts and signing dates: she wants to offer 10% up front payment and the rest of the fee on a 52 week job outcome.

Tony, you appear to be putting words in Theresa May's mouth. Theresa goes so far as to say she wants less than 40% as an up front 'service fee', but not how much less.

Anon, fND Phase 2 PQQ results are due imminently. From that we'll know which 5, 6 or 7 providers are through to the main bidding round & the timetable is scheduled for results to be announced in April of next year.

Does anybody know when the shortlisted bidders for FnD phase 2 is to be announced. Also, does anybody know when Support Contracts will be finalised i.e. who's been successful.

Not been able to post as spam filter comes on and says I am spam!

Hi Lucy,
I've just checked the log files and there have been a couple of hundred blocked spam message in the past two days, but no genuine ones rejected. There was a problem a week or so ago that I know of, but that should have been resolved. Have another bash? It's worth noting that logged in users don't go through the spam filter.

Job Support Contracts - Does anyone really know what is going on. I was informed the announcement was to be made yesterday, however all providers I have spoken to have had no contact regarding who has won the contracts. Can someone please shed some light on the situation.

Jobcentre Support Contract timetable states preferred bidders will be notified week commencing 14th Sept - so that could mean any time this week. FND2 Shortlisted providers should hear by this Friday too. It's going to be an interesting week!


correction - the ITT has been launched and all have now been told the areas they can bid for. Give it an hour though....

FND2 PQQ results are definitely out - all providers have been officially told which areas they've gone through to the next stage on, and the ITT pack has been released. I'll put up the information in a new story as soon as the results are released properly, since they're not up on the DWP site yet.