What is the DWP Commissioning Strategy?

The DWP Commissioning Strategy is the document which sets out how the department designs, buys and manages contracted employment services. It was published in February 2008, and builds on the recommendations of the Freud Report.

  • 5 to 7 year long Prime Contracts
  • 80% payment on results, primarily 6 month sustainments
  • Contract areas larger than Districts, smaller than Regions
  • Prime Contractors do not have to deliver *any* services directly
  • Aiming to award 80% of business to existing top tier providers, leaving 20% to new entrants such as Serco, Capita or Maximus. New entrants can use evidence of performance in unrelated fields
  • Contract performance information will be made publicly available
  • Working on joint commissioning of employment and skills provision with LSCs
  • Localisation occurs through partnership working and feed-in of local information into specifications in the Commissioning Strategy's vision. This has since changed to include the possibility of giving control of funds to local partners
  • Reduce paper-based data collection through new data systems

and some quick analysis on what all of this means...

What it means for large providers
Mostly good news - big companies shall finally inherit the Earth. However, the commissioning budget is sticking at about a billion, and DWP's own budget is still going down. Plus the big providers from the US, the Netherlands and Australia are all joining the fray.

What it means for medium providers
You live in interesting times. The industry size structure is clearly moving to large top tier contractors and smaller specialist providers, so the options are to either become a top tier Prime Contractor or compete in the same league as the smaller providers. The leap to top tier Prime Contracting will require major capital investment. Large providers will likely outgun medium ones at every stage of the contracting competition, and will be able to make a better case for their capacity to manage the contract sizes involved. The small provider approach, meanwhile, has its own barriers and opportunities.

What it means for small providers
The days of small providers raking in the profits for their owners with sketchy government oversight are well and truly gone. There'll be very few direct contracts from government in future. Instead you'll be selling to Prime Contractors, who will be looking to pass on the highly target-driven funding model that the government is pushing ahead with.

Specialist niche providers should thrive in this market, helping customers with specific disabilities / drugs and alcohol / homelessness and the like. Very local providers may also do well, especially in areas where it doesn't make financial sense for Prime Contractors to set up their own office. Third sector organisations probably fit the bill for these rather better than the private sector providers that have been delivering welfare-to-work services more generally.

More general welfare-to-work providers face rather tougher options:

  • Selling out to a big new entrant - Biscom and Maatwerk have been bought by ResCare, Mission Australia have bought into Working Links, and Maximus are looking for a foot in the door as well
  • Developing a USP to sell your services to Prime Contractors, preferably before those handy ESF contracts run out
  • Subcontracting to pure management organisations that don't want to provide all the more generic adviser and training delivery in-house. Serco appear to following this approach
  • Moving into another market. Adult training is the closest market in many ways

Resources

The original report is available here in pdf format.

Comments

Update 22/5/09 - This was originally posted in March 2008. Since then the situation has developed somewhat. Specifically, payment on outcomes has become less important, a recession's kicked in, and medium-size providers have bolstered their position by subcontracting to Serco (as Serco are offering pure contract management, they need medium-sized providers to handle primary delivery) and teaming up in each other's bids.