Key points from the Social Market Foundation report on flexible New Deal

The SMF report builds on their presentation at the Inclusion Welfare-to-work conference in June. The report identifies various flaws with FND, and suggests solutions to each of them:

National performance targets don’t help providers to build realistic performance estimates

Solution: DWP publishes a finer-grained analysis of outcome expectations, and interview contractors to establish how they have set their own performance figures as part of contract award.

Comment: This seems to be suggesting that DWP performance requirements are unrealistic, and will result in undeliverable contracts. It's also presumably the source of the newspaper headlines about companies bidding unrealistically low to win contracts and having to push up their prices to sort out the mess once they're actually delivering. Resolving the issue may also require very clear up-front information about how defaulting contractors will be handled, since companies may otherwise assume the best.

Flat-fee job outcome payments will lead to parking

Solution 1: Higher initial service payments clawed back through fines for not placing customers into work within 12 months of start.

Solution 2: More money for each outcome as the total percentage of customers entering work rises.

Comment: Solution 1 provides a rather handy subsidy for providers, as it essentially amounts to paying them in advance for expected job outcomes. Solution 2 is ingenious, matching the increased cost of placing more difficult customers with an increased reward. However, it works on the assumption that parking is undesirable – what if it makes economic sense to keep some people on benefits rather than paying lots of money to place them into work? The mathematical complexity of a claims system that bases payments on the total percentage of customers from a specific starting time that have entered work to date is also rather forbidding.

6 month sustainment isn’t long enough

Solution: Put in an additional payment for 12 month sustainment.

Comment: It’s interesting that the SMF are advocating more money on top of existing spending, rather than moving the 6 month payment to 12. They can however point to research into Employment Zones that confirms high drop-out between 6 and 12 months.

Prime contractors have too much power over subcontractors

Solution 1: Force primes to use something akin to an open book approach.

Solution 2: Force primes to pay subcontractors a fair split on service fee and outcome fee.

Comment: The fear is that primes will stitch up their subcontractors by sending them hardest-to-help customers and only paying on job outcomes. In current New Deal delivery, there have been reports of some primes paying subcontractors almost entirely on outcome fees and sending them only the most difficult customers, so the fear is probably justified. It’s interesting that some of solution 1 has already been adopted by Serco, who are using an open book approach with subcontractors. Primes that hurt their subcontractors will in any case hit problems with subcontracting over the longer term, as their reputation goes downhill.

The DWP has a conflict of interest in both regulating the market and trying to keep it operating smoothly and without conflict

Solution: Devolve regulation to an independent ombudsman.

Comment: This claim is not outlined in detail in the report summary, so while an independent ombudsman would theoretically resolve the issue more work might need to be done to determine the problem actually exists.

Third sector specialist providers can engage with and support people outside of the Jobcentre framework

Solution: Pay third sector providers for outreach work that doesn’t pass through the Jobcentre system.

Comment: This is perhaps the wackiest recommendation. Paying third sector specialists for outreach and support is already funded through ESF, NDDP and various other funding streams. Trying to divert FND funding into specialist outreach work would involve completely ignoring the provision’s structure, processes and purpose.

Further reading:

The report itself, with an introduction by Stephen Timms (pdf)
Article in Charity Finance
Article in the Guardian