innovation in welfare to work

1Manchester Institute of Innovation Research

A MIOIR Case Study on Public Procurement and Innovation:

DWP Work Programme Procurement -

delivering innovation in efficiencies or personalised

services for claimants?

Dr Su Maddock

Manchester Institute of Innovation Research

Presentation to CESI Conference

Birmingham July 10-11th 2012


Introduction

The Work Programme procurement model was devised as a policy tool to reduce the number long term claimants, cut the costs welfare benefits and deliver personalised services for long-term claimants.

The Work Programme the largest service contract for personalised services- hence a flagship for the government, with a budget of £5 bill.

Viewed as innovative through a two-tier business model that rationalise government procurement and incentivise social outcomes through ’payment by results’.

Jeremy Heywood, the Cabinet Secretary said

If we could find a way of using the private sector to take more risk in the public sector for good social outcomes it would a great step forward, It is for those areas that require intense intervention. The Work Programme is the biggest by far.


Methodology

The study was part of a larger study by MIOIR on public procurement and innovation. It’s question was how far the two-tier procurement model was a framework for securing service innovation for claimants – overall and above innovations in processes and financial systems.

The research was intended to explore the dynamics in the supply chain and impact of the commissioning framework on the capacity of contractors to deliver personalised services (social outcomes)

It is based on critical enquiry approach through a multi-stakeholder analysis: based on interviews with smaller and large contractors, DWP, local government officials, social enterprise and claimants. An analysis of the Work Programme as an innovation system is anchored in an understanding of service personalisation in the UK.


Policy Objectives

The Work Programme is complex and can be evaluated against many different objectives as it is underpinned by various policy objectives:-

Cost-savings and efficiencies Personal service Innovation Marketization (privatization) of service provision. Transferring financial risk from the tax-payer to contractors ‘payment-by-results’ system.

The question is whether the model is geared to and aligned with the conditions that most support personalised service innovation claimants ?


Long term claimants

The DWP Model

CO Government policies – marketization, efficiencies & service innovation determine theDWP Commissioning Framework & Funding

Smallersuppliers

Contract with Sub-contractors

Deliver services to claimants

DWP Procurement team

Primes Primes Primes

specialistsuppliers

Contract with


This is an analysis of the views of stakeholders ( supply-side) and the government and claimant on the demand side.

The following is not an attack any one group – and it is recognised that all those working with the WP are trying to make it work for job-seekers /claimants

However, there is a need for systemic analysis that begins to unravel tensions in the system and critique the procurement in relation to the demand as well as the supply side.


Public service innovation learning

What we know about PSI

tendency in governments to imagine that ‘scaling-up’ of PSI can be managed through a forms of procurement that ignore the need for suppliers to be open service user experience and willing to co-design solutions.

Public service innovation moves between people wanting to solve problems, transform staff and service recipient relationships and prioritise adding social value over other priorities.

Service innovation flow often blocked by functional systems within established and institutional bodies (Kay/Maddock/NESTA/Mulgan)

Which is why PSI intermediaries recognize that champions, innovation capabilities and leadership shift in attitudes and relationships between citizens and staff.


Public Service Innovation Drivers

Given the queries about supplier performance within DWP it is worth referring to the characteristics of organisations that stimulate service innovations –

Focus on problems to be solved

on people, their experience and deliver holistic services

Collaborate across boundaries to come up with previously unimagined solutions

Often are marginal to the mainstream

Staff free to network and work with other agencies and the labour market

Are flatter, smaller agencies driven by values- capability rich – but cash poor

Often have long-standing locality or specialist connections

These are difficult criteria to replicate in larger companies and public institutions.


Back to WP - Expectations

The WP Business Model assumed that if

claimants move into work the government saves

money – originally DWP claimed WP would part-

fund the payments made to providers from

savings – savings they would claw back from the

Treasury. The question is, are these expectations

still feasible given the recesssion and lack of jobs

in many parts of the country?


Numbers and Expectations

3-3.5m people make a claim for job seekers allowance (JSA) every

year; approximately - 10% of these are allocated to the Work

Programme: which is now mandatory for all adults.

DWP expected a rise of 83% of claimants in 2012 and a further rise of

71% in 2013, however, the increase in joblessness in 2011 put

pressure on the Work Programme and it became increasingly difficult

to predict claimant numbers with unemployment rising and job

vacancies contracting.

DWP had originally estimated that the WP could return 40% of long-

term claimants back to work, however, in February 2012 the NAO

estimated that more likely the programme would support 25% of long-

term claimants back into work. Chris Grayling put the estimate at

36%.


Selecting the Primes

DWP selected nineteen prime contractors

Two or three to each region or city region, most Primes gained more

than one regional contract, the maximum number is seven.

Selection of the Prime Contractors by DWP is based on criteria set

by DWP that prioritized their ability to carry the financial risk of

slow results- the companies had to demonstrate

1. Financial capability

2. financial assets

3.Experience in personalised service delivery

4.A willingness to collaborate local authorities etc.

The Primes were awarded seven year contracts to ensure that they

had time to develop innovative services. Some, local consortia &

medium sized sub-contractors withdrew from award process because

they could not debit their costs by the 8% to win ‘prime’ contracts.


Fees and Payments

Based on payment for outcomes rather than processes

DWP pays the prime contractors through a series of payments and a

pricing schedule that reflects the difficulty/ probability of helping long-

term claimants back into work.

Primes paid an attachment fee (£300-400 ) per person depending on

the claimant group. If that person finds a job between 3 weeks or 26

weeks, another payment is made of around £1200.

payments are tapered to reward supplier success of ensuring that

claimants remained in work, if they stay employed for two years the

supplier could receive max of £13,500 for an ex-IB customer.

The maximum payment for returning JSA claimants into work is closer

to £4500. There are many other financial details.....

Only prime contractors receive incentives.


Current controversies

There is controversy around the Work Programme- particularly in relation to some prime contractors. There is also a growing tension around the cost of working with the most vulnerable people, when jobs are scarce. Should the state or the companies be carrying the costs of social development ?

There appears to be:- Too little money in the system for specialist support specialist providers suffering cash-flow problems. Too few jobs and too little prime involvement in the jobs markets Black-box approach which gives freedoms to suppliers, not leading to

innovation DWP Concerns over supply performance Also, wider concerns over the lack of connection between WP and

skills and enterprise and with business and local authorities.

14Jakob Edler Manchester Institute of Innovation Research

A Systemic Analysis

This is an analysis of the wider system and the voice of those key stakeholders working within it.

It is about the supply-side, the context of the supply chain and government demand .

It is a systemic analysis that is an attempt to unravel increasing tensions in the system

It is not intended as an attack on any one group – but it does draw attention to the gearing of the system and to those organisations that most benefit from commissioning criteria and procurement design.

It recognizes that all working with the WP frame are motivated to support people into work.


Voice of Stakeholders: Claimants

There innovative suppliers – but as many outside the system as contracted within it. Positive feedback about specialist, sub-contractors in some regions working with vulnerable people are demonstrating results and helping claimants gain confidence.

Older claimants report that the model works better for younger people with fewer skills than it does for those over 40 who have experience and might be better advised to create their own business rather than wait for low-paid, part-time jobs to be created.

Those with chronic mental health problems and disabilities –very anxious and most affected by the assessment process.

Assessment techniques of ATOS criticised-Numbers refusing WP assessment increasing- 40% winning appeals

Patchy provision across the country, which depends on locality relationships – very difficult for DWP to have intelligence of these and primes also express a lack of capacity to keep track of changes.


Sub-contractors tend to be small businesses, that are for-profit but work to social objectives, social enterprise, reliant on government contracts.

They report that (more detailed input in report) WP is not structured to tackle long-term unemployment in rural areas where

jobs are few.

WP no cash incentives for developing relationships with claimants and other local agencies (local authorities, colleges etc).

Financial incentives are not passed on to subcontractors –this is resulting cash-flow problems for many smaller suppliers around the country. Few primes making payments after input by SMEs.

• Many 3rd sector and specialist providers suggest that innovative services are best delivered by local providers and sustained through locality innovation strategies.

Voice of sub-contractors

17Innovation Research

Voice of prime- contractors

Primes vary in their approaches and detail of their comments – common themes and comments are that they :-

Welcome ‘ Social Outcome-based commissioning’ and ‘ payment by results.’

Finances not stacking up for them – bid below costs, jobs not available working with claimants harder than anticipated.

the unpredictability of claimant numbers a problem which has been exacerbated by the number of claimants appealing against their assessment.

Some evidence of exaggerating results, cutting corners – later this will be more difficult if results of those in work will be visible to HMRC

DWP anxious about commercial sensitivities but contractors say they meet frequently for discussions on contracts.

They also that the government t is too focused on the supply side and not enough on strategic commissioning or inter-departmental working

Directors would welcome incentives for greater involvement with local authorities.


Voice of the Primes

“We see integrated local services and relationships with local authorities as the future. DWP could support more innovative services by pooling their resources with other departments and leaving commissioning to local partnerships who are better placed to purchase integrated services. There are savings to be made from joint commissioning by government depts.- at the moment four or five depts., including DWP are funding back to work schemes and opportunities for vulnerable adults”.

SERCO executive, former LA Director of Education.

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DWP- the demand side

DWP Sheffield-based procurement team is managing the supply chain and contracts in an open manner and are receptive to feedback, they have negotiated changes to the delivery cycle and developed MERLIN standard.

However, being in Sheffield, they appeared to be at a distance from strategic decision-making and the commissioning framework.

While DWP is highly efficient and at the forefront of driving efficiency-

relationships with localities( jobcentres) appear weakened by loss of employment’ officials who invested in co-design pilots with

LAs, who recognized that if DWP delivery did not have some alignment with localities, a step-change in DWP internal innovation capacities would be limited.

Unease among DWP officials about dept’s lack of strategic commissioning and cross- government commissioning which is hampering locality service improvements.


Findings

A NAO report published in Jan 2012 commented that while the WP timeframes for results was unrealistic given the rise in unemployment and the reduced number of jobs, the system appeared to be working.

DWP July figures report only adequate performance and a concern in DWP about supplier performance (Cave 10 July 2012)

Procurement process improvements :- A reduced number of prime contractors resulting in efficiencies in the

short term, however, DWP is managing the longer supply chain and relationships with the labour market and local authorities remain weak

The Merlin Standard as a quality assurance scheme welcomed by contractors.

All welcomed ‘payment by results’ but some say not put into practice. Repayments by the treasury to DWP an internal innovation but

uncertain when such savings to the department occur.


Current realities

Meeting the original expectations of for the WP are difficult to achieve given the recession and recent figures from the DWP question the performance of some suppliers.

However, poor performance could also be because the procurement and business model is not working in the way predicted.

This may not be the fault of any one stakeholder group but because of the gearing of the business model and assumptions about innovation flow.


Findings & Analysis

While specialists struggle to provide a personalised service more Prime contractors are reporting claimants to DWP for non-attendance and for benefit cut. Capgemini referred the most cases (11,910) of which DWP cut 6,210, A4e referred the second largest number (10,120).

While it may be a requirement for primes to report non-attendance - the increased numbers indicate a retreat to the ‘stick approach rather than the ‘carrot’ of personal support.

The whole point of the two-tier procurement process was for primes to carry risk and work with government and for specialists to support people back into work.


Findings & Analysis

Systemic analysis would suggest that there is a tension between personalisation and service innovation objectives and centralised

systems organised for efficiency gains. Even large contractors say they are being unlikely to both meet service outcomes and make a return. Profit wins over service innovation if no public investment in social development.

the procurement model favours larger companies (primes) with financial assets over smaller specialists with the capacity to deliver service innovation. payment by results’ positive payment delay is disadvantaging small, charitable providers who cannot afford to wait a year for payment. The gearing of the WP is to support large for-profit companies at the expense of local, specialist suppliers.

the primes so have the capacity or governance authority to orchestrate the develop local jobs market,

all say that they are working below costs at present


System development :

Locality Collaboration

Locality commissioning and devolved budgets one way to improve WP integration with local jobs market and support smaller specialists,

deliver complex service innovation and build local and personal resilience. While there is still a resistance to local government, government perhaps this is changing given

* Government ‘devolvement deals’ to cities beyond

Manchester and Liverpool,

* community budgets work by local authorities who are delivering service innovation to high cost families in Manchester, Swindon etc

* increasing number of locality consortia, i.e. in Cornwall where there is a SE supplier consortia work in partnership with

Cornwall CC, Cornwall college and prime contractor.


System development:

Locality Collaboration

The Cornwall Work programme has been a national exemplar for this 'single purse' approach where the support has been tailored to the individual and aligned with local economic development, skills and labour market strategies. Indeed, the Convergence ESF programme is an example of such a strategy that is geared to a commissioning approach from local suppliers. This has proved highly successful and the Cornwall programme is acknowledged as the most successful ESF programme in the country.

Head of economic development, Cornwall CC 2012

26

Conclusions

Political expectations and ideology are overriding realities of the practice. Large and small Suppliers fear that that the top-down model of procurement will eventually come into conflict with service personalisation requirements and the stimulation of the jobs market which depend on horizontal relationships and locality integration.

WP procurement framework favours large, companies who have the assets to carry risk – debate to be had on government’s role in governance and risk.‘ Such that blanket Marketization will not lead to service innovation without a shift in overarching governance.

This is not the fault of companies who are carrying the costs of difficult service innovation and of connectivity in the system- which requires some social investment to ensure value-added services and the knowledge and human infrastructures to support them

Manchester Institute of Innovation ResearchSecondly, the vertical two-tier model by design reinforces the relationships between corporate primes and central government when as the DWP locality pilots show it is

local relationships that sustain connect


Conclusions

Process innovation is limited when it is not aligned to a wider commissioning framework

A need for locality investment in inter-agency working and invisible costs of social development.

ideological resistance to local government is undermining the very relationships between stakeholders who are developing integrated commissioning within cities.

Government attitudes to local government is ignoring the significance of the role of locality governance in stimulating jobs and creating a context for innovative services that add public value.

Devolved funding to local partnerships could better forge and sustain a closer connection between the needs of claimants and employers.


Policy recommendations

WP could be transformative if commissioning were devolved to localities to develop social market of innovative suppliers and potential employers.

Rebalance criteria for contract awards and incentives for service

innovation outcomes and financial risk transfer.

Encourage medium-sized, service providers with locality connections a chance to bid for larger contracts to deliver personalised services for marginal, under-employed people.

Incentives and ‘Credits' for innovative, smaller suppliers.

Integrate welfare reform with training and enterprise policies.

Policy recommendations

Manchester Institute of Innovation Research 29

Wider System alignment could involve:-

• Would integrate WP with enterprise and skill’s in practice;

• Support locality commissioning to incentivise inter-agency relationships, innovation across personal services and locality resilience in the jobs market in conjunction with locality partnerships, Local Enterprise Partnership and creative suppliers;

• Opportunity to create inter-departmental pooled funding ;

• Develop the demand side for more innovative public sector across government


References

Hambleton,Robin and Howard, Joanne. 2012. Public Sector Innovation and Local Leadership. http://www.jrf.org.uk

Kay, John. 2009. Obliquity: why our goals are best achieved indirectly. London: Profile Books

Maddock, Su. 2002 Making Modernization Work: New Narratives, Change Strategies & People Management. J of Public Sector Management. 15(1) : 13-43

Maddock, Su. 2009. Leading Innovation: Change you can believe in. google- also Maddock,Su & Robinson,Ben. 2010 Place Based Innovation. available [email protected]

Maddock, Su, 2012. The Whitehall Innovation Hub: Innovation, Capabilities and Connectivity. The Innovation Journal google

Mulgan, Geoff. 2007. Ready or Not? Taking Innovation in the Public Sector Seriously, London. NESTA provocation: London. April.

http://www.jrf.org.uk/

mailto:[email protected]

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Thank you for your attention

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