National Audit Office on the Work Programme – can providers survive?

The National Audit Office report on the introduction of the UK’s Department of Work and Pension’s (DWP) Work Programme was issued yesterday. The Programme went live last summer, and is designed with service providers helping benefit claimants to find jobs, with providers rewarded for success on a payment by results basis.

This is – as we’ve said before – perhaps the single most important public contract of any type in the UK, given that its outcomes will play a major part in the economic success (or failure) of the UK, as well as influencing the political prospects for the Government. And in putting the contacts in place very quickly, and with no legal challenge, the DWP were rightly feted for an excellent piece of procurement work.

But the first highly unusual point to note about this  report is a fundamental disagreement between NAO and DWP.  NAO goes to great length to gain agreement from the subjects of their reports prior to publication, so even if the organisation doesn’t like everything in it, the report can be presented to politicians as an agreed document between NAO and the subject. But not this one.

There’s a disagreement over a central  issue – whether the DWP’s forecast for the percentage of people for whom the providers will find work is reasonable. The DWP think that the providers will get 40% of Job Seeker’s Allowance claimants over 25 years old into jobs , while the NAO think it will be 26%, their analysis being based on previous similar programmes. That’s a huge difference, and if the DWP is being over-optimistic, it could make the difference between the contracts being reasonably profitable for the providers, and (in all likelihood), providers losing money on the deal. And that’s before any external factors such as a weakening economy, kick in.

The NAO therefore concludes that:

  • It is likely that providers will seek to recalibrate prices and other contract conditions during the lifetime of the contracts.
  • It is possible that one or more provider will get into serious financial difficulty during the term of the contract.

Interesting times ahead perhaps for the procurement and supplier management teams!

And somewhat buried in the report is an interesting comment – “areas for improvement will be added to a performance improvement plan. Currently 16 of the 40 contracts are subject to a performance improvement plan”.

16 out of 40 feels like a pretty high proportion for so early in the contract period – or should we take it as a sign of very diligent and thorough contract management?

Moving on to more generic issues, what I didn’t realise was that the Programme does not have a payback at the most basic level. It “loses money”.

“At the Department’s central performance assumption, the total change in the Exchequer’s budget from claimants moving into employment is £0.95 for every £1.00 spent. This is comprised of £0.70 of benefit savings including unemployment, housing and council tax benefit, and £0.25 in the form of increased tax revenues”.

The payback is more positive when you consider the wider societal benefits  - reduced crime, improved health etc.  “The Programme will generate £1.95 of social benefits for every £1.00 spent”.

NAO also makes a lot of positive comments about the Programme; providers offered even higher levels of performance and greater discounts than expected by the DWP, and NAO is positive about the procurement process and generally how DWP performed operationally -  “launching an innovative scheme to a very challenging timetable was a significant administrative achievement”.

But launching so quickly (which of course was a political imperative, not a civil service decision) meant that the Programme wasn’t piloted, £63M has been paid so far to terminate previous contracts, no alternatives to the new scheme were considered, and the IT system to support the Programme still isn’t fully in place. That last point means that, until at least March, payment is based on manual submissions from providers; not ideal and an additional pressure no doubt on supplier management.

Lots to consider; and while the strong rating of the procurement work  comes through the review process unscathed, the report certainly raises a few concerns for the future. Let’s hope for everyone’s sake that NAO are being overly cautious!

First Voice

  1. Rob:

    Guitar Man and his team need to be applauded for implementing this procurement which is centric around outcomes not inputs and outputs.

    Slightly sceptical of the NAO output, but they are there to (independently) ‘kick the tyres’ on Departments’ use of public money (and achieving value-for-money) and they don’t tend to go to press without the underlying evidence. As you say Peter, rare to see a disagreement on one of the fundamental measures.

    There is an army of welfare/work experts and capable procurement folk in the DWP, so I’m going to lean toward their camp. It will be an interesting PAC to watch (and possibly attend, methinks…)…

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