Government failing to deliver level playing field in competition for back-to-work services, finds think tank | Big Society Capital

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Government failing to deliver level playing field in competition for back-to-work services, finds think tank

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The Government will fail to create a level playing field in the competition between bidders for the Work and Health programme, according to new research published by the independent think tank Reform. 

The report, supported by Big Society Capital, warns that ministers’ aims to help long-term unemployed and disabled people back into work will be undermined as a result. Its recommendations include a different approach to the payment-by-results regime and a reduction of administrative burdens that have shut out all but the largest bidders from other central government procurements.

Bidding has started for the Work and Health Programme, which will provide back-to-work services for long term unemployed and disabled people from October 2017.  The Department for Work and Pensions has promised that the year-long competition should be open to all types of organisation.

Early feedback collected by the Reform think tank suggests that the barriers to competition that have plagued previous DWP procurements remain.  Providers interviewed were concerned that government had not provided key information on the contracts, including numbers of service users, contract value and even geographical boundaries.  One prospective supplier said that this was “the least level of clarity I have ever seen in this stage in the process”.

Risk aversion in government threatens to shut out charities and smaller organisations. DWP’s use of parent-company guarantees aim to provide government with some financial security if providers go bust, but past use has resulted in only the largest organisations being able to report the level of assets needed to secure such a guarantee.

Equally the large contract size of previous employment services has restricted competition to those organisations with sufficient capital to cover upfront costs. The Work Programme required annual turnover to be at least £20 million.

The Government should also pay attention to the effect of payment by results on competition.  In the Work Programme, up to 100 per cent of payments to providers was determined by the outcomes they achieved.  This caused cash-flow difficulties for all but the largest providers.  73 per cent of voluntary-sector organisations in a separate survey argued that the financial risks of payment-by-results contracts significantly limited their ability to compete.

The authors worry that commissioners place undue weight on price when assessing bids.  They show that success in returning unemployed people to sustained employment will achieve high long-term financial savings for the taxpayer.  They raise the concern that some organisations could bid at an unrealistically low price, resulting in a poor quality of service and a false economy for the taxpayer.

The think tank recommends that government should do much more to share key information and forecasts at an early stage.  It calls for less onerous parent-company guarantees than in previous programmes.  It suggests a cap on contract size of £10 million per annum.  It recommends that the proportion of income paid according to outcomes should vary between 70 per cent and 90 per cent of contract value.  To prevent “loss-leading” bids, government should set a maximum price for contracts and prevent providers from offering discounts of over 10 per cent.

Alexander Hitchcock, co-author of the report, said: “The Government is right to pursue energetic competition between bidders for welfare-to-work services. Getting this right will help some of the most vulnerable people in society into work.”

Cliff Prior, Chief Executive of Big Society Capital, said: “Charities and social enterprises have considerable skills and expertise to offer when it comes to providing public services yet they face barriers when bidding for, and winning, contracts. At the moment we do not have a level playing field when it comes to public-service procurement and this needs to change if we are to deliver the best outcomes for those in need, as well as achieving value for money. 

“As the Government prepares to launch the Work and Health Programme, to provide crucial support for those with health conditions and disabilities, we urge them to act on these recommendations from Reform.”

Last updated | 
13 July 2016