From the TUC

Contracting-out employment services

02 Mar 2010, by in Labour market, Public services

New research shows that Pathways to Work – the Government’s main employment programme for disabled people – is being undermined by the determination to contract-out provision to private and voluntary sector organisations. The people who need the most help are losing out as a result and the pressure on resources is hurting the quality of the programme.

Ever since David Freud’s report for the Department for Work and Pensions on welfare-to-work programmes was published in 2007 the Department has been contracting-out services to the private and voluntary sectors. The contracts for have funded the providers of these services on an “outcome-related” basis. This is sometimes known as a ‘black box’ approach: the Department does not specify how organisations are to help people into work, they get paid on the basis of how many people they help. As far as the DWP is concerned, the how goes on inside a black box, the outcome is all that matters. (In reality, it’s a bit more subtle than that, but you get the point.)

This is one of those issues where the Government and Opposition agree. The Conservative plans for a new scheme – the Work Programme – go even further:

“The Work Programme providers will be paid almost entirely by results, ensuring that we get value for money. And our system of differential payments means that providers will be incentivised to help those furthest from the labour market, not ignore them in favour of easier to place candidates. By lengthening the period of engagement between providers and individuals we will make it more likely that providers will be able to help people back into work. Our whole programme is designed to achieve meaningful, long term, high quality results. We want to transform welfare to work provision in this country to benefit everyone.”

This consensus owes its existence to contempt for the capabilities of the public sector. All too often, politicians simply assume the ineffectiveness of civil servants. When the public sector has been allowed to compete on an even footing with private-sector organisations, it has shown itself at least their match. For instance, a programme known as Action Teams for Jobs was delivered in some areas by Jobcentre Plus, in others by private sector organisations. The independent evaluation of the programme found that:

“The 25 PSL teams as a whole only met 78 per cent of their job entry targets in year one of Phase 3 of Action Teams, compared to the 40 Jobcentre Plus teams, as a whole, who achieved 140 per cent of their job entry targets. PSL teams, as a whole, achieved 69 per cent of their outcomes from non-JSA customers, compared to Jobcentre Plus teams, as a whole, who achieved 76 per cent (again, exceeding the target of 70 per cent). PSL teams, as a whole, moved into work proportionately more clients who had only been out of work for a short time than Jobcentre Plus teams. They were also proportionately more likely to work with clients with just one of the target disadvantages than Jobcentre Plus teams, as a whole, were.”

The other factor underlying contracting-out generally – and the use of outcome-related funding in particular – is a deep faith in the power of profits to motivate providers. Once this is accepted, getting people into jobs then becomes merely a matter of designing contracts to make sure that providers have sufficient incentives to get jobs for even the most difficult to help.

A problem with this approach is that it assumes that organisations will always aim for the highest profits possible. In fact, the hardest to help clients are so hard to help that getting the extra payments they attract is always going to be an uncertain business. If it is possible to live with the lower level of payments associated with the less challenging clients then that is what providers are likely to aim for.

One way to achieve a satisfactory (but not too challenging) income is to identify the most job-ready clients, concentrate on them, whilst ignoring those with more problems – ‘creaming’ and ‘parking’ as this is known. When this happens, there is a risk that people who are members of groups subject to discrimination – such as black people – are especially likely to be ‘parked’, while people who are already at an advantage are more likely to be ‘creamed’.

I have spent a good deal of the last few years raising this issue with politicians, officials and lobbyists. The answer is nearly always the same – if we design our contracts cleverly, we won’t have that problem. (It’s interesting that people who believe that the public sector is worse at everything also believe that civil servants will be able to negotiate water-tight contracts with private sector partners whose incentives won’t necessarily operate in that direction at all.)

Whatever the theory, the new research shows that we certainly don’t have those perfect contracts yet. Researchers from the independent Policy Studies Institute, working for the DWP looked at The influence of outcome-based contracting on provider-led Pathways to Work.

They found that creaming and parking are definitely happening in areas where Pathways to Work – the DWP’s flagship employment programme for disabled people – is delivered by the private and voluntary sector. As the report put it, “the extent and nature of work that advisers did with clients was influenced by their classification as easier or harder to help”; some providers actually went so far as classify their clients on a 1 – 5 scale or as ‘red’, ‘amber’ or ‘green.’ As one Adviser commented:

“…if we don’t get our target we lose our job, because if we don’t get our target the company fails.”

Some of the people interviewed by the researchers justified this approach in terms of what is fair to clients with severe health problems:

“There are some that I might go through the motions with because they’re so ill that they really shouldn’t be with us. In my opinion they’re never going to be able to return to work, they might have umpteen ailments from heart disease to COPD [Chronic Obstructive Pulmonary Disease], emphysema, there’s no cure, there’s no recovery, you know, they’re so ill at the minute that they can’t work, there is no next step, is there? I know it sounds very negative but something like emphysema it’s downhill from here on, there is no recovery.”

Actually, I’ve made similar comments in the debates about what obligations are fair for disabled people, but the fact is that neither the Government nor the Opposition has accepted them. In their terms, that quotation is simply a justification for providers’ abuse of the programme. They should be the first to recognise that designing contracts to eliminate creaming and parking is far more difficult than it seems from the outside.

This new research is embarrassing for the Government, but it’s even more of a problem for the Opposition. The Conservatives’ emphasis is on a simpler approach to labour market policy, one of their themes is that the Work Programme would be far simpler than the current schemes, but one thing that is sure about designing contracts in this field is that simplicity means having fewer objectives – but it isn’t possible to eliminate creaming and parking without making the outcomes more complicated.

An even tougher problem for the Conservatives is their insistence that the Work Programme will be cheaper than the existing schemes, because one of the themes of the latest research is that providers are already feeling the pinch. Pathways to Work was designed before the recession and the influx of extra clients is making it much harder to operate – “in the current climate the parameters of the contract were not considered to be feasible.” Providers worried that they did not have the capacity to help people who needed extra support or to experiment with innovative new ways of providing that support – an important point if we remember that ability to innovate is supposed to be one of the strengths of the private sector that justifies contracting-out.