The UK Government’s Welfare-to-Work Programme has come under fire, after revealing that far fewer people had made it into sustained work in the first year since it was launched than expected. DWP figures showed that only 3.53% of people looking for work had actually kept their job for six months or more in the first year, falling short of the 5.5% target set for suppliers to the programme.
The Work Programme began in June 2011 (see SITS providers lose out in DWP’s Work Programme), and could have been worth between £3bn and £5bn to support service suppliers like Serco, G4S, A4E, Avanta and Igneus over the course of the next seven years. However it is clear now only a fraction of that is actually being spent with suppliers since they are only paid by results.
According to the DWP’s stats, ESG Group has been the most successful of the suppliers over the 12 months to July 2012, having got 13.2% of applicants a job, followed by EOS-Works at 10.5%. Serco and G4S each came next with an aggregate of 10% across their contracts. However, DWP doesn’t say which suppliers have met or missed the 5.5% target for six months continual work.
This so-called payment by results (PBR) model is very attractive to the public sector right now since it requires zero upfront costs for the client (see Capita payment by results deal with Borders Agency). But we think it also has many risks attached for both sides.
In the Work Programme, PBR is incentivising the suppliers to pick the low hanging fruit i.e. the people that are easiest to get back into work. Meanwhile those harder sells like the inexperienced and long term unemployed are being overlooked. It also shows that there is very little incentive for the supplier to invest in supporting activities like training or work placements, if there is no guarantee of a return from that investment.
We think a more equitable approach to risk sharing is needed here. Other options do exist that provide a base contract for services, plus incentive structures, like PBR, on top. This could help off-set the risks associated with PBR, and drive a better outcome for the client.
We will be exploring PBR and other outcome-based pricing models in detail in a forthcoming report for TechMarketView’s BusinessProcessViews research stream.