Presentation to CESI Conference Birmingham July 10-11 th 2012

1. A MIOIR Case Study on Public Procurement and Innovation:DWP Work Programme Procurement -delivering innovation in efficiencies or personalised services for claimants?Dr Su MaddockManchester Institute of Innovation Research Presentation to CESI Conference Birmingham July 10-11th 2012 Manchester Institute of Innovation Research

2. 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. Manchester Institute of Innovation Research

3. Policy Objectives The Work Programme is underpinned by various and conflicting 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 Work Programme is complex and can be evaluated against different objectives Manchester Institute of Innovation Research

4. The DWP WP Model CO Government policies – marketization, efficiencies & service innovation determine the DWP Commissioning Framework & Funding Contract with Sub-contractors DWP Procurement team Contract with Primes Primes Primes Smaller suppliers specialistsuppliers Deliver services to claimants Long term claimants Manchester Institute of Innovation Research

5. Methodology The study explored how far the two-tier business model and payment by results was influencing the capacity of contractors to deliver the social outcomes of personalised services? The study was part of a larger study on public procurement by government to secure innovation. The research is based on • Qualitative research • A multi-stakeholder approach • Interviews with smaller and large contractors, DWP, Local government and social enterprise networks and claimants Manchester Institute of Innovation Research

6. Public service innovation learning What we know about PSI • tendency in governments to imagine that ‘scaling-up’ can be managed through a linear pipe-line and procurement . • When, innovation flow is viral and moves between people not through highly functional systems. • service innovation flow which is dependent on receptive players gets blocked 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. (WIH strategy) Manchester Institute of Innovation Research

7. Public Service Innovation Drivers Observations of successful innovations suggest that those driving PSI – working at the relationships • Focus on solutions by sharing problems • Focus on people • Work outside the mainstream to deliver holistic services • Free to work with other agencies and the labour market • Work in flatter, agencies driven by values- i.e SE which are capability rich – but cash poor • Locality or specialist connections significant Manchester Institute of Innovation Research

8. Back to WP -How it works 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 This has never happened before and the Treasury are nervous about it (DWP procurement team lead). Manchester Institute of Innovation Research

9. 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 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. • 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. Manchester Institute of Innovation Research

10. Fees and Payments • WP contracts for seven years to develop the market and to ensure personalised (innovative) services; • tapered payments on the basis of how long a claimant remained in work. • 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. • the claimant on IB and they remain in work for two years, then the supplier could receive payment for up to 2 years, which gives a total maximum payment for an ex-IB customer of £13,500. • The maximum payment for returning JSA claimants into work is closer to £4500. Manchester Institute of Innovation Research

11. 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 have the time to develop new services. Manchester Institute of Innovation Research

12. Claimants • 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 mental health –anxious • Numbers refusing WP assessment increasing- 40% winning appeals • Assessment techniques of ATOS criticised • Some specialist, sub-contractors working with vulnerable people are demonstrating results and helping claimants gain confidence. • Patchy provision across the country depends on locality relationships – very difficult for DWP to have intelligence of those • Those with mental and chronic incapacities most affected. Manchester Institute of Innovation Research

13. Findings –Sub-contractors Comments from Specialist suppliers • Most sub-contractors are small businesses, local charities etc are reliant on government contracts. They report that • the WP is not structured to tackle long-term unemployment in rural areas where jobs are few. • time-frames are too short which limits their capacity to develop relationships with claimants and other local agencies (local authorities, colleges etc). • Some medium sized sub-contractors reported that they withdrew from initial award process to become a prime because they could not reduce their costs by the 8% as the larger companies were doing to win ‘prime’ contracts from DWP. • Financial incentives are not passed on to subcontractors –this is resulting cash-flow problems. • Many 3rd sector and specialist providers suggest that innovative services are best delivered by local providers and sustained through locality innovation strategies. • There is a tension between business model and personalisation (care) model. Manchester Institute of Innovation Research

14. Prime- contractors • All Primes are sub-contracting, some with each other and ‘’buddying up”, • They welcome ‘Outcome-based commissioning’ • involved in developing jobs market locally and with national companies. • However, the unpredictability of claimant numbers a problem which has been exacerbated by the number of claimants appealing against their assessment. • ‘Gaming’ exaggerating results, cutting corners, speeding up processes- to cut costs evident. • delivery cycle of WP remains too short, • DWP team anxious about commercial sensitivities but contractors already meet to discuss market fluctuations. • Say that the government too focused on the supply side and not enough on strategic commissioning or inter-departmental working Innovation Research

15. 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. Manchester Institute of Innovation Research

16. 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. Process improvements include:- • 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. • Repayments by the treasury to DWP of some savings to the department as an incentive to policy-makers. • The Merlin Standard as a quality assurance scheme welcomed by contractors. • Most stakeholders endorse ‘payment by results’ but many say it is not put into practice. Manchester Institute of Innovation Research

17. Findings • While specialists struggle to provide personalised service many Prime contractors are resorting to heavy sticks to get claimants into line and asking DWP to cut the benefits of an even greater numbers of claimants for not attending their assessments. • Capgemini referred the most cases (11,910) of which DWP cut 6,210, A4e referred the second largest number (10,120). • Worrying when the whole point of the procurement process is that companies are awarded contracts with companies that can provide personal services to help people back into training/work. • Implications for the procurement criteria and commissioning framework as well ethics of primes Manchester Institute of Innovation Research

18. Findings • widespread endorsement for the ‘payment by results, but problematic for smaller, specialist suppliers; • there is a tension between networks that support service objectives and centralised systems organised for efficiency gains. • the procurement model favours larger companies (primes) with financial assets over smaller specialists with the capacity to deliver service innovation. • 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. • Complex service innovation such as the WP requires systemic support of local partners who collaborate to holistic services. • For instance in Cornwall the SE Network suppliers formed a consortia and work closely with Cornwall CC, College and Prime contractor. Manchester Institute of Innovation Research

19. Locality Collaboration The Cornwall Works 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 Manchester Institute of Innovation Research

20. DWP officials • DWP Sheffield-based procurement team managing supply chain and contracts, had negotiated changes in time-scales, however, they have little influence over the commissioning framework. • DWP highly functional and centralised preferring innovation models that drive efficiency through vertical supply chains. • Experienced employment officials in DWP recognise that top-down procurement is limited without an alignment with the complex, relationships at the locality level. • Unease among DWP officials about dept’s lack of strategic commissioning and cross- government commissioning which is hampering locality service improvements.

21. Findings Public and press outrage at company fraud and profit – however it is clear from stakeholders, that there are wider systemic problems within government and the commissioning framework Systemic innovation is needed within commissioning as well as in procurement. Awards criteria, Balancing of objectives, cross-government budgets, devolved budgets. Too little awareness of the wider system and impact of commissioning frameworks and procurement funding and practice on social and financial outcomes. Manchester Institute of Innovation Research

22. Conclusions • Politicians, such as IDS are defending budgets, but not responding to changes in commissioning framework . • Many stakeholders agree that two-tier, vertical model of procurement will eventually come into conflict with personalisation innovation requirements which demand horizontal, service-integration at the local level. • Process innovation is limited when is it is not aligned to a wider commissioning framework, i.e. systemic innovation to support the process innovation. And need for locality investment in inter-agency working and invisible costs of social development. Manchester Institute of Innovation Research

23. Conclusions • Political expectations and ideology are overriding realities of the practice of development and costs incurred. • Treasury undermining reform by cutting welfare to work budgets. • Marketization or privatisations does not of itself support difficult service innovation which involves sustained personal support. • 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..‘payment by results’ positive payment delay is disadvantaging small, charitable providers who cannot afford to wait a year for payment. 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

24. Conclusions Government attitudes to Locality Governance. • ideological resistance to local government is undermining the very relationships between stakeholders who are developing integrated commissioning within cities. • Government is ignoring the role of locality governance in creating a context for personalised services for a range of vulnerable people. • Devolved funding to local partnerships could better forge and sustain a closer connection between the needs of claimants and employers – resisted by civil servants as well as ministers. Manchester Institute of Innovation Research

25. Policy recommendations • Incentives and ‘Credits' are needed to keep to smaller SMEs in the supply chain • Governance needed to regulate WP and ensure service innovation is not undermined by the business model which favours larger companies and their financial gain. • Rebalance criteria for contract awards and incentives for service innovation outcomes and financial assets criteria: give medium-sized, service providers with locality connections a chance to bid for larger contracts to deliver personalised services for marginal, under-employed people. • WP could be transformative and support service innovation if commissioning were devolved to localities and medium sized suppliers awarded contracts to develop social market of innovative suppliers and relationships with potential employers  Manchester Institute of Innovation Research

26. KEY MESSAGES • Wider Systemic innovation would • Align locality and government commissioning devolve WP to localities and redesign governance frameworks. • Integrate WP policy and spending with enterprise and skill’s policies • Rebalance gains from short-term and narrow financial savings & efficiencies with those from systemic innovation in government: inter-departmental commissioning with devolved procurement. • Devolve budgets and support locality commissioning to incentivise inter-agency relationships, innovation across personal services and locality resilience in the jobs market in conjunction with locality partnerships, LEPS and creative suppliers. Manchester Institute of Innovation Research

27. Thank you for your attention Contact: su.maddock@mbs.ac.uk Research Project: www.mbs.ac.uk THANKS to our funders