HC 526 Published on 15 May 2009

by authority of the House of Commons London: The Stationery Office Limited

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House of Commons

Work and Pensions Committee

DWP's Commissioning Strategy and the Flexible New Deal: Government Response to the Committee's Second Report of Session 2008–09

Second Special Report of Session 2008–09

Ordered by The House of Commons to be printed 13 May 2009

The Work and Pensions Committee

The Work and Pensions Committee is appointed by the House of Commons to examine the expenditure, administration, and policy of the Department for Work and Pensions and its associated public bodies.

Current membership

Terry Rooney MP (Labour, Bradford North) (Chairman) Anne Begg MP (Labour, Aberdeen South) Harry Cohen MP (Labour, Leyton and Wanstead) Michael Jabez Foster MP (Labour, Hastings and Rye) Oliver Heald MP (Conservative, North East Hertfordshire) John Howell MP (Conservative, Henley) Joan Humble MP (Labour, Blackpool North and Fleetwood) Tom Levitt MP (Labour, High Peak) Greg Mulholland MP (Liberal Democrat, Leeds North West) John Penrose MP (Conservative, Weston-Super-Mare) Jenny Willott MP (Liberal Democrat, Cardiff Central)

Powers

The committee is one of the departmental select committees, the powers of which are set out in House of Commons Standing Orders, principally in SO No 152. These are available on the Internet via www.parliament.uk.

Publications

The Reports and evidence of the Committee are published by The Stationery Office by Order of the House. All publications of the Committee (including press notices) are on the Internet at www.parliament.uk/workpencom.

Committee staff

The current staff of the Committee are James Rhys (Clerk), Emma Graham (Second Clerk), Amy Sweeney and Hanna Haas (Committee Specialists), Laura Humble (Committee Media Advisor), John-Paul Flaherty (Senior Committee Assistant), Hannah van Schijndel (Committee Assistant) and Jim Lawford (Committee Support Assistant).

Contacts

All correspondence should be addressed to the Clerk of the Work and Pensions Committee, House of Commons, 7 Millbank, London SW1P 3JA. The telephone number for general enquiries is 020 7219 5833; the Committee’s email address is workpencom@parliament.uk

Second Special Report

The Work and Pensions Committee agreed its Second Report of Session 2008-09, DWP’s Commissioning Strategy and the Flexible New Deal, on 25 February 2009. The Report was published on 5 March 2009 as House of Commons Paper No. 59. We have now received the Government’s response to this Report in the form of a memorandum from the Minister of State, the Rt. Hon. Tony McNulty MP. This memorandum is printed as an Appendix to this Special Report.

Appendix: Government response

Introduction

1. The Government welcomes the Second Report of the Work and Pensions Select Committee on DWP’s Commissioning Strategy and the Flexible New Deal. The Government believes that work is the best route out of poverty. Over the past decade there has been clear progress in raising employment and tackling poverty. However, the Government believes that more can be done to unlock the talents of every individual and help them move into work.

2. In its recent paper No one written off: reforming welfare to reward responsibility the Department for Work and Pensions (DWP or ‘the Department’) set out the next steps in its ongoing programme of welfare reform. This programme is underpinned by the Department’s Commissioning Strategy. The strategy aims to devolve initiative and innovation; providing opportunities for providers in all sectors – private, third and public – to play a part in the delivery of services, based on their abilities.

3. While the current economic situation will have an impact on the Flexible New Deal the Government strongly believes that now is not the time to cut back on help for the long term unemployed. The recession makes it vital that we give rapid support for the newly unemployed and intensify our support for those furthest from the labour market. That’s why part of the £1.7bn funding allocation announced in the Budget 2009 - on top of the £1.3bn announced in the Pre-Budget Report - will be used to ensure that the Flexible New Deal can cater effectively for higher volumes of jobseekers during the economic downturn.

Conclusions and recommendations

1. We welcome the significant role that Jobcentre Plus will play in delivering the new enhanced Jobseeker’s Allowance regime. Given the high level of knowledge and expertise amongst its staff, we agree that Jobcentre Plus is best placed to deliver employment support during the first 12 months of a person’s claim. (Paragraph 12) 2. The Committee visited Jobcentre Plus and were impressed by the preparation that managers and staff were undertaking in advance of the introduction of the new JSA

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regime in April 2009. We will continue to monitor the progress towards implementation; in particular, we will examine the capacity of Jobcentre Plus to manage the introduction of the new regime. (Paragraph 13) 4. The Department agrees with the Committee that Jobcentre Plus should remain at the heart of the welfare to work system. The expertise and enthusiasm of Jobcentre Plus staff continues to be a key component in supporting the vast majority of Jobseekers to return to work within 12 months of becoming unemployed.

3. We ask DWP to clarify further details of how the extended, voluntary element of FND will work, particularly in terms of the payment structure it will operate. (Paragraph 20) 5. If, after completing 12 months of FND, the provider and jobseeker agree that they would like to continue working together then they can do so for up to a further six months, with the agreement of their Jobcentre Plus Personal Adviser. The provider will be required to supply a revised action plan which is agreed by the customer and that will be checked by Jobcentre Plus. The extension will last for 6 months but can be terminated earlier if both the provider and the customer agree that no further value can be gained from maintaining the relationship.

6. During the six month extension period the payment model will remain unchanged; with the provider able to secure outcome payments based on the individual entering sustained employment.

4. DWP’s own research has found that the “workfare” approach is least effective at getting people into work in weak labour markets and that it is not appropriate for those with the most barriers to finding work. We welcome the Secretary of State’s emphasis on the difference between “workfare” and the “Work For Your Benefit” pilots proposed in the Welfare Reform Bill and we urge the Government to ensure that the piloted approach does not negatively impact upon the employment opportunities of those on the programme. We ask the Government to publish a full evaluation of the pilot and we recommend that it only proceeds with the programme if this appraisal demonstrates convincing proof of success. (Paragraph 24) 7. The Work for Your Benefit programme is being designed specifically to improve participants’ ability to move into employment. The Work for Your Benefit model includes substantial employment support on top of work experience, and an individual approach to work experience placements. This will enable participants to capitalise on the experiences they gain through the programme and maintain their job search.

8. The pilot programme will be fully evaluated and results will be taken into account when any future decision on national implementation is made.

5. The Committee welcomes the establishment of personalised support as proposed in the Flexible New Deal. We support the use of longer contracts which should encourage providers to invest in staff and processes. We note DWP’s response to the wider

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economic change and the impact this will have on the FND programme, further details of which we discuss later in this report. (Paragraph 27) 9. The Government believes that tailoring support to the needs of the individual is the best way forward in supporting the long-term unemployed. Longer contracts will provide more stability for providers, enabling them to build better relationships with clients and find innovative solutions to meet their needs. Jobcentre Plus will meet regularly with providers to monitor ongoing performance and to discuss the impact of external factors such as the wider economic situation.

6. There are international examples which demonstrate the value of marketisation in welfare to work provision but there is limited evidence from the UK. We reiterate the request we made to DWP in our report on the Government’s employment strategy, that it assess the relative performance of the public, private and voluntary sectors. We also support Professor Gregg’s recommendation that DWP use information from the adviser flexibility pilots to evaluate the benefits of public sector led provision compared to contracted out programmes. (Paragraph 36) 10. Since the introduction of the New Deal in 1997, DWP has developed a body of experience in the use of public, private and voluntary sectors in the delivery of employment services. It is widely recognised that Jobcentre Plus is a world class public service and the Commissioning Strategy sets out a set of principles whose aim to bring about a significant improvement in provider performance.

11. DWP will continue to evaluate the delivery of contracted employment provision, and will evaluate the adviser flexibility. The emerging evidence will inform future decisions on how best to deliver employment services through Jobcentre Plus and contracted provision to help as many people as possible to move into work.

7. The move towards longer and larger contracts has the potential to create a less complex, more manageable employment programme for DWP. However, the Committee has seen first hand on many occasions the value that local specialist provision can have in helping the long term unemployed back into work. We recommend that in monitoring the first phase of Flexible New Deal, DWP assesses the impact that sub contracting arrangements have had on such specialist local provision as well as upon the services provided and the quality and range of available provision within contract areas. (Paragraph 42) 12. DWP expects that the move to longer and larger contracts will broaden the range of capabilities in the supply chain delivering support in each contract area. As part of the evaluation of the first phase of Flexible New Deal, DWP will assess the impact of contracting arrangements on specialist local provision, the services provided, and the quality and range of available provision.

8. We welcome the Government’s stated intention in the Welfare Reform Green paper to see greater local input in the contracting process in future commissioning and we look forward to receiving further details. (Paragraph 43)

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13. DWP is looking to embed localisation into all its commissioning in line with the time scales set out in the White paper. DWP has published a timeline outlining when future commissioning will take place. This timeline will inform local discussions with key sub regional partnerships such as the City Strategy Partnerships and Multi Area Agreement areas.

9. We endorse the 'black box' approach, which represents a move from 'one size fits all' to employability services customised to the needs of the individual job seeker. Like DWP, we hope to see the prime contractors developing more innovative and effective ways of helping customers back to work. Although the services customers receive will vary significantly as part of the 'black box' approach, we understand that DWP needs to ensure that contractors have in place good systems that sit behind these services to assure quality of delivery and attention to customer entitlements. At the same time, it is important that contract management is in keeping with the “black box” approach and we urge DWP to ensure its system remains focused on measuring the outcomes providers deliver, rather than the processes by which they are achieved. (Paragraph 49) 14. DWP has published a Contract Management Framework. Contracts will be managed by National Supplier Relationship Management Teams and, at District level, Third Party Provision Managers will support provider performance locally. DWP will monitor both the systems Providers have in place and ongoing performance of contractual performance in terms of outcomes achieved.

15. The Department’s overall strategy is to provide a risk-based approach to contract management taking into account key elements such as contract value, performance and quality. DWP will monitor and report on achievement of performance outcomes monthly and formal provider performance reviews will be held every quarter to review ongoing performance and quality of provision.

16. Sub-contractors will be managed by the Prime Contractor. Prime Contractors will be responsible for ensuring that sub-contractors meet performance and quality standards and personally take responsibility for managing issues and addressing poor performance.

10. The Committee shares the concerns of witnesses that DWP has yet to publish its transition strategy for current programmes in advance of the introduction of Flexible New Deal. We welcome the efforts that the Department has made since our evidence session to assure providers that transition will be as seamless as possible but we are disappointed that the strategy has still not been published. We urge DWP to publish detailed arrangements as soon as possible to allow providers adequate time to prepare for changes and to ensure that the transitional arrangements are in place earlier for the second phase of contracting out FND provision. (Paragraph 53) 17. The proposed Phase 1 transition arrangements were announced at an event for existing New Deal, Employment Zone and Private Sector-led New Deal providers on 4 December 2008. Following the event, providers were issued with full written details of the transition arrangements and a dedicated e-mail address for providers to submit questions about the strategy. All questions and responses have since been published on the providers’ area of the DWP website.

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18. Work on the transition arrangements for the Phase 2 areas has started with the aim of communicating details to existing providers by October 2009.

11. The Committee welcomes the fact that DWP is responding to the recession by revising the FND model. However, we are concerned that in some areas providers may not be ready to deliver the service by October 2009, as previously envisaged. We ask DWP to set out clearly what contingency plans it has in place for services in these areas. It is crucial that customers are not disadvantaged because of delays in the contracting process. (Paragraph 55) 19. The Department remains committed to bringing in phase 1 of the Flexible New Deal from October 2009. DWP is currently evaluating bids and expects to notify preferred bidders by the end of April, at which time their implementation and delivery plans will be discussed. Any requests from suppliers to change the timetable will be considered on a case by case basis. In any case where delivery starts after October, DWP will make alternative arrangements to support customers in the interim.

20. It should also be noted that from July 2009 anyone who has been in receipt of JSA for more than six months will have access to additional support. This can include enhanced adviser support through a series of interventions, self-employment support and a recruitment subsidy. This provides more help to customers than was available through previous programmes.

12. The Committee welcomes most of the Government’s efforts to reduce the number of young people who are not in education, employment or training (NEET). We also endorse the Pre-Budget Report announcement of an increase in DWP’s budget, extra frontline Jobcentre Plus staff and a moratorium on Jobcentre Plus office closures. We look forward to receiving further details of how this money will be spent and to what extent these various increases in support apply to different parts of the UK. We will monitor the impact of the measures announced in the Pre-Budget Report. (Paragraph 62) 21. The Pre-Budget Report announced that an extra £1.3bn would be made available to DWP. Part of this funding is being spent now, to recruit an additional 6,000 Jobcentre Plus staff and keep open 25 Jobcentres that had been scheduled to close. Part of the allocation is also to support the introduction of the Flexible New Deal, which is likely to require increased upfront funding in the new economic climate.

22. £100m has been allocated to support a significant expansion of the Rapid Response Service and a package of support for the newly unemployed; providing targeted support for those who have just lost their job and who need training in modern jobsearch techniques. It also includes a £24m expansion of Local Employment Partnerships, and an additional £10m for the Adviser Discretionary Fund.

23. At the jobs summit on 12 January, Ministers announced that £500m would be used to support the introduction of additional support for those reaching 6 months of unemployment. This support includes a recruitment subsidy worth £1000; access to subsidised training (typically up to the value of £1500); help for those who want to set up

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their own business; and access to work-focussed volunteering opportunities. All these measures are due to be introduced this April.

13. A number of organisations have suggested that the indicative budget for Flexible New Deal (FND) is not enough to deliver the outcomes that DWP expects, particularly given the current economic climate. The budget for FND is likely to be further stretched as more people enter the long term unemployment claimant count. Under-funding threatens the viability of FND and increases the risk of the most vulnerable receiving insufficient support. We call on DWP to re-examine the FND financial model in the light of the current rise in worklessness. (Paragraph 72) 24. The Government recognises that the change in the economic climate will clearly have an impact on plans for future programmes. That’s why part of the £1.7bn funding allocation announced in the Budget 2009 - on top of the £1.3bn announced in the Pre-Budget Report - will be used to ensure that the Flexible New Deal can cater effectively for higher volumes of jobseekers during the economic downturn.

25. On 11 March, DWP wrote to bidders inviting them to reflect the impact of rising unemployment on their delivery model and performance offer. It stated that the Department's expectation is to have a funding model based on 80% (outcome) and 20% (fee based) as originally tabled. However, in the initial phase of the contract (first 18 months), DWP will consider alternative models based on a higher service fee element and has asked for views on what would work best for both parties in this initial period. However, for evaluation purposes, and as an illustration for this additional bid, DWP has asked bidders to use a 60:40 (60% outcome: 40% fee based) model for this initial 18 month phase. We have also asked bidders to assume that, as previously agreed, an element of the service fee (35%) will be front loaded in the first year.

14. It is right that DWP should attach challenging targets to the Flexible New Deal (FND) programme but it is important that these are realistic. Evidence to us suggested that the FND targets would require a 37.5% improvement in job outcome performance over what has been achieved by DWP contractors in the past and this is to be done with a significant reduction in funding compared to the best performing DWP programmes. We ask DWP to set out its evidence base for the respective 55% and 50% targets for short and sustained job outcomes, stating how quickly it assumes providers will reach those performance levels and what contingency plans it has for intervening where providers are not achieving their projected job outcomes. (Paragraph 79) 26. The Flexible New Deal performance expectations published in the Invitation to Tender set out a clear view of what DWP is seeking to buy through FND. These estimates were based in part upon the best performing Employment Zone contracts but also reflect a considered view of what DWP thinks FND providers should be able to achieve, using their skills and the innovation that the new approach allows for. DWP recognises that it may take time for the system to mature, and therefore accept that its performance expectations may not be possible early in contracts, or in every labour market.

27. The current economic circumstances introduce new and significant challenges, which DWP has recognised by asking bidders if they would like to review their performance

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offers. Given the change in economic climate, performance offers may be lower for the first couple of years. However, 55% short term job outcomes and 50% sustained job outcomes will remain our long-term goal.

15. DWP has now said it expects on-flows to be up to 300% higher than it had originally forecast. We call on the Department to explain, as a matter of urgency, how it will ensure that the contracts remain viable and that the programme goes ahead as planned in October 2009. (Paragraph 85) 16. DWP’s revised projection of the number of people coming onto FND is now in line with those made by some witnesses to our inquiry. We ask DWP to explain how it will resolve the concerns raised by some providers about the potentially negative impact large increases in on-flows might have on service quality. (Paragraph 86) 28. DWP has asked shortlisted suppliers to supplement their original bids with additional information setting out how their delivery plans would cope with a range of customer volumes. All suppliers have now submitted this additional information and it is being evaluated.

29. DWP is also examining the funding model to ensure contracts will be viable. DWP’s aim is a performance and payment regime based on an 80:20 funding model as originally published in the Invitation to Tender – 80% of the contract value will be available to pay for job outcomes, while 20% will be paid as a service fee. However, in the initial phase of the contract when customer volumes may be high and job outcomes possibly harder to achieve, DWP will consider alternative models based on a higher service fee element.

30. DWP has invited views from shortlisted bidders on what would work best for both parties. In order to understand better the impact of the current economic conditions DWP has asked bidders to set out the effect on their performance proposals of moving to a 60:40 fee model for the initial 18 month period.

31. DWP will notify preferred suppliers as soon as the bid evaluation process has been completed at the end of April. There will then be detailed post tender discussions, which will include seeking reassurances that implementation and delivery plans are robust, and that providers will have the capacity and capability to deal with customer referrals and deliver an effective service from day one.

17. The Committee has endorsed the principles of FND in this report. As a programme that provides more personalised support delivered through large-scale, longer contracts it has the potential to offer better support for the long term unemployed than is currently available. We welcome DWP’s recognition that changes must be made to FND to account for the economic downturn but remain unconvinced, given the massive increase in predicted on-flows, that the existing budget will be sufficient to deliver the programme effectively. (Paragraph 87) 32. The Government recognises that the change in the economic climate will clearly have an impact on plans for future programmes. That’s why part of the £1.7bn funding allocation announced in the Budget 2009 - on top of the £1.3bn announced in the Pre-

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Budget Report - will be used to ensure that the Flexible New Deal can cater effectively for higher volumes of jobseekers during the economic downturn.

18. Research has indicated that certain groups are more likely to become long term unemployed than others. We welcome DWP’s decision to include a fast-track to stage 3 of the new Jobseeker’s Allowance regime, so that the most vulnerable are moved towards directed job search earlier. However, this still means that those individuals must wait a further six months before they receive the intensive support available under the Flexible New Deal. DWP should monitor the numbers and the profile of those being fast-tracked to stage 3 during phase 1 of the new programme, looking particularly at the proportion of those who then continue on to stage 4. If the proportion is significant, we recommend that DWP extends the fast-tracking from stage 3 to stage 4 in the second phase of FND. DWP should also profile the 45% of customers who do not find work and assess the barriers to these people finding employment. (Paragraph 94) 33. Jobseekers fast tracked to Stage 3 will receive more intensive support from their personal adviser. The equivalent "Gateway" stage in the current mandatory New Deals has the biggest impact, with around 70 per cent of jobseekers leaving New Deal for Young People at this stage. From April 2009 jobseekers will also have access to help setting up a new business, work focussed training, volunteering and a recruitment subsidy as part of the six month jobs offer.

34. This represents a significant increase in the support available to jobseekers even before they have reached the intensive Flexible New Deal. The evaluation of the jobseekers regime and Flexible New Deal reforms will monitor the experiences and outcomes of both jobseekers fast-tracked to stage 3 and FND participants, to ensure we offer the best balance of support to customers to enable all customers to overcome their barriers to finding employment.

19. Recent reforms in the benefits system mean that the profile of JSA claimants is changing. Further amendments will be made to the rules for Income Support and existing Incapacity Benefit claimants will be transferred to ESA or JSA over the course of phase 1 FND, which is likely to increase the on-flow of customers to the programme and the numbers of customers with significant barriers to employment. (Paragraph 100) 20. We are concerned that some providers do not think DWP has provided adequate information about the impact of policy changes on on-flows. We urge the Department to ensure that it provides as much information as possible on impacts of policy developments on the FND programme to providers and the Committee. This will allow providers to incorporate these assumptions into their financial planning. Changes to the profiles of JSA claimants may have significant implications for the ability of contractors to achieve the higher job entry and job sustainability rates expected under FND – even before taking account of the deteriorating labour market situation. (Paragraph 101)

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35. The Invitation to Tender issued to prospective suppliers in July 2008 outlined the Welfare Reform agenda and highlighted the potential impact of other changes to enable bidders to construct their proposals effectively. The information provided included the potential impact of the Employment and Support Allowance on the characteristics of people claiming JSA, and changes that would result in more Lone Parents moving onto JSA. These impacts were presented separately to show their specific contribution to the estimated volumes. Local information for each area was also supplied. This information was backed up with events held in all of the 14 contract package areas that covered the overall welfare reform picture as well as the local agenda, supported by presentations from the local Jobcentre Plus districts and other key stakeholders such as the Learning and Skill Council and local authorities. As well as describing the wider changes likely to affect FND, DWP has used forecasts of the impact of these changes to inform the customer volume forecasts shared with bidders.

36. Given the nature of the policy changes, the impacts on volumes are uncertain and estimates have been based on a number of assumptions which may or may not prove accurate in practice. We have been careful to highlight the uncertainties around our information on the impacts of the changes.

37. In addition to information provided at the start of the tendering round, DWP has operated a Question and Answer service throughout the procurement process that bidders have used extensively to obtain clarification and additional information.

21. Incentivising contractors to work with all clients is crucial to the success of the Flexible New Deal but as it stands we are not confident that the payment structure will discourage the “creaming” and “parking” of customers. We welcome DWP’s commitment to piloting the “accelerator model” and we recommend that it also considers piloting alternative models, such as the use of assessment and profiling tools used in the Netherlands and Australia. We urge DWP to act quickly on the results of these pilots so that, if they are effective, earlier implementation might be possible. (Paragraph 117) 38. DWP believes that its approach to commissioning Flexible New Deal will bring about a significant increase in provider performance. The Department has in place an ongoing contract management regime alongside the Departments normal practise of conducting evaluations of welfare to work programs. Through these processes the Department will aim to ensure that no provider is “parking” clients, failing to provide them with support they need to move towards and into work.

39. The “accelerator model” has the potential to be an important innovation, and the Department agrees with the analysis of Professor Gregg that assessment and profiling tools might well be less effective approaches in incentivising providers. As the model is as yet untested, DWP is exploring the feasibility of piloting the “accelerator model” in the Personalised Employment Programme pilot.

22. We also urge DWP to require contractors to provide information on the characteristics of customers assisted, the characteristics of customers entering jobs and the characteristics of those sustaining employment. This would allow the Department

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to compare the job entry rates of different groups and examine the support providers offer to them. (Paragraph 118) 40. As part of the process of evaluating FND, DWP will monitor the performance of sub-groups and the impact of the programme on their chances of finding sustained employment.

41. However, the Department’s view is that the most important characteristic among people who have been unemployed for 12 months is that they have been unemployed for 12 months. The Flexible New Deal has been designed to deliver personalised support, tailored to the needs of the individual, rather than treating unemployed people as members of groups sharing pre-determined characteristics. DWP believes this is the right approach, and that improved understanding of an individual’s barriers to work – many of which, such as motivation, may not be easily observed - will deliver more effective support.

23. The Committee welcomes the Government’s intention to trial the use of future benefit savings to fund employment programmes (the AME-DEL transfer). We look forward to receiving further details about how the pilots will operate and, should they be successful for Incapacity Benefit savings, we urge DWP to extend the model nationally. If the pilots are successful, the increasing on-flows to FND will only increase the potential gains from this approach. (Paragraph 121) 42. The Department has announced that private and voluntary sector providers will be paid for supporting incapacity benefits customers with complex needs into sustainable employment. This will be funded using future benefit savings resulting from customers moving into work (the AME-DEL transfer).

43. This new approach will be trialled to test its success in achieving improved and sustained employment outcomes; the market price for this support; providers’ ability to invest upfront; and the risks and rewards of the new financing agreement. It will also enable the Department to explore new types of outcome-based contracts which encourage providers to focus on sustainable employment for those with more complex barriers to work.

44. These pathfinders will also test the Gregg model of conditionality, as claimants will be required to carry out mandatory work-related activity in between work-focused interviews.

There will be five pathfinders regions trailing these new contracts. These pathfinders will run for three years and it is planned that the contracts will commence in March 2011. These initial five pathfinders will cover approximately 17% of existing incapacity benefit claimants. The pathfinder regions are:

• Greater Manchester

• Glasgow

• West Midlands

• Norfolk

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• Lambeth, Southwark and Wandsworth

These regions were chosen to have a selection of urban, non-urban and city strategy partnership regions, to give a good spread of regions in which to trial the support.

24. We were told that it can be more expensive to support people into work in rural areas because of higher infrastructure costs and additional spend on post employment support, such as supplementing travel expenses. We welcome the commitment in the Green Paper to pilot differential pricing but believe that in addition DWP should start systematically collecting data to allow cost comparisons between rural and urban areas. This information should be made available for public scrutiny not least so that prime contractors can develop intelligent pricing proposals. (Paragraph 125) 45. DWP wants to maximise employment opportunities. The Department uses competition for contracts to drive up what providers say they can do for the available funds. It is up to providers to determine how they will deliver provision in any area. Providers have many years of experience of working in urban and rural areas, and so will have a good understanding of how much it costs to deliver provision across the country. Information on the budgets for contract areas and the numbers of people moving into work to monitor the delivery of provision is publicly available.

25. We heard that DWP is still discussing the details of the inspection regime for Flexible New Deal with Ofsted. There is little clarity about the different roles that Ofsted and DWP contract managers are to play in ensuring the quality of provision. It is crucial that when FND begins providers, customers and the bodies involved in performance management understand how it will work and how responsibility is shared between those overseeing the process. We ask that DWP sets out the details of the Ofsted inspection regime and its relationship with contract management and assessment tools for FND across the phase 1 contract areas as soon as they are agreed. (Paragraph 132) 46. DWP will work closely with Ofsted in England, Estyn in Wales and HMIe in Scotland to develop an inspection model for FND during 2009/10 with a schedule of inspection starting in April 2010.

47. FND providers will also be required to follow the DWP Quality Framework, which promotes the commitment to quality improvement through continuous self-assessment and development planning. Quality improvement activity is embedded within the DWP Contract Management Framework. Through the Contract Management Review Process, Contract Managers will agree and review provider’s areas for improvement identified through self-assessment and external inspection.

48. Providers who are judged to be inadequate at initial inspection will be expected to raise the standard of their provision before being subject to a re-inspection 12 to 18 months later. These providers will be offered individual tailored support through the Learning and Skills Improvement Service during the period between their initial and re-inspection. All inspection reports will be published on the Inspectorate's external websites.

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26. We believe that in order to ensure transparency across the programme and drive up performance, there is a case for making public the monthly Management Information (MI) compiled by DWP. (Paragraph 133) 49. The Commissioning Strategy made clear that the Department will move to a single, integrated, shared and transparent approach to the measurement and management of provider performance that enables a "like to like" analysis of performance. DWP is currently considering whether the publication of monthly Management Information will be possible and, if so, the best way to do this.

27. We support the use of a self-assessment framework as a means of ensuring consistent evaluation by prime contractors of their own performance. However, it is important that this exercise is meaningful and once submitted DWP must ensure that adequate feedback is given. We recommend that the results of the self-assessment framework form part of regular discussions between the providers and their DWP contract managers and ask that this data be anonymised and made available to the Committee. (Paragraph 137) 50. Providers of DWP contracted employment provision are required to follow the principles set out in the DWP Quality Framework, which includes a commitment to quality improvement through continuous self-assessment and development planning.

51. DWP Contract Managers are responsible for assessing the rigour of provider annual Self-assessment Reports and supplying feedback to the provider. Contract Managers are required to consider whether the evidence and findings within the report give an accurate evaluative assessment of the quality of the provision.

52. DWP, in conjunction with the Learning and Skills Improvement Service, offer self-assessment workshops for Contract Managers to develop their skills to support providers throughout the self-assessment process and give constructive feedback on providers’ Self Assessments. Comprehensive Self-assessment and Development Planning guidance is available for DWP Contract Managers and providers.

53. Areas for improvement identified through provider self-assessment inform the Provider’s Development Plan, which is agreed and reviewed by the DWP Contract Manager.

54. In addition, the self-assessment process is validated by independent external inspection against a Common Inspection Framework, by Ofsted in England and Estyn in Wales.

55. The Department will investigate whether it will be possible to provide information from the self-assessment reports. The Department would not wish to compromise commercial confidentiality and the individual innovations developed by providers in the black box approach may make it difficult to provide information that is truly anonymised.

28. We heard that the star ratings system can be a useful tool in helping customers to make choices about which provider to be referred to and to help DWP monitor provider performance. However, a number of organisations have suggested that the current system requires modification. Given the difficulties experienced with the

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previous NHS star ratings system, we recommend that DWP reviews the proposed system to assess its accuracy and value as a performance management tool. (Paragraph 141) 56. The Department regards Star Rating as an integral part of its effort to drive up provider performance and allow customers to make informed choices.

57. When designing the Star Rating system, DWP consulted widely with providers and other stakeholders. DWP also commissioned ATOS Consulting to carry out a thorough independent review of Star Rating before the first Star Rating for Employment Zone contracts was published in June 2008. It was reported fit for purpose.

58. Since the introduction of Star Rating, DWP has formed a Star Rating User Group, which involves providers, to discuss the use of Star Rating in performance management and informed choice. The design and operation of the Star Rating system will develop over time as DWP learns how it is best compiled and deployed.

29. We welcome the Code of Conduct but have heard from a number of organisations who expressed concern that it is “vague” and may not be properly enforced. There were also concerns that prime contractors would transfer risk down the supply chain to smaller providers and they were not confident that DWP’s stewardship would mitigate this risk. As a last resort, we recommend that sub contractors should be able to make their complaints to an independent Ombudsman, who would be responsible for resolving such disputes. (Paragraph 147) 59. DWP has listened carefully to the concerns raised by small and third sector organisations. The DWP Code of Conduct was developed to ensure healthy high performing supply chains supported the new Prime Contractor model. However the continued concern of smaller organisations has prompted the department to explore ways of making the Code more robust.

60. As part of a lessons learnt review undertaken recently by the Department, which looked at flexible New Deal procurement and the Code of Conduct, a key recommendation was made to strengthen the principles and criteria of the Code through an accreditation process. DWP have committed to take this forward through a pilot, and test new measures that will intervene if providers break the Code.

61. Another key component of this new quality standard will set out how risk is transferred through supply chain structures. It is anticipated that an advisory board of this new standard will provide the equivalent of an “ombudsman service”, mediate cases where providers have shown capricious behaviour.

30. The Committee welcomes the establishment of a third sector taskforce and we look forward to hearing DWP’s response to its recommendations. We also urge DWP to consider whether it should reconvene the taskforce in 2010/11 to assess the role the third sector has played since the implementation of the new Commissioning Strategy. (Paragraph 150)

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62. The DWP was pleased to see the recommendations made by the Third Sector Taskforce in February this year. As with the recent lessons learnt review, DWP is keen to take advantage of any opportunity to help measure the success of the Commissioning Strategy. The Department continues to work closely with partners such as the Office of the Third Sector and representative bodies to explore the important role of the third sector in delivering welfare to work programmes.

63. The Department will consider how it should continue to assess the role the third sector has played after the implementation of the Commissioning Strategy. Importantly, evidence of this sector in future supply chains and how they operate within a Prime Contractor model will be a fundamental part of this process, and will be scrutinised through our evaluation of the Strategy.

31. We agree with the Commission of the Compact that full cost recovery should be sought by third sector providers. The Compact encourages third sector organisations to adjust their bids in the tender process to include the costs of overheads so that they do not have to subsidise services from their core funding. There is a risk that, if contracts do not recognise the real costs involved in specialist third sector provision, then such providers, without the reserves of their private sector competitors, may find that they have to withdraw from FND contracts. (Paragraph 155) 64. Whilst the Department agrees that full cost recovery should be sought by third sector providers, the onus is on those participating in bids as potential sub-contractors to understand what their full costs may be. The Department made it clear in the Commissioning Strategy that the norm will be for bidders to decide how they wish to deliver services whilst giving us their best prices for what they think they can achieve. Small, third sector providers need to be particularly careful to engage in delivery on terms that they are able to sustain. The Department does not expect organisations to bid on a loss making basis, but does not assure their internal costs as part of the bidding process.

65. As stated in the Code of Conduct published with the Commissioning Strategy, funding should be fair to the different organisations involved, with plausible expectations of what can be delivered, and that any organisation, large or small, needs to be clear from the outset about their involvement and what can realistically be achieved.

66. The Office of the Third Sector and organisations such as Futurebuilders exist to help the third sector with the capability to manage their internal operating costs effectively. As part of the bidding process, the Department actively engaged a specialist advisory organisation to explain to potential sub-contractors the issues that they need to take into account and be aware of, in deciding whether to participate and on what terms.

32. It is important that providers and staff who will be affected by Transfer of Undertakings (Protection of Employment) (TUPE) are fully informed about how the process will work. We ask DWP to confirm that potential providers fully understand the TUPE arrangements under Flexible New Deal and recommend it produces a simple factsheet which outlines responsibilities under the legislation. (Paragraph 159) 67. In May 2008 suppliers were advised, in accordance with the requirements of the Cabinet Office “Staff Transfers in the Public Sector Statement of Practice” that it was likely

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that DWP staff currently working in areas of work covered by the new contracts may transfer with their work (subject to the provisions of TUPE) to new suppliers and that it was also likely that TUPE would also apply to staff employed by current external suppliers. The new suppliers would be required to comply fully with TUPE.

68. Supporting documentation to the Flexible New Deal Pre–Qualification Questionnaire & Invitation to Tender provided a comprehensive description of suppliers’ obligations under TUPE legislation, and the Cabinet Office Statement of Practice. In July 2008, it was confirmed that no departmental staff would transfer to suppliers but would be re-deployed within the DWP. However, it was stated that there may be significant supplier-to-supplier transfer and reiterated that DWP will facilitate the flow of information requirements between suppliers. In September 2008, further work was undertaken within DWP to collect and collate anonymised staffing information from existing suppliers. This was subsequently provided to short listed bidders.

69. The DWP Commissioning Strategy outlines DWP’s position on transfers between external providers. We will produce a simple fact sheet which outlines responsibility not only under legislation but also under Cabinet Office agreements.

33. We welcome the introduction of customer choice to the Flexible New Deal. Evidence from Employment Zones has indicated that this can be important in empowering the individual to take ownership of their pathway back to work. However, it is important that customers are given sufficient information on which to base their decision and we ask that in addition to publishing star ratings, DWP monitors closely the information Jobcentre Plus provides to customers and the main reasons customers give for choosing specific providers. (Paragraph 165) 34. The introduction of minimum and maximum allocations will mean that customer choice will be constrained beyond a certain point. Where DWP has to enforce its allocation thresholds it should investigate further the reasons for customers’ choices and, where necessary, take action to address any performance issues with the less popular provider in an area. (Paragraph 166) 70. DWP has commissioned research to understand the factors that are important to customers accessing contracted employment provision and the information customers would find useful to inform their choice of provider. DWP will track the performance of providers against what customers define as important. This information will be provided to customers alongside details of provider performance through Star Rating.

71. The Department will mitigate the risk of poor performance through robust contract management in line the DWP’s Contract Management Framework.

35. In order to empower and engage customers on Flexible New Deal we recommend that DWP introduces a customer charter which clearly outlines what is expected of customers and what they can expect in return. This should include recourse to an independent complaints process if they are unable to resolve issues with their provider. As a last resort, customers should be able to take their complaints to an independent

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Ombudsman who would be responsible for independently resolving such disputes and for reviewing the delivery of the customer charter. (Paragraph 169) 72. It is a tendering requirement that organisations bidding for FND contracts can demonstrate that they have systems to allow customers to resolve grievances, concerns or complaints promptly. This will be monitored by DWP as part of ongoing contract management and will also be monitored through independent inspections in England and Wales by Ofsted and Estyn as part of their inspection of DWP employment programmes.

73. Where local resolution does not prove possible, a complaint can be escalated. If a customer remains dissatisfied after having exhausted the Department's complaints processes, they can ask the Department’s independent complaints reviewer, the Independent Case Examiner, to investigate. All DWP customers, including those who are attending contracted provision, are already able to take their complaint to the Parliamentary and Health Service Ombudsman (PHSO) for investigation.

74. The Department is in the process of finalising a DWP wide Customer Charter which will include details of the basic levels of service a customer can expect when interacting with the DWP or any of its Agencies. This charter has been developed based on research into the key drivers of customer satisfaction and extensive involvement of customers, intermediary organisations and staff.

36. The systems for ensuring quality of provision, the diffusion of best practice and safeguarding service user experience appear to be fragmented. Appointing an Ombudsman, with sole responsibility for monitoring and reviewing the services provided and for dispute resolution, would help to ensure the market operates effectively. (Paragraph 170) 75. Most complaints are quickly resolved at a local level but, where this does not prove possible, they can be escalated. If a customer remains dissatisfied after receiving a final response from the Agency, they can ask the Department’s Independent Case Examiner to investigate and ultimately they can take their complaint to the Parliamentary and Health Services Ombudsman if supported by a MP. However, the Department is keen to explore how the new Quality Standard, which will be used to enforce the Code of Conduct, could be developed as part of the design process to complement any existing complaint processes. This Quality Standard could also be used to ensure the dissemination of best practice, particularly down supply chains, as well as providing an independent route for customers.

37. We recommend that DWP ensure providers’ staff are given sufficient training to ensure that they understand their Employment Officer status and their responsibilities within it. It is important that different providers operate the system consistently and fairly and that appropriate, standardised training will be required to facilitate this. We call on the DWP to clarify these responsibilities and their limits in connection with the use of sanctions. (Paragraph 172) 76. Providers are required to familiarise themselves with the legislation and regulations involved in FND and ensure they remain compliant with these as well as any future

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changes throughout the duration of the their contracts. DWP works closely with all providers to ensure they comply with mandatory processes and legal requirements, supporting providers through specific products such as the FND Supplier Guidance. The supplier guide specifies the low level detail of the service and highlights the providers’ role where a JSA customer fails to comply with the mandatory FND programme. The guide gives detailed examples of the Customer Benefit Sanctions and Decision Making and Appeals processes which the project will use in delivering provider workshops and training events during the implementation period. The Terms and Conditions of the FND contracts will require compliance with the FND Supplier Guidance, which will be monitored through ongoing contract management arrangements.

38. We endorse the Government’s plans for welfare reform and its commitment to test a new conditionality framework. However, we support Sir Richard Tilt’s concerns that without suitable childcare people might be “pushed into poverty”. It is vital that, as conditionality increases, the Government ensures that the right support, such as adequate childcare provision, is available for those individuals moving onto the Jobseeker’s Allowance regime. The customer must have the final say on whether childcare is suitable and affordable. (Paragraph 178) 77. The Government wants to help parents move out of poverty, not force them into more poverty. Benefits are sanctioned only as a last resort and the Government believes that sometimes it is necessary to use compulsion to encourage people to acknowledge their responsibility.

78. Since April 2008, under the Childcare Act 2006, all local authorities in England and Wales have been required to take reasonable steps to secure sufficient childcare to meet the needs of working parents – and in doing so, they must have particular regard to the needs of lower income working families. The Childcare Act does not extend to Scotland; however they published their strategy in December 2008 to help parents obtain access to affordable childcare.

79. Jobcentre Plus has an important role in supporting parents to access childcare. Parents need to make reasonable efforts to identify appropriate and affordable childcare and Advisers will be required to consider the availability and suitability of childcare when they consider whether a parent’s child care responsibilities made it unreasonable for them to stay in employment, to take up paid employment, or to carry out a jobseeker’s direction. Advisers must also consider any necessary child care expenses where they represent an unreasonable amount of that person’s earnings.

80. If parents consistently cite the non-availability of childcare as an impediment to work, Jobcentre Plus Childcare Partnership Managers will provide feedback to local authorities in order to inform local strategies and ensure that the needs of these parents can be met.

39. There appears to be considerable ambiguity surrounding the role of local partnerships in the monitoring process. We ask DWP to ensure that they consult with each City Strategy Pathfinder to maximise their engagement in the FND programme. (Paragraph 184)

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81. In its recent White paper, DWP outlined how it will engage with partnerships to make sure that FND (and other programmes) can be tailored to local circumstances. DWP consulted with City Strategy Pathfinders on FND phase 1 areas and is developing the processes for this consultation through phase 2 FND contracting. DWP is also exploring, in the second phase of FND, how partners might joint fund DWP contracts and clearly this would give an even greater influence / role in contract management.

40. We endorse the recommendation of the Tackling Worklessness review team that the proposed economic assessment duty on upper tier local authorities should include a 'worklessness assessment'. The assessment would involve coming to a shared view on the needs of workless people and the effectiveness of employability services delivered through either national DWP programmes or locally funded delivery. This would lead to the development of plans and actions to improve service delivery. These assessments will require a greater measure of data sharing on employment needs and employability services than is currently the norm and we would ask DWP to engage fully with this process. (Paragraph 189) 82. DWP and Communities and Local Government are currently agreeing their joint response to the recommendations in the Houghton Review. This response is due to be published soon after the Budget. Both Departments have set up a data sharing project involving Liverpool and Leeds City Councils, and Kent County Council to understand the barriers to data-sharing and pilot improved data sharing arrangements. If effective, the arrangements will provide a model for improved data sharing in the future.

41. We agree that it is important to ensure that good practice developed in devolved regions is retained. Scotland’s Workforce Plus aims to improve employability in Scotland and we urge DWP to ensure that Flexible New Deal complements successful programmes that have been established as part of this initiative. (Paragraph 192) 83. The process for contracting for FND has involved consultation with key strategic partners, including partners in Scotland. This has given Scottish colleagues the opportunity to comment on and shape the development of FND and ensured that existing and successful provision fits appropriately into the programme. To assist the organisations bidding to provide FND in Phase 1, the Scottish Government provided them with details of local Workforce Plus and Community Planning Partnership contacts, to help them consult and ensure that their proposals complement provision already in place.

42. We agree with the Minister that joint commissioning is “absolutely crucial and central” to welfare reform and specifically to achieving more sustained job outcomes. We welcome the establishment of a new Integrated Employment and Skills Unit and we ask DWP to keep us updated on the Unit’s work and its progress in increasing joint commissioning. (Paragraph 200) 84. The Department is progressing a number of proposals, within the context of the wider DWP commissioning and localisation agenda, with City Strategy Pathfinders. In particular, the Department is exploring potential for joint contracts in FND and Invest to save. DWP will also be exploring how to test more integrated approaches to joint investment of employment and skills funding streams through pooling budgets and joint commissioning

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of provision. Details of these developments will be shared with the Committee in due course.

43. The Committee reiterates its conclusion in its previous report on child poverty that appropriate and affordable childcare is crucial to allowing parents and lone parents in particular to return to work. This will become ever more important as the numbers of lone parents on the Jobseeker’s Allowance regime increases and represents a core part of the partnership approach that DWP expects Flexible New Deal providers to develop. (Paragraph 203) 85. The Government has invested well over £25 billion in childcare and early years in England since 1997. The stock of registered childcare places in England now stands at around 1.3 million places, twice the 1997 level.

86. The Childcare Act 2006 places a duty on all local authorities in England and Wales to secure, as far as reasonably practical, sufficient childcare for working parents – and, in doing so; they must have particular regard to the needs of lower income working families and those with disabled children. This should help to ensure that all parents, including lone parents moving onto JSA, have access to the childcare they need. The provisions of the Childcare Act do not extend to Scotland. However, on 10th December 2008 the Scottish Government published ‘the Early Years Framework’ to help parents in Scotland access employment and training through the provision of flexible, accessible and affordable childcare.

87. London has higher childcare costs than almost any other Region and it also has the lowest level of maternal employment. That is why the Government contributed £11m funding to a £33m Childcare Affordability Pilot, run jointly with the Greater London Authority and the London Development Agency, to offer 10,000 affordable childcare places in the capital. At Budget 2008, the Government announced the extension of the pilots to support new approaches to childcare.