Press release

Publication of DWP research report 757: Welfare to Work Commissioning: Provider Survey Wave 2

Research by the Department for Work and Pensions on the Department’s commissioning model for contracted employment provision.

• From: Department for Work and Pensions
• Published: 30 June 2011

This was published under the 2010 to 2015 Conservative and Liberal Democrat coalition government

Research is published today by the Department for Work and Pensions on the Department’s commissioning model for contracted employment provision. The Commissioning Strategy introduced in February 2008 set out significant changes to the way the Department commissions and manages welfare to work provision. It sets out requirements of the prime provider model, where contracted organisations in turn manage a supply chain of smaller and specialist providers to deliver the service. Providers were offered larger, longer contracts in order to encourage investment, and a reduced level of prescription in terms of how they deliver their service. In response providers are paid on the basis of outcomes in order to provide clear financial incentives to get customers into sustained employment. This research examines the impact of this model.

Key findings from the research are:

• Market Structure: Since the introduction of the prime provider model the absolute number of providers in the welfare-to-work market has increased, with 232 providers delivering Flexible New Deal (FND) compared to approximately 132 delivering the programmes it replaced. Providers have continued to enter the market during live running, especially at specialist level, and the market contraction observed in other countries has not occurred in the UK. Supply chains are typically short, and just 6% of subcontractors use their own subcontractors to deliver FND.
• Market Structure: 46% of providers delivering FND are from the private sector, 44% from the third sector and 11% from the public sector. The proportion of public sector providers has halved compared to pre-FND, whilst private sector presence has remained broadly level and the proportion of third sector providers has increased. However, whilst third sector providers account for 44% of subcontracting under FND, they receive only 27% of contract value, reflecting their delivery of smaller and more specialist contracts.
• Profitability: Whilst prime providers are comfortable with the outcome-based funding model, and believe FND would be viable over a 5 year contract, subcontractors feel less financially secure. 60% of subcontractors have sought financial assistance from their prime provider. The 23% of subcontractors receiving guaranteed referrals from prime contractors are much more likely to feel financially secure.
• Management of sub-contractors: Prime providers have continued to invest considerably in developing and managing their FND supply chains. These investments have included adapting sub-contractors’ contractual and payment terms to align with the nature of support provided or the size of the organisation, to building capacity and sharing best practice throughout the supply chain. Performance management of the supply chain was taken very seriously by all prime providers with all conducting regular performance reviews and most experiencing, in their opinion, some level of underperformance within their supply chain. Competition plays a role in some supply chains in driving performance, but, in others, quality performance is driven by an ethos of collaboration and sharing of best practice. 
• Subcontractors: Are less positive about the commissioning model than 1 year ago. As well as concerns about revenue, subcontractors feel that the envisaged benefits of more personalised services for customers and a more stable provider market have not materialised.  At the same time there has been significant entry into the market by new suppliers.
• DWP Capability: Providers have acknowledged an improvement in DWP Capability associated with the move to the new commissioning approach, suggesting that the aim to move to a more strategic and partnership-based relationship with providers is being achieved.
• Customer Experience: Prime providers reported that the freedom from prescription built into the commissioning model has enabled them to develop a more personally tailored service for customers. This is corroborated through research with customers reported in Research Report No 757 ‘Flexible New Deal evaluation: Customer survey and qualitative research findings’.

Notes to Editors:

• DWP Research Report No 757 - Welfare to Work Commissioning: Provider Survey Wave 2 is published today, 29th June 2011, by DWP;
• The research was conducted on behalf of DWP by PwC. The report authors are Dr David Armstrong; Carol-Anne Cummings; Kieran Jones and Eilis McConville.
• The report and summary are available free on the DWP website http://research.dwp.gov.uk/asd/asd5/rrs-index.asp
• The report is based on telephone interviews with all 14 Flexible New Deal (FND) prime providers and a telephone survey with 98 subcontractors and 82 providers who either did not bid to provide FND, bid unsuccessfully, or were providing FND but have since left a supply chain. The report also utilises quantitative analysis of DWP Management Information.

Published 30 June 2011