How can the coalition government ensure that third sector bodies are not excluded from its Work Programme? Much can be learned from the experience of welfare-to-work schemes in the US and Australia
The UK coalition government has placed welfare-to-work reforms and the Work Programme at the heart of its plans to reduce long-term unemployment. The Work Programme is also the flagship for the payment-by-results funding system through which ministers seek to deliver a wide range of social programmes that impact widely on third sector organisations.
There are 18 ‘prime contractors’ now delivering some 40 individual WP contracts with an estimated worth of between £10m and £50 million a year. Prime providers are expected to deliver some or all of their services through subcontractors and in doing so maintain a network of suppliers capable of meeting the diverse needs of disadvantaged jobseekers.
But much controversy surrounds how this will affect the third sector. There are criticisms of the design of prime contracts, which effectively excluded all but the largest voluntary organisations; the terms of the contracts offered by prime providers; the exclusion of some third sector organisations from prime supply chains; and the low number of referrals to specialist providers.
So, the future of the third sector in the ‘welfare market’ is unclear. Comparative evidence from Australia and the US, however, gives some insight into the longer-term impacts of outcome-based and performance-based funding systems.
In Australia and the US, as in Britain, non-profit organisations play a key role in the delivery of employment and training programmes especially in periods of high unemployment. Such non-profit involvement grew significantly until the 1990s when the introduction of ‘work first’ welfare reforms, falling unemployment and new contracting systems signalled a significant ‘shake out’ of such providers and greater involvement by for-profit companies.
Officials in each country suggest this change removed less effective providers and made the remaining non-profits more efficient and ‘business-like’. Others perceive a loss of important community assets and social capital with negative impacts especially on disadvantaged communities.
A detailed US study of larger non-profit organisations with major contracts found that while some struggled with the challenge, others improved their performance and ‘developed services consistent with their social mission’.
As in Australia such organisations had comparative disadvantages, such as their restricted capacity to take financial risks and raise capital on financial markets. But this was offset in part by their ability to raise funds from individuals and foundations to enhance their service provision.
The experience of smaller non-profit organisations in both countries has been equally mixed. Many studies report how some have exited the market, either because they failed to win contracts or chose not to compete. Other organisations continue to criticise the new contracting regimes on equity and service quality issues due to the transition from grants to contract and performance incentives. Some, providers of specialised services have been able to win contracts directly.
In Australia and the US cities that use prime contractors, smaller organisations frequently bid as partners or named subcontractors. The larger for-profit or non-profit organisations provide capital and management, financial and programme expertise, while the smaller community based organisations offer specialised knowledge of particular client groups and credibility with hard to reach communities.
In Australia non-profit involvement has been critical for government to ensure provision in areas less attractive to for-profit providers, either due to location or the particular characteristics of client groups. One feature of non-profit delivery in both countries is that involvement has not appeared to generate the levels of political opposition experienced by the for-profits.
There are few rigorous studies of the differences between non-profit or for-profit service delivery. Case study and anecdotal evidence suggests they have different management styles, and that staff employment conditions, incentives and training vary in important ways.
Some studies report that for-profits appear to work closely to the conditions of the contract and are driven by performance outcomes. In contrast, non-profit providers were more likely to meet the needs of their clients despite their contract obligations.
In Australia some studies suggest that even within a competitive environment non-profits remained committed to providing more intensive services, had higher staff to case load ratios, and sought to minimise the impacts of sanction policies. By contrast, other studies suggest that there has been convergence, with non-profit delivery becoming indistinguishable from that of for-profits, and with a muting of the advocacy role of non-profits.
These findings suggest wider concerns for the third sector beyond the number, terms and value of any contracts with primes. It may be as important to monitor the impact of Work Programme contracting on the composition of the non-profit organisations involved and to understand the impact that outcome-based contracting and a harsher welfare regime have on their social purpose and their claim to distinctiveness in service delivery.
Dan Finn is professor of social inclusion at the University of Portsmouth. This post is based on a presentation given by him at a recent policy seminar organised by the Third Sector Research Centre at the University of Birmingham
