By Alex Klaushofer
05 June 2009
Welfare -to-work experts, including the biggest potential private supplier of services, are concerned that some providers might underperform to the point where they need bailing out by government.
The doubts follow the Department for Work and Pensions’ May 29 announcement of the preferred bidders to provide Flexible New Deal services. The scheme, which aims to help jobless people back into work, starts in the autumn.
Serco is to become the biggest provider, taking contracts to the value of £500m in Greater Manchester, West Midlands and north Wales.
The growing unemployment in the recession has prompted the DWP to renegotiate the terms of the contracts. It will now pay providers a 40% service fee upfront instead of the 20% initially proposed.
But Richard Johnson, managing director of Serco’s welfare to work programme, said he was worried that the failure of existing programmes to meet their targets might be repeated under Flexible New Deal. ‘I am concerned at the level of performance that some current programmes are delivering,’ he told Public Finance. ‘It is much less than some organisations promised to deliver.’
The terms of the new five-year contracts meant that it would take some time before it became clear if organisations were struggling, he added. ‘The service fee is now quite high. It may be some time before we really understand the level of performance that is being delivered. We might not know until 18 months down the line.’
According to analysis by Indus Delta, a specialist website for the welfare-to-work sector, the 2008/09 performance figures for New Deal – FND’s predecessor – show providers found work for an average 22% of jobless people, missing their target of 45%.
Daniel Johnstone, the owner of Indus Delta, said there was a danger that the culture of unrealistic bidding that developed under New Deal could spell trouble for FND providers.
‘At some point they’re going to be in a fair amount of trouble,’ he said. ‘What’s the government going to do? Is it going to drop these people and let them go bankrupt, or is it going to vary the terms of the contracts? It’s a huge issue. It’s clear that might well happen,’ he added.
A4e, which has won contracts to provide services in five different regions, including London, achieved a success rate of 21.13% in 2008/09. Executive chair Mark Lovell said: ‘We are excited by the opportunity to deliver welfare in a new and innovative way, drawing on our UK and international learning.’
The latest unemployment figures, for the first three months of 2009, put the number of jobless at 2.22 million.
