Welfare-to-work bidders warn Tories to protect upfront fees

6 Aug 09
By Tash Shifrin Firms bidding for contracts under a £2bn welfare-to-work programme have warned that an incoming Conservative government must maintain ‘sufficient’ upfront payments in the deals. The warning comes after shadow work and pensions secretary Theresa May said the Tories might seek to change the terms of contracts for the Flexible New Deal scheme. Deals for the first wave of the scheme are expected to be signed imminently but those for the second wave are not likely to be finalised until after
By Tash Shifrin

06 August 2009

Firms bidding for contracts under a £2bn welfare-to-work programme have warned that an incoming Conservative government must maintain ‘sufficient’ upfront payments in the deals.

The warning comes after shadow work and pensions secretary Theresa May said the Tories might seek to change the terms of contracts for the Flexible New Deal scheme.

Deals for the first wave of the scheme are expected to be signed imminently but those for the second wave are not likely to be finalised until after a general election.

‘If contracts have not been signed, one of the things I’m looking at is making the changes we want to those contracts quickly,’ May said, in an interview with the Financial Times.

The Conservatives might have to live with the first-wave deals, but May did not rule out looking to see if the terms could be changed. She said the Conservatives wanted to reduce upfront payments from the current 40% of the contract price. This would put the emphasis ‘on the outcome rather than the process’ of getting people into jobs, with a larger proportion of the payment dependent on successful placements.

Earlier this year, the government was forced to renegotiate terms with potential contractors, doubling the proposed upfront payment – or service fee – from 20% to 40% of the total for the first 18 months of the contracts.

In response to May’s comments, Amanda McIntyre, chief executive of trade body the Employment-Related Services Association, told Public Finance: ‘Welfare-to-work contracts need to motivate and enable providers to achieve the best possible job outcomes.’

Outcome-based fees would help to do this ‘so long as they were combined with a sufficient service fee element, so that providers could manage their cash flow requirements’, she said.

A spokesman for Working Links – one of the first-wave preferred bidders – said it would work with an incoming Conservative government ‘to look at how they want to develop these contracts’.

But he noted that the shift towards greater frontloading of payments came ‘once we saw the recession kicking in’. The balance of payments had ‘to be a moveable feast’ to take account of the wider economic and employment climate, he said.

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