Innovation in Welfare to Work

A MIOIR Case Study on Public Procurement and Innovation:

DWP Work Programme Procurement -
delivering innovation in efficiencies or
personalised services for claimants?
Dr Su Maddock
Manchester Institute of Innovation Research

Presentation to CESI Conference
Birmingham July 10-11th 2012

Manchester Institute of Innovation Research 1

Introduction

The Work Programme procurement model was devised as a policy tool to
reduce the number long term claimants, cut the costs welfare benefits and
deliver personalised services for long-term claimants.

 The Work Programme the largest service contract for personalised services-
hence a flagship for the government, with a budget of £5 bill.
 Viewed as innovative through a two-tier business model that rationalise
government procurement and incentivise social outcomes through ’payment by
results’.
 Jeremy Heywood, the Cabinet Secretary said
If we could find a way of using the private sector to take more risk in
the public sector for good social outcomes it would a great step forward, It
is for those areas that require intense intervention. The Work Programme is
the biggest by far.


Methodology

The study was part of a larger study by MIOIR on public procurement and
innovation. It’s question was how far the two-tier procurement model was a
framework for securing service innovation for claimants – overall and above
innovations in processes and financial systems.

The research was intended to explore the dynamics in the supply chain and
impact of the commissioning framework on the capacity of contractors to
deliver personalised services (social outcomes)

It is based on critical enquiry approach through a multi-stakeholder analysis:
based on interviews with smaller and large contractors, DWP, local
government officials, social enterprise and claimants. An analysis of the
Work Programme as an innovation system is anchored in an understanding
of service personalisation in the UK.


Policy Objectives

The Work Programme is complex and can be evaluated against many
different objectives as it is underpinned by various policy objectives:-

 Cost-savings and efficiencies
 Personal service Innovation
 Marketization (privatization) of service provision.
 Transferring financial risk from the tax-payer to contractors
 ‘payment-by-results’ system.

The question is whether the model is geared to and aligned with
the conditions that most support personalised service innovation
claimants ?


The DWP Model

CO Government policies – marketization, efficiencies
& service innovation determine the
DWP Commissioning Framework & Funding

DWP Procurement team

Contract with
Contract with
Primes Primes Primes Sub-contractors

specialist Smaller
suppliers suppliers

Deliver services to claimants

Long term claimants

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Manchester Institute of Innovation Research

 This is an analysis of the views of stakeholders (
supply-side) and the government and claimant on
the demand side.
 The following is not an attack any one group –
and it is recognised that all those working with the
WP are trying to make it work for job-seekers
/claimants
 However, there is a need for systemic analysis
that begins to unravel tensions in the system and
critique the procurement in relation to the demand
as well as the supply side.

Public service innovation learning

What we know about PSI

 tendency in governments to imagine that ‘scaling-up’ of PSI can be
managed through a forms of procurement that ignore the need for suppliers
to be open service user experience and willing to co-design solutions.
 Public service innovation moves between people wanting to solve
problems, transform staff and service recipient relationships and prioritise
adding social value over other priorities.
 Service innovation flow often blocked by functional systems within
established and institutional bodies (Kay/Maddock/NESTA/Mulgan)
Which is why PSI intermediaries recognize that champions, innovation
capabilities and leadership shift in attitudes and relationships between
citizens and staff.


Public Service Innovation Drivers

Given the queries about supplier performance within DWP it is
worth referring to the characteristics of organisations that stimulate
service innovations –
 Focus on problems to be solved

 on people, their experience and deliver holistic services

 Collaborate across boundaries to come up with previously unimagined solutions

 Often are marginal to the mainstream

 Staff free to network and work with other agencies and the labour market

 Are flatter, smaller agencies driven by values- capability rich – but cash poor

 Often have long-standing locality or specialist connections

 These are difficult criteria to replicate in larger companies and public institutions.


Back to WP - Expectations


Numbers and Expectations


Selecting the Primes


Fees and Payments


Current controversies

There is controversy around the Work Programme- particularly in
relation to some prime contractors. There is also a growing tension
around the cost of working with the most vulnerable people, when
jobs are scarce. Should the state or the companies be carrying the
costs of social development ?
There appears to be:-
 Too little money in the system for specialist support
 specialist providers suffering cash-flow problems.
 Too few jobs and too little prime involvement in the jobs markets
 Black-box approach which gives freedoms to suppliers, not leading to
innovation
 DWP Concerns over supply performance
 Also, wider concerns over the lack of connection between WP and
skills and enterprise and with business and local authorities.


A Systemic Analysis
 This is an analysis of the wider system and the voice of
those key stakeholders working within it.
 It is about the supply-side, the context of the supply chain
and government demand .
 It is a systemic analysis that is an attempt to unravel
increasing tensions in the system
 It is not intended as an attack on any one group – but it
does draw attention to the gearing of the system and to
those organisations that most benefit from commissioning
criteria and procurement design.
 It recognizes that all working with the WP frame are
motivated to support people into work.

Jakob Edler Manchester Institute of Innovation Research 14

Voice of Stakeholders: Claimants

 There innovative suppliers – but as many outside the system as
contracted within it. Positive feedback about specialist, sub-
contractors in some regions working with vulnerable people are
demonstrating results and helping claimants gain confidence.
 Older claimants report that the model works better for younger people
with fewer skills than it does for those over 40 who have experience
and might be better advised to create their own business rather than
wait for low-paid, part-time jobs to be created.
 Those with chronic mental health problems and disabilities –very
anxious and most affected by the assessment process.
 Assessment techniques of ATOS criticised-Numbers refusing WP
assessment increasing- 40% winning appeals
 Patchy provision across the country, which depends on locality
relationships – very difficult for DWP to have intelligence of these and
primes also express a lack of capacity to keep track of changes.


Voice of sub-contractors
 Sub-contractors tend to be small businesses, that are for-profit but
work to social objectives, social enterprise, reliant on government
contracts.

They report that (more detailed input in report)
 WP is not structured to tackle long-term unemployment in rural areas
where jobs are few.

 WP no cash incentives for developing relationships with claimants
and other local agencies (local authorities, colleges etc).

 Financial incentives are not passed on to subcontractors –this is
resulting cash-flow problems for many smaller suppliers around the
country. Few primes making payments after input by SMEs.

• Many 3rd sector and specialist providers suggest that innovative
services are best delivered by local providers and sustained through
locality innovation strategies.


Voice of prime- contractors

Primes vary in their approaches and detail of their comments – common
themes and comments are that they :-
Welcome ‘ Social Outcome-based commissioning’ and ‘ payment by
results.’
 Finances not stacking up for them – bid below costs, jobs not available
working with claimants harder than anticipated.
 the unpredictability of claimant numbers a problem which has been
exacerbated by the number of claimants appealing against their assessment.
 Some evidence of exaggerating results, cutting corners – later this will be
more difficult if results of those in work will be visible to HMRC
 DWP anxious about commercial sensitivities but contractors say they meet
frequently for discussions on contracts.
 They also that the government t is too focused on the supply side and not
enough on strategic commissioning or inter-departmental working
 Directors would welcome incentives for greater involvement with local
authorities.

Innovation Research 17

Voice of the Primes

“We see integrated local services and relationships with local
authorities as the future. DWP could support more innovative
services by pooling their resources with other departments and
leaving commissioning to local partnerships who are better placed to
purchase integrated services. There are savings to be made from
joint commissioning by government depts.- at the moment four or five
depts., including DWP are funding back to work schemes and
opportunities for vulnerable adults”.

SERCO executive, former LA Director of Education.


DWP- the demand side

 DWP Sheffield-based procurement team is managing the supply
chain and contracts in an open manner and are receptive to feedback,
they have negotiated changes to the delivery cycle and developed
MERLIN standard.
 However, being in Sheffield, they appeared to be at a distance from
strategic decision-making and the commissioning framework.
 While DWP is highly efficient and at the forefront of driving efficiency-
relationships with localities( jobcentres) appear weakened by
 loss of employment’ officials who invested in co-design pilots with
LAs, who recognized that if DWP delivery did not have some
alignment with localities, a step-change in DWP internal innovation
capacities would be limited.
 Unease among DWP officials about dept’s lack of strategic
commissioning and cross- government commissioning which is
hampering locality service improvements.

19

Findings

 A NAO report published in Jan 2012 commented that while the WP
timeframes for results was unrealistic given the rise in unemployment
and the reduced number of jobs, the system appeared to be working.
 DWP July figures report only adequate performance and a concern in
DWP about supplier performance (Cave 10 July 2012)
Procurement process improvements :-
 A reduced number of prime contractors resulting in efficiencies in the
short term, however, DWP is managing the longer supply chain and
relationships with the labour market and local authorities remain weak
 The Merlin Standard as a quality assurance scheme welcomed by
contractors.
 All welcomed ‘payment by results’ but some say not put into practice.
 Repayments by the treasury to DWP an internal innovation but
uncertain when such savings to the department occur.


Current realities

Meeting the original expectations of for the WP are difficult to achieve
given the recession and recent figures from the DWP question the
performance of some suppliers.

However, poor performance could also be because the procurement
and business model is not working in the way predicted.

This may not be the fault of any one stakeholder group but because of
the gearing of the business model and assumptions about innovation
flow.


Findings & Analysis

 While specialists struggle to provide a personalised service more
Prime contractors are reporting claimants to DWP for non-attendance
and for benefit cut. Capgemini referred the most cases (11,910) of
which DWP cut 6,210, A4e referred the second largest number
(10,120).

 While it may be a requirement for primes to report non-attendance -
the increased numbers indicate a retreat to the ‘stick approach rather
than the ‘carrot’ of personal support.

 The whole point of the two-tier procurement process was for primes to
carry risk and work with government and for specialists to support
people back into work.


Findings & Analysis

Systemic analysis would suggest that there is a tension between
 personalisation and service innovation objectives and centralised
systems organised for efficiency gains. Even large contractors say
they are being unlikely to both meet service outcomes and make a
return. Profit wins over service innovation if no public investment in
social development.
 the procurement model favours larger companies (primes) with
financial assets over smaller specialists with the capacity to deliver
service innovation. payment by results’ positive payment delay is
disadvantaging small, charitable providers who cannot afford to wait a
year for payment. The gearing of the WP is to support large for-profit
companies at the expense of local, specialist suppliers.
 the primes so have the capacity or governance authority to
orchestrate the develop local jobs market,
 all say that they are working below costs at present


System development :
Locality Collaboration

Locality commissioning and devolved budgets one way to improve
WP integration with local jobs market and support smaller specialists,
deliver complex service innovation and build local and personal
resilience. While there is still a resistance to local government,
government perhaps this is changing given
* Government ‘devolvement deals’ to cities beyond
Manchester and Liverpool,
* community budgets work by local authorities who are delivering
service innovation to high cost families in Manchester, Swindon
etc
* increasing number of locality consortia, i.e. in Cornwall where
there is a SE supplier consortia work in partnership with
Cornwall CC, Cornwall college and prime contractor.


System development:
Locality Collaboration

The Cornwall Work programme has been a national exemplar for this
'single purse' approach where the support has been tailored to the
individual and aligned with local economic development, skills and
labour market strategies. Indeed, the Convergence ESF programme
is an example of such a strategy that is geared to a commissioning
approach from local suppliers. This has proved highly successful and
the Cornwall programme is acknowledged as the most successful
ESF programme in the country.

Head of economic development, Cornwall CC 2012


Conclusions
 Political expectations and ideology are overriding realities of the
practice. Large and small Suppliers fear that that the top-down
model of procurement will eventually come into conflict with service
personalisation requirements and the stimulation of the jobs market
which depend on horizontal relationships and locality integration.

 WP procurement framework favours large, companies who have the
assets to carry risk – debate to be had on government’s role in
governance and risk.‘ Such that blanket Marketization will not lead to
service innovation without a shift in overarching governance.

 This is not the fault of companies who are carrying the costs of difficult
service innovation and of connectivity in the system- which requires
some social investment to ensure value-added services and the
knowledge and human infrastructures to support them

Manchester Institute of Innovation ResearchSecondly, the vertical two-tier model by design reinforces the
relationships between corporate primes and central government when as the DWP locality pilots show it is 26
local relationships that sustain connect

Conclusions

 Process innovation is limited when it is not aligned to a wider
commissioning framework
 A need for locality investment in inter-agency working and invisible
costs of social development.

 ideological resistance to local government is undermining the very
relationships between stakeholders who are developing integrated
commissioning within cities.

 Government attitudes to local government is ignoring the significance
of the role of locality governance in stimulating jobs and creating a
context for innovative services that add public value.

 Devolved funding to local partnerships could better forge and sustain
a closer connection between the needs of claimants and employers.


Policy recommendations

 WP could be transformative if commissioning were devolved to
localities to develop social market of innovative suppliers and potential
employers.

 Rebalance criteria for contract awards and incentives for service
innovation outcomes and financial risk transfer.

 Encourage medium-sized, service providers with locality connections
a chance to bid for larger contracts to deliver personalised services for
marginal, under-employed people.

 Incentives and ‘Credits' for innovative, smaller suppliers.

 Integrate welfare reform with training and enterprise policies.


Policy recommendations

Wider System alignment could involve:-

•Would integrate WP with enterprise and skill’s in practice;

•Support locality commissioning to incentivise inter-agency
relationships, innovation across personal services and locality
resilience in the jobs market in conjunction with locality partnerships,
Local Enterprise Partnership and creative suppliers;

•Opportunity to create inter-departmental pooled funding ;

•Develop the demand side for more innovative public sector across
government


References

 Hambleton,Robin and Howard, Joanne. 2012. Public Sector
Innovation and Local Leadership. http://www.jrf.org.uk
 Kay, John. 2009. Obliquity: why our goals are best achieved indirectly.
London: Profile Books
 Maddock, Su. 2002 Making Modernization Work: New Narratives,
Change Strategies & People Management. J of Public Sector
Management. 15(1) : 13-43
 Maddock, Su. 2009. Leading Innovation: Change you can believe in.
google- also Maddock,Su & Robinson,Ben. 2010 Place Based
Innovation. available su.maddock@mbs.ac.uk
 Maddock, Su, 2012. The Whitehall Innovation Hub: Innovation,
Capabilities and Connectivity. The Innovation Journal google
 Mulgan, Geoff. 2007. Ready or Not? Taking Innovation in the Public
Sector Seriously, London. NESTA provocation: London. April.


Thank you for your attention

Contact:
su.maddock@mbs.ac.uk

Research Project: www.mbs.ac.uk

THANKS to our funders

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