'Work Programme could overpay contractors by £25 million' says NAO

Will Green is news editor of Supply Management
1 July 2014

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2 July 2014 | Will Green

The UK government could overpay contractors to the tune of £25 million in efforts to get the unemployed into work because of “flaws in contracts and performance measures”, according to the National Audit Office (NAO).

The NAO said the Department for Work and Pensions’ (DWP) Work Programme “had the potential to offer value for money” but issues around the system of rewards for contractors meant the DWP “may have paid contractors £11 million in the period to March 2014 for performance they may not have actually achieved and could overpay contractors £25 million over the remainder of the programme”.

Under the Work Programme there are 40 contracts in 18 geographic areas across England, Wales and Scotland, with each area having at least two prime contractors. Contractors can be private, public or third sector organisations and there are around 700 subcontractors.

In a report the NAO said the DWP used two methods to validate outcomes in a payment-by-results system of rewards for contractors. These include a payment based on a job outcome and additional “sustainment payments” based on the period of time in work.

The report said: “The department has not had a clear and consistent approach to validating sustainment payments. The department has also relaxed requirements for contractors to confirm that participants are in employment.”

The NAO was also critical of a “flawed basis for measuring contractual performance”, which is based on a ratio between job outcomes and referrals and “as referral volumes have declined this has led to an increase in the measure across all contractors that is unrelated to underlying performance”.

The NAO said as a result it is estimated the DWP could pay contractors £31 million in 2014/15 and almost £61 million up to 2017/18 in incentive payments. “If the department had a more accurate measure of performance, payments would be £6 million in 2014/15 and £17 million in total,” said the report.

The NAO said: “The department has recognised where it has needed to make changes to contracts. It has been actively negotiating with contractors to make improvements but it is not yet clear how much the department will need to compensate contractors for changes.”

Amyas Morse, head of the NAO, said: “The Work Programme has improved on its poor start with performance to date reaching that of previous schemes. There are signs that performance is still improving. The department must now deliver the significant increases in performance it expects, in particular improving outcomes for harder-to-help groups.”

The Work Programme is expected to deal with 2.1 million people between June 2011 and March 2016 at a total cost of £2.8 billion.

A DWP spokesman said: “The Work Programme is helping more people than any previous employment programme and has already helped half a million people start a job and 300,000 into lasting work.

"The NAO says that we've already saved more than £40 million over and above any previous employment programme, and that we'll save £450 miilion on benefits compared with any scheme that has gone before. 

"Even starting in the recession, the Work Programme performed as well as previous schemes, and with performance improving rapidly it’s on track to deliver significantly more jobs than previous schemes.”



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