Differential pricing in contracted out employment programmes: review of international evidence

The Department for Work and Pensions (DWP) contracts with an extensive network of non-profit and for-profit providers for the delivery of employment programmes. Over the past ten years there has been significant change and the Government now has committed to a strategy of ‘welfare market’ reform. This will involve ‘black box’ contracts that are less prescriptive about processes and will reward providers on the basis of getting participants into sustained employment. The principles of this strategy will be applied first to the ‘Flexible New Deal’ (FND) and 80 per cent of funding for external contractors will be paid for placing participants into jobs. Employment programmes are designed to provide enhanced assistance to service users with particular barriers to entering or staying in employment. Despite the positive impacts of many programmes, evidence suggests that most of them, whether delivered by public agencies or external providers, are less effective in meeting the needs of the ‘hardest to help’. This outcome can be a function of poor programme design but it also reflects the reality that the front line delivery and intensity of employment assistance is impaired by the constraints of the available funding, the character and scale of job opportunities and the tractability of the barriers faced by some of the hardest to help. The particular risk of outcome-based payment systems is, however, that they may provide greater incentives for ‘creaming’ and ‘parking’, where providers work most with those who are more easily placed and provide a minimal service to the harder to help. In this context the DWP Commissioning Strategy stresses the importance attached to overall ‘excellent customer experience’. It commits also to ‘trial different models of outcome payments’ and work with providers to ‘develop more sophisticated, differentiated models’ that identify service users who may be helped quickly and those who need more intensive support. Such a differential payment model may have the potential to increase the number of overall outcomes secured and target extra incentives at the harder to help.