The design and delivery of ‘payment-by-results’ and ‘black box’ contracts: the case of the UK Work Programme

The Work Programme is the ‘flagship’ for the payment-by-results funding system through which the Coalition Government is delivering a wide range of social policies, including those now targeted at the young and long term unemployed, ex-offenders and ‘troubled families’. The programme has radically changed the delivery of British welfare to work services and has involved innovations in the design, procurement, and delivery of outsourced employment services. The programme has pioneered ‘black box’ contracts where providers have been given flexibility to design and deliver services but with their income now largely dependent on securing long term employment outcomes.

British Ministers suggested that the new contracting system would lead to innovation, improved accountability, higher job outcomes, and better customer service, but the programme failed to meet its initial targets and, in its first two years, has attracted widespread criticism about the poor quality of services given to harder-to-place jobseekers and the negative impact of the payment-by-results contracting model on non-profit and specialist subcontractors.

This paper assesses how prime providers have utilised the flexibilities given to them and considers the composition of the subcontractor supply chains they have developed and the service delivery strategies that are being implemented. It will review evidence on provider effectiveness and consider how well Work Programme design is safeguarding service users from the risks, and criticisms, of ‘creaming’ and ‘parking’ and what the implications of the Work Programme experience might be for other clients and providers now experiencing payment-by-result services.

Dennis Gough will respond to this paper, with reference to the use of ‘payments-by-results’ in the Probation service.