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FND furore - not enough cash?
by Daniel on 23 Oct, 2008 in
This story in the Financial Times has publicised the recent debate over FND funding in the provider community. I've been tracking this for a couple of weeks now, and have a few thoughts on the matter.
At least three FND bidders have expressed unhappiness with the DWP's estimates for FND delivery costs, and this has been echoed by both the Social Market Foundation and CESI. Interestingly, many of the other providers are fairly relaxed about the financial risks of delivery. Reed in Partnership have made their confidence in the process particularly clear. There seem to be a number of possibilities for the difference in opinion:
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The delivery costs are unpredictable
The cost of getting someone into work depends on a multitude of factors, many of which will be outside of the provider's control. Customer job readiness at the point of entry, the quality of information and support provided by Jobcentre Plus, local labour market conditions: predicting these up to five years in advance is almost impossible. Perhaps the FND bidders are getting different figures because there is no accurate cost of delivery? This would be exacerbated for providers who have no experience of current prime contracting and Employment Zone or PSL experience to draw on.
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Providers are assuming it will all be ok
Most UK providers have been over-promising and under-delivering on provision since they were created. No providers are meeting target on current New Deal or Pathways to Work delivery. With New Deal, this was an unavoidable consequence of the previous contracts regime. However, Pathways had payment on results and price competition.
If providers carried on overbidding for Pathways, even though underperforming could lose them money, then why should Flexible New Deal be any different? What if providers are just following the DWP guidance on cost of delivery, and assuming that they'll be bailed out along with everyone else when the whole thing goes pear-shaped?
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Some providers can do it more cheaply
Reed in Partnership's profit margin on delivery has consistently been higher than that of any other UK welfare-to-work provider. This reflect both their preference for large, urban contracts, and the strong focus on 'contribution' that characterises the company culture. One of the ways in which they maximise profit is by minimising subcontracting. The vast majority of bidders will not or cannot take this approach. New entrants don't have the necessary on-the-ground capacity, and older medium-size providers can't take on the huge risk alone, especially given the chances of failure.
Parking and creaming will also make a big difference to delivery costs - more than a few providers have expressed reservations that they won't be able to help people who need more expensive support (i.e. people with health problems or major skills needs). It's possible that others have budgeted for a service that does help these customers.
My suspicion is that it's a murky, gumbo-style soup of the above reasons. Many providers will be in for a bumpy ride if their delivery isn't sensationally effective every time. The DWP modelling assumes that providers will deliver better performance than New Deal, Employment Zones or PSLs ever have, as standard. Failure to deliver at this level will result in heavy losses, which will begin to bite once the initial set-up funding runs dry.
Quick note - The Financial Times have started using some kind of protection scheme for their web addresses in recent months. If the link above stops working, give me a shout and I'll do my best to fix it again.
Further update - Regen are running a story on this as well, and Reed in Partnership sound notably more negative than in the FT story!
providers won't deliver, targets and payments will get negotiated, compromises will be found, trebles all round!
Sadly, it's likely that smaller organisations will bear the financial impact of FND, and go under as a result. Most of the bidders who are subcontracting are passing on 100% of the risk to their subcontractors, who have been told they will only be paid by the prime contractor when the prime receives its payment. Subcontractors are therefore having to shell out the costs for delivery up front and carry all the risks of these not being repaid. As the size of contracts is so big, smaller players can only subcontract, and have little option but to accept the terms provided by the primes.
There will always be other subcontractors waiting around in the wings to take over as and when the first lot go out of business, and the primes will be able to blame their poor performance on using the "wrong" subcontractors to get a stay of execution from DWP. As Reed in Partnership doesn't do partnerships - at least not ones which involve spending money with subcontractors - they are lining themselves up for most risk on this one, unless of course they know something which we all don't.
Hi Guy
It's a sad testament that when it comes to new DWP initiatives nothing changes. The local provider network will sadly be packing up more tents never to be seen again and DWP will stand blameless when service users continue to receive no real individual support and primes will blame the service users when they don't hit their targets. Hundreds of companies and smaller charities have ceased to exist and I fear many will take up their place in the 'provider network graveyard'. Still at least there will be more well qulaified individuals to be referred. Taking CDG as an example -redundacies 'a penny' as they try to make the bottom line more appealing to prospective partners whilst cracking the whip to current subbies and ridding themselves of 'poor performers' when they themselves have some of the worst stats going (mmm....a look into the future of FND I wonder?). I wonder how closely DWP will be looking at this when the announce the successful bidders for FND? Or whether in fact the likes of A4E etc aren't waiting for the announcement having had a nod and a wink of people in the know.....oh well best get my office cleaned out!!!!
Good luck to all during these difficult times!
Another update - David Freud weighs in on the debate. Doesn't add a huge amount to the discussion, although Reed in Partnership continue pushing their new, more downbeat assessment.
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