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Response to Department of Work and Pensions Consultation

Commissioning Strategy 2013 Consultation

September 2013

About NCVO

NCVO champions and strengthens the voluntary sector, with over 10,000 members, from the largest
charities to the smallest community organisations. Alongside our sister councils in Wales, Scotland
and Northern Ireland, we make sure the voluntary sector can do what it does best.

NCVO convenes the Public Service Delivery Network, Special Interest group of sub -contractor
organisations involved in the Work Programme, and a Payment-by-Results working group that will
be making recommendations in 2013.


NCVO welcome the Department of Work and Pensions (DWP) consulting on its Commissioning
Strategy and its recognition of the benefits of having Voluntary, Charity and Social Enterprise (VCSE)
organisations in welfare to work service delivery. Many VCSE organisations have the knowledge and
expertise to make a positive and lasting impact for individuals seeking employment.

In this response, NCVO has answered questions where we have specific expertise a nd
experience. We have also consulted with our membership on their views around DWP
commissioning strategy, and senior staff are available to discuss any elements of this response
or our work on public services more generally. NCVO has drawn heavily on experiences gained
from the Work Programme in this response. We have highlighted the concerns in the VCSE sector
surrounding binary Payment by Results (PbR) mechanisms, the ability and need of DWP to monitor
Prime-Sub relationships and have encouraged further engagement between the VCSE and DWP
Commissioners throughout all the stages of welfare to work programme delivery.

We recognise the efforts that officials have made in engaging with the VCSE in the consultation
process and would urge a continuing dialogue with a range of service providers of different sizes
and sectors.

Q1: How should DWP balance its responsibility to strategically manage and steward a large,
developing market with our desire to maintain and develop the right specialist capability
throughout the supply chain? Please consider contracting arrangements in your answer.

1.1 We welcome DWPs recognition that providers with specialist capabilities need specific
attention from the Department within the CPA framework. These providers are often voluntary,
community and social enterprise (VCSE) sector organisations. Through the NCVO Work Programme
Specialist Interest Group (SIG) 1 of over 130 VCSE Work Programme providers we have evidenced the
need for greater direct support from the Department to the VCSE to ensure their specialist
capabilities are effectively supporting those furthest from the job market. To do this, these nonprofit providers need particular support in a Payment by Results (PbR) supply chain.


1.2 Specialist VCSE providers are experts in identifying and addressing substantive and complex
needs in the welfare to work market. To extract the full value of this expertise and capacity we
recommend that the DWP should engage the sector in pre-design stages of the procurement. From
January 2014 changes to the EU Procurement Regulations will give even greater scope for preprocurement engagement with providers through the introduction of two new procurement
procedures2 .

Details of the NCVO Work Programme Specialist Interest Group (SIG) at
The new innovation partnership approach and competitive dialogue with negotiation. These are added to
the two methods already available: negotiated procedure and competitive dialogue.

1.3 Pre-procurement engagement enables providers to contribute towards improved evidence

about user needs, changes in those needs and best practice interventions.

1.4 Pre-procurement engagement also supports the effective development of appropriate and
measurable metrics to design pre-job outcomes. This will enable the staggering of payments prior to
the later payments (job outcome payments and sustainability payments) which we recommend in
response to question four.

1.5 In pre-procurement we also recommend that the Department develops capacity in VCSE
specialist providers so they are better skilled to assess and manage the risks and opportunities
offered in contracts and sub-contracts. This has been an approach taken by Ministry of Justice in the
Transforming Rehabilitation procurement 3. We have seen in the Work Programme that many
providers were unprepared and inexperienced in assessing risk and managing risk. For the VCSE
these skills are particularly important as we are less able to absorb risk and lack the capital to offset
it. VCSE providers also have particular governance profiles (Boards, processes and mission
commitments) which make their ability to engage in PbR and supply chains particularly difficult. If
the Department is to overcome these barriers NCVO recommend that providers are engaged at pre procurement to better understand risk-management capabilities; and this is followed by appropriate
skills-building support.

1.6 Importantly this pre-procurement engagement will help understand how risk affects
performance in the VCSE so appropriate incentives and additional performance management

Transforming Rehabilitation: A Strategy for Reform, p17.

measures can be developed for the contract terms and/or market stewardship framework.
Evidenced understanding is required to understand how the transfer of financial risks affects
performance, investment, and disinvestment behaviours amongst VCSE providers who have a
distinct and different capital profile from larger or commercial provider organisations.

Proportionality of procurement process

1.7 Pre-procurement engagement will give the Department sufficient evidence to understand how
the administrative burden of the subsequent procurement and development of supply chains is not
either wasteful or so weighty that it excludes VCSE organisations from entering supply chains. The
administrative burden arising from the requirement to fill out multiple and separate Expressions of
Interests when engaging with Primes is a widespread concern amongst the VCSE 4 . This caused
significant problems in the Work Programme procurement, detracting valuable resources from the
frontline and service improvement.

1.8 As part of a review of proportionality of procurement procedures, NCVO recommend a single,

standardised Expression of Interest framework to be used to recruit all subcontractors. We
recommend that DWP learn from the model in use for the Ministry of Justice Transforming
Rehabilitation procurement.

1.9 A current NCVO survey 5 is showing that the greatest challenge for specialist providers in
procurement is the proportionality of PQQ and any other due diligence hurdles, and the timeframe
for procurement. These factors frequently make it impossible or difficult for specialist providers to
Results not yet published.

enter public service procurements. Shorter timescales also contribute to the bid candy problem
that has hampered the Work Programme 6 . Giving providers more time to establish relationships,
consider contracts, and develop supply chains will ensure more effective markets to be established.
We therefore recommend that through pre-procurement the DWP work with providers to agree a
suitable timeframe for procurement. A good timeframe enables providers to develop best-practice
service models, to build partnerships around service specialisms, and to sufficiently assess and plan
for risk management.

Bidder assessment criteria

1.10 NCVO and the SIG recommend that future procurements demand prime providers show better
evidence how sustainable local supply chains are able to address current and changing local needs.
NCVO have evidenced the use of bid candy in the Work Programme. This has affected the
sustainability of specialist local providers and led to a subsequent impact on the quality and available
of provision to those furthest to the job market.

1.11 NCVO would welcome the use of the DWP Best Practice Group as a forum for helping design
effective criteria for prime bidders to be assessed. This approach should aim to lead to genuine
partnership in both design and delivery.

Payment model

1.12 NCVO understands that the DWP is committed to using a PbR funding model. We recommend
however that the DWP take on board the recommendations and research in the forthcoming

(November 2013) NCVO report into PbR and the VCSE. There is as yet little evidence that PbR is an
effective model for driving performance amongst specialist providers and we ask that DWP
therefore considers alternative or adapted models of payment terms within any future PbR
procurement. We would refer DWP in this consultation to previous research by the SIG detailing the
fundamental challenges for VCSE facing PbR payment terms and the detrimental impact this has had
in many cases, with many not seeing their contract as viable for the whole length on the contract 7 .
We would welcome on-going discussion with DWP about our evidence and potential solutions and
improvements to PbR models.

Service user segmentation, tariffs and referrals

1.13 One of the key barriers to effective and sustainable delivery cited by the NCVO SIG has been the
poor management of referrals of those furthest from the job market. We recommend that review is
made of referral processes along the pathway and that improvements are made to ensure creaming
and parking is identified and halted.

1.14 In particular, we strongly recommend that DWP review the segmentation of users and the
tariffs attached to users. We ask that tariffs are designed that better reflect the complexity, greater
risks, and high levels of service resourcing required for those furthest from the job market. The
simplicity of current tariffs has enabled creaming and parking and created inequalities across user
groups that must be robustly addressed.

1.15 In order to best manage this, we ask that the DWP Best Practice Group is used to monitor and
address problems of tariff structures in the current Work Programme and this evidence is used to
make improvements to future tariff and payment models. We further recommend increasing
incentive payments to enhance provision to those furthest from the labour market; this should be
based on personalised provision to reflect user need.

1.16 We recognise there are barriers to giving guaranteed referral figures. However this severely
affects business planning for specialist providers. We would therefore welcome review of the data
used to make referral predictions, and the updating of such data at regular intervals. Again, we
recommend that the DWP Best Practice Group and NCVO SIG are used to discuss improvements in
the way referral variations disproportionately affect specialist subcontractors.

Standard contract terms

1.17 NCVO and the SIG would welcome on-going discussion about the suitability of applying
standard contract terms across supply chains. There are advantages of protection to standard terms.
However we also recognise the need for commercial flexibility and the advantages it offers to all

1.18 Any terms should fully embed the principles of the Compact. As the MOJ has done in
Transforming Rehabilitation, we would welcome a clear commitment of DWP to ensure that in all
commissioning and contract behaviours the DWP state clear commitment to the Compact and to
embedding relevant principles in all documentation and procurement models.


1.19 We welcome the review of the Merlin Standard and the role it can play in ensuring fair
treatment for specialist subcontractors. We recommend that into the DWP take learning from the
NCVO / Serco subcontracting guidance as well as building on the continued involvement of NCVO
and the SIG in ensuring relevant parts of the guidance are included in the revised Merlin Standard
and development of any standard contract terms.

Q2: How can we make competition more effective? How can we break down the barriers to
market entry through our contracting, for both our larger and smaller contracts? How could we
increase competition through the procurement process? What role can Open Data play?

2.1 Firstly we must state that collaboration is an equally effective tool for driving improvement in
VCSE improvement as competition. The VCSE sector is highly fluid and collaborative. Innovation
requires a process of iterative learning and testing that works best in collaborative, supportive
contexts8. We therefore recommend that DWP gives equal weighting for means to better promote
collaboration and shared learning across CPAs. Like competition, this will also drive performance and

2.2 DWP must recognise that prime contracts let at the size of the Work Programme (where primes
required 20million capital) present barriers of scale and capital that exclude the overwhelming, page 6


majority of VCSE and specialist providers. Approximately 97% of VCSE organisations have incomes of
under 500,000.9 This is a fundamental barrier to competition. The risks transferred in PbR and at
such scale inherently reduce the market share available to the VCSE and have led to, we believe,
markets that are insufficiently diverse.

2.3 Larger VCSE providers or consortia of providers will be interested in accessing social investment
or commercial partnerships through which they can gain the necessary capital to enter the
market. However it is important that DWP take steps to understand why there were so few bids of
this nature to the Work Programme. Social investment is a new tool and research shows it takes a
considerable time to develop the evidence and mechanisms to ensure contract opportunities are
attractive. NCVOs confidential conversations with social investors showed the Work Programme to
have been an unattractive investment because of the short timeframe of procurement, the lack of
confidence in data and referral projections, and the scale of capital required.

2.4 Consortia face similar barriers and requirements to enter markets. Consortia can bring wide
expertise and experience to markets but they also need long-lead in times. If consortia are to require
social investment this clearly makes lead-in times longer still.

2.5 If the DWP wants to see VCSE entering prime competitions as consortia, partnership, or single
primes, NCVO recommends that sufficient lead-in is allowed before competition, and the length of

this lead-in is calculated by agreement with investors with providers. Without such discussions, leadin time is unlikely to be appropriate.

2.6 Because of these barriers VCSE organisations are most likely to be sub-contractors in the welfare
to work market. Here, competition could be improved by DWP reviewing the level of market
diversity at each year of the Work Programme, and how this is different from DWPs stated
predictions and preferences for a diverse market in which the VCSE were a significant element of
provision. We welcome DWPs clear understanding that the VCSE has a significant role to play and
suggest that the achievement of this should be given due consideration and reporting.

2.7 To enhance competition at sub-contractor level we refer you to the recommendations made in
our answer to question one. These include recommendations to build skills and confidence for
competing, and creating proportionate procurement processes and P QQ demands that ensure
specialist subcontractors are not unfairly excluded from bidding. Key to this, as we have argued, is
better evidence on which providers can plan their cash flows and business activities. Without this
organisations cannot quantify and manage the risks and rewards of contract opportunities. This
leads to organisations not bidding, or failing to sustain business over the life of a contract. In both
cases there is reduced competition and diversity.

2.8 We would again refer back to the impact of bid candy. This creates a distorted picture of
competitive supply chains, and also misleads providers into believing they will play a role with a
prime. This is why we recommend that future procurements demand prime providers better
evidence how sustainable local supply chains are able to address current and changing local needs.

2.9 For competition to become effective, the performance of the whole supply chain should be
published. This creates transparency, accountability, and a drive to improve and learn from best
practice. When publishing statistics, DWP should publish below prime referral and performance
levels.10 This will have several benefits. It allows sub-contractors to see how their performance
compares to other similar organisations in the supply chain and more widely. Secondly, enables both
DWP and Sub-contractors to hold Primes to account if they are not referring service users down the
supply chain. Finally, it more easily highlights best practice that can be shared.

Q3: DWP wants to work with the market to improve the effectiveness of subcontractual
relationships. What, if any, changes should be made to the Code of Conduct? What are your views
on the way the Merlin Standard is used? How can we create supply chains with the inbuilt
resilience and flexibility to cope with changing requirements and circumstances?

3.1 NCVO welcomes the strengthening of the Merlin Advisory Board and the review of the Merlin
Standard. However there are major problems with current effectiveness of the Merlin Standard. As
the largest representative body of the VCSE sector NCVO are actively involved in the review of the
Merlin Standard.

3.2 We recommend that any revised Standard should be a requirement of primes before they bid. In
the Work Programme, Prime contractors had up to one year to achieve accreditation 11 . This left sub-



contractors who were experiencing non-Merlin compliant behaviours with no process to turn to. In
future welfare-to-work programmes, we would like to see Merlin Standard accreditation as
requirement for any winning bid.

3.3 Another failing has been the perceived overreliance on Prime contractors12 . Members of the
Work Programme Special Interest Group have informed NCVO that the y fear Merlin Standard places
too much emphasis on the Primes self-assessment when deciding whether to award accreditation.13
Merlin assessors should engage with each sub-contractor in the Primes supply chain to get a more
detailed picture of how the Prime is working with its partners. The weighting placed on each
criterion needs to be made to allay fears that the assessment process is bias in favour of the Primes
and successful accreditation.

3.4 Due to the size of the CPAs in large welfare to work programmes, the Roundtable of Special
Interest Group members raised concerns that the Primes were too big to fail. The ultimate sanction
that the Merlin Standard can impose is the termination of the Prime Contract. However, there are
fears amongst sub-contractors that this ultimate sanction will not be imposed because of the
disruption this would cause DWP. DWP need to make clear the process that would drive any
termination of contracts and how it would mitigate any negative affects this sanction would have on
VCS sub-contractors in the supply chain.



3.5 DWPs Code of Conduct, which the Merlin Standard is designed to support, states that It takes
account of the Compact principles.14 Compact Principle 3.11 states that the government should:

Ensure all bodies distributing funds on the Governments behalf adhere to the commitments
in this Compact. This includes the relationship between prime contractors and their supply

3.6 To ensure that DWP Prime contractors do adhere to the principles of the Compact, as the DWP is
committed to doing16 , The Compact Principles should be embedded in DWPs Code of Conduct

Q4: What steps does DWP need to take, across its commissioning (from large-scale national
programmes to small-scale local commissioning), to maintain and promote a level playing-field for

4.1 We refer you back to our answers on enabling specialist provision, competition and collaboration
in questions one and two.

4.2 To this we would add further recommendations to adapt the PbR model.

4.3 The Work Programme PbR model is designed to transfer financial risk to capital -carrying
organisations at scale. However this does not reflect the profile of many expert and VCSE providers
in the welfare to work market. These providers struggle to operate in such an environment. This is a

14 -rep-08.pdf
The Compact, Principle 3.11.
16 -government-priority/the-compact


fundamental tension and as we have discussed and evidenced reduces the level of competition
and diversity in the market. Therefore the DWP is right to recognise measures are required to
address an un-level playing field.

4.4 NCVO advice that PbR is not applied to organisations of an income beneath 500,000. Auditing
and accounting regulations17 do not subject organisations under 500,000 to external audit18. These
rules are based on proportionate expectations on skills and resources: the same logi c that a
commissioner when forming expectations of providers skills, experience and ability to carry high financial risks. These organisations have low reserves, cautious governance and insufficient assets
and income to manage late payments. They are therefore disproportionately affected by PbR and
are liable to be driven to disinvest from services quickly when problems arise so PbR acts as the
very opposite to a driver to improvement. We provide further detail on this recommendation in our
upcoming (November 2013) paper on PbR and the VCSE.

4.5 We recommend that the DWP closely monitor the MOJ Transforming Rehabilitation programme.
This uses a three tier model in which the lowest tier is grant-funded and shielded from the financial
risks of PbR. This use of grants should be adopted by DWP. Alternatively, we ask that DWP provides
evidence that PbR is directly accountable for driving improvement in services and results amongst
smaller VCSE providers.

4.6 We also recommend that DWP establishes a gaming commission, like that done under the
Department of Health drug and alcohol PbR pilots. This should be tasked with exploring the


development of milestone measures and payments to create a more staggered payment model.
The binary PbR employed in the Work Programme is not financially sustainable for many in VCSE
organisations. Rewarding milestones will mean that VCSE organisations are using their skills in
working with individuals with complex needs, whilst also ensuring the Prime can work with
individuals who are closer to the labour market.

4.7 Such a payment model would reduce the overbearing risk of the current near 100% PbR model
which has prompted primes to focus on cutting costs and reducing risks, ahead of drivers to invest
and focus on improvements. A reduced burden on financial risk, for example to a 30% PbR end
payment would change investment behaviours along the supply chain. DWP is familiar with such a
model and could expand the hybrid system used in Work Choice 19 where by 70% of the providers
contract price is paid as a monthly service fee, with a 30% of the payment being linked to results
achieved by the provider.

Q5: How should DWP develop the role of social investment in our commissioning?

5.1 We are not providing an answer at this stage, but will look to develop future evidence.



Q6: How should DWP design outcomes and service standards for the hardest-to-help within
outcome-focused payment models?

6.1 NCVO welcomes commissioning focused on outcomes. However the outcomes set in the Work
Programme were set by commissioners, often with no consultation with users or those providers
who have expertise in working with users to achieve change and who understand the pathways and
systems barriers to achieving that change. Consequently we have ended up with a focus purely on
job sustainability and the parking of users judged less likely to achieve those outcomes.

6.2 We therefore strongly recommend that an outcomes and tariff model is designed for future
procurements that gives rewards agreed milestones. As we recommended in question four this
requires a gaming commission to model before milestones can be agreed and applied. This will
substantially reduce creaming and parking and drive equalities and better outcomes across future

Q7: How can DWP efficiently and effectively monitor and manage service quality within the wider
framework described in this document?

7.1 There are a number of methods for monitoring service quality. For NCVO it is crucial that all parts
of a supply chain are included in this discussion so that monitoring enables a view of each part of the
chain separately. This would enable better performing sub-contractors to be recognised and to be in
a strong position for wider delivery beyond their initial contract.


7.2 Furthermore, monitoring should be proportionate and responsive to wider milestone outcomes
that we have described in this document.

Q8: How should the Department, working with the market, develop its approach to performance
management? For example, should we consider increased use of Market Share Shifting, focusing
on directly performance managing individual providers or allowing claimant choice within CPAs?
How can the market drive performance?

8.1 As we have recommended in question two the DWP should give equal weighting to driving up
collaboration as to driving up competition. This is the reality of how markets drive performance.
We believe both collaboration and competition are essential to drive improved performance.

8.2 Market shift is currently in place in the Work Programme, but it is too early to tell if this has had
a significant impact on performance. NCVOs concern with market shift is that this may adversely
affect a well performing subcontractor due to the relatively poor performance of the prime losing
the subcontractor business.

8.3 It is important to remember the importance of service users in assessing quality: they are an
essential stakeholder and expert in the market. Service users are the ultimate purchaser of public
services. The commissioner in this case the DWP is a proxy purchaser on their behalf. Service
users are therefore an essential part of assessing quality and have greater access and
understanding of the system that those administrating the system.


8.4 For the mission-led VCSE user needs and users experience of quality is the driver of our
innovation and quality. It is important the DWP harness this drive and create an effective framework
through which users can monitor and feedback on quality and need for improvement. We therefore
recommend that the DWP establish discussions with providers and user groups to discuss how
better users can be involved in driving and monitoring service quality.

8.5 Service user choice is an interesting idea and that should be explored. In any exploration of this
we recommend that DWP take learning directly from the providers and commissioners within the
adult social care market. Here, huge ambitions for enabling user choice have been substantially
disappointing in reality: in March 2013 100% or users were meant to have personal budgets20 .
Official statistics rate this as at only 53% now 21 ; however national VCSE providers have told us the
real figure they see is closer to 5-10% of users22 .

Q9: How, when assessing bids, should we balance price and quality?

9.1 It is clear that the Social Value Act encourages a wider approach be yond lowest cost provider. It
is important that any commissioning ensures the full range of impacts is taken on board, including
wider savings to a department beyond the direct cost of the service. NCVO would be interested in
exploring how this local social impact can be measured and incorporated into future contracts

20 p54.
Figures given anonymously, July 2013.


Q10: How can DWP incentivise innovation in future welfare-to-work commissioning? How can we
capture and share practice derived from successful innovations? What are the barriers?

10.1 The current PbR model used in DWPs Work Programme, inhibits innovation. Innovation is, in its
nature, risky. The Work Programme puts most of the emphasis on a binary, long term result, and
consequently providers from all sectors will become very risk adverse.

10.2 NCVO would recommend DWP look into the possibilities of setting up separately funded an d
commissioned programmes innovative approaches. As mentioned above, Social investment could
play a part in funding these. Alternatively, DWP could look into Programmes that are cross
department funded, take advantage of the European Social Fund and work w ith LEPs to encourage
the emergence of innovative approaches. DWP could also consider giving grants to organisations
that develop innovative models.

10.3 Once innovative approaches have been tested, they could be expanded, or the best practice
shared. Best Practice can be shared via DWP forums or workshops across the country. The UK is
considered a key country in innovation in service design and these models could also be shared

Q11: We have re-affirmed our view of the overall set of provider capabilities, giving particular
capabilities more emphasis. Are there key capabilities which we have not adequately captured?

11.1 NCVO actively works to enhance the skills of VCSE providers to ensure that they are well placed
to engage in the commissioning process. It is clear that there is a continued need for specific training


and support to enable VCSE organisations to: a) understand the commissioning process; b) engage in
co-design of services; c) bid for contracts individually or (more likely) as part of a wider consortium.

11.2 These capabilities can be developed in partnership through joint support to commissioners,
prime contractors and sub-contractors. By engaging in joint training and support, there is an
additional advantage that this builds greater trust and mutual understanding.

Q12: Working within the high-level framework articulated in this document, how could DWP
become a more flexible partner, nationally and locally what are the barriers to more effective

12.1 See our response to question 10.

Q13: What are the current barriers to co-commissioning?

13.1 We are not providing an answer at this stage.


Q14: DWP recognises the importance of the Social Value Act, but also has a clear remit to deliver
sustainable employment outcomes which offer good value-for-money to taxpayers. How can DWP
best consider Social Value through its commissioning?

14.1 NCVO welcomed the introduction of the Social Value Act. We would call for DWP
commissioners to consider social value on all contracts, not just the ones that go above the current
EU thresholds which currently stand at 113,057 for central government and 173,934 for other
public bodies. 23

14.2 This step would ensure that assessment of bids from VCSE organisations would have taken into
account the added Social Value their provisions may bring. It is already considere d best practice to
consider Social Value in all contracts, but NCVO would encourage DWP to enshrine this in the
Commissioning Strategy as a requirement.

14.3 DWP should engage with the VCSE to develop an appropriate balance between the social value
a bid could bring and its financial value.



Contact details:

For any enquiries relating to this response please contact:

Ramzi Suleiman
Partnerships and International, NCVO
Direct line: 020 7520 2472