We understand that the Value for Money test will be one of the 4 key elements of the new Framework assessment.
just to recap; the assessments will -or is likely to – broadly cover;
- Financial capability/capacity
- Physical management and capacity to deliver
- Experience
- Value for Money test
Lets look at the Value for Money Test.
The starting position is that “value for money” tests are by definition problematic because it is difficult to factor in the cost of things going wrong over the life of the project. Any such test or assessment is hypothetical and so its credibility is difficult to test.
My analysis of the Value for money test
The higher the level of risk that can be transfered away from the public body will ultimately result in stronger incentives to innovate, better project evaluation and it will ultimately result in reducing costs.
However these advantages must be balanced against;
- Huge contract negotiation costs,
- Inflexibilities of a long-term contract
- Reduced competitive pressures on performance after the contract has been entered into (in contrast with a situation where the contract is re-tendered periodically.
and …
- the awareness that the offsetting of risk narrows the pool of participants and potentially increases dependency on PRIMES or “SUPER-PRIMES”
The key questions that the department is srtuggling with include;
- Is it able to specify outcomes in ways that leave scope for provider/s to innovate, optimise and scale up their delivery. FND1 and FND 2 presented real challenges to providers, unit costs were low, DWP’s performace request was higher than what had historically been achieved on the New Deal and Employment Zones (Employment Zones performed the best).
PEP was a very different ball game and providers felt cornered into working within a wholly unrealitic unit costs, for a provision which was twice as long and with an almost unfathomable but definately unworkable accelerator funding model.
Incidentally; I think the axcellerator model is here to stay
- To what extent are the desired outcomes likely to be sustainable, given the length of the contract and the economic environment? how will this be reflected in relation to funding and unit costs for 13, 26 or 52 week sustainable outcomes?
I have real concerns on behalf of my clients as to the deliverability of outcomes that may or may not be ascribed to provider interventions. The current rhetoric ‘bigging up’ the not-for-profit sector will not necessarily translate into the third sector benefiting from outcome related funding.
I also have a sneaky feeling that the Primes won’t want to carry the risk of their underperformance for long.
I am also deeply concerned about the supply chain in any bigger solution for the new Work Programme = there aren’t strong enough incentives available to private sector primes to share outcomes at a reasonable price with SMEs or smaller third sector providers.
The current DWP policy implies a concentration of supply in the hands of a few, large providers. The same concentration has been seen in the the banking sector and, to a lesser extent probably, in the retail sector.
The open question is whether such concentration delivers efficiencies at an acceptable cost in respect of choice, innovation and speed of adaptation. It also raises the question of whether systemic failure is more likely in the event of major external changes. Over the long term, aren’t diversity and adaptation necessary to the development of a strong and sustainable provider base? Darwin might have suggested that they are!