THINK TANK - The Ideas Zone....!!!, Welfare to Work

– RICHARD JOHNSON on structuring the Work Programme to change society

The potential of the Work Programme is quite extraordinary – using savings generated in benefits to extend services to millions of people currently excluded by unemployment. Many of these people are locked out of society as a result of their worklessness, they are trapped in a dependency on benefits that is debilitating, depressing and so horribly destructive.

The Work Programme has a potential that could transform families and communities. It is a model that could fundamentally change the relationship between the state and the frontline services which the state commissions/purchases. It has applications far beyond welfare to work, and is of considerable interest way beyond these UK shores.

But if we are to realise that potential, I believe we must accept that it requires a fundamental shift in thinking.

There is a sense in some parts of the welfare to work ‘industry’ that the Work Programme is simply an extension of existing services with a greater emphasis on outcome-based funding. There are, of course, aspects of this in what is being proposed: however, they are a small part of an idea which is actually about the creation of a new structure, in which the state defines the desired product or impact of the frontline service and then contracts with an organisation to deliver those outcomes. In the process, the state shifts risk to that contractor, with potential reward as compensation.

If an organisation is to take on this risk/reward contract, to accept a funding model that requires upfront investment in services with payments linked to long-term employment outcomes, they are clearly going to have to have three significant capabilities which have been clearly set out by Ministers over the last couple of months:

  • A financing vehicle that can a) act as a bridge between upfront delivery and outcome-based funding, and b) manage the transition between existing funding mechanisms and this new model;
  • A network of service provision that will provide geographical coverage as well as meet the wide range of complex needs that will be presented by this extended group of service users. It will also benefit from alignment with associated services such as health and justice;
  • Supply chain capability, once this network has been established, to maintain the wellbeing of suppliers, to facilitate their development, to professionalise the industry as a whole and to deliver continuous performance improvement.

I believe this implies that we are creating a new tier of contractor in order to deliver on the Work Programme.



Risk-bearing tier, with differential funding all tied to long-term employment outcomes (up to three years of sustainability), i.e. with no service fee. A financing vehicle of some sort. Possibly sitting within or a subset of a distinct Special Purpose Company.

Operating at a regional level.

The ‘commissioner’ of the frontline services, bringing together and managing networks of subcontracted provision.



Networks, or possibly consortia, of frontline service delivery.

This is the existing welfare to work ‘industry’, including all Flexible New Deal, Prime Contractor New Deal, Employment Zones and Pathways to Work frontline contracts/services. It must also start to bring in new expertise and specialist interventions to address more complex needs.

The relationship with their contractor in Tier 1 is likely to vary depending on the nature of their service: including preferred providers, subcontractors and suppliers. Their payment terms will reflect this, with the potential for service fees, on-programme payments and also outcome-based funding, depending on what is being delivered.

A mix of public, private and third sector organisations.

Key characteristic of the Serco model

A key characteristic of the Serco model for Flexible New Deal is the clear separation between us as prime contractor and our subcontracted provision. I believe this enables us to have a ‘cleaner’ relationship with our subcontractors, objectively engaging with them on behalf of the jobseekers.

There is also a clear delineation in terms of our skills set. Clarity over respective roles is at the heart of constructive contracting.

Where this separation does not exist, in some of the welfare to work areas – not managed by Serco -, we continue to see poor relationships between prime and subcontractors, with consequent deterioration of service quality. The Merlin Standard is an attempt to ameliorate this, and I have sat on the steering group for the Standard. However, these relationships are principally determined by how things are procured from the outset and the contractual context within which they operate.

At Tier 2 it is obviously vital that we have a wide, diverse market of provision. In Serco’s three current operations we have over 60 subcontractors, and these are just delivering FND. Using multiple providers mitigates risk for us, should one of our subcontractors underperform or fail. It is a wider base from which to identify innovation and best practice, which we can then promulgate. Specialist expertise is brought in, as well as local knowledge and contacts. It utilises existing infrastructure, reducing start up costs. We are also able to use competition between providers to drive higher performance, underpinned by transparent performance reporting.

At Tier 1 we must be careful about applying the same assumptions. Is there any benefit to be gained from duplicating the infrastructure costs of the prime contractor within a region? If there were two Tier 1 organisations per region, there would be considerable overlap in their Tier 2 provision. In many instances they would be subcontracting to the same provider for precisely the same service in the same location.

It should be possible at some point to replace the Tier 1 contractor, with service delivery seamlessly continuing at Tier 2, as the prime contract vehicle is changed. To unlock the potential of the Work Programme concept, this is about a thriving, high-performing market of frontline provision and a separate layer of risk-carrying financing/commissioning.

This is not to say that we must not carefully monitor and benchmark performance. This can be achieved, however, through national comparisons, including identifying roughly comparable labour markets from within different regions. In the early transitional years of the Work Programme it is almost certain that the funding levels will have to be reset periodically, facilitated by open book accounting. Multiple Tier 1 vehicles within regions will not add any value to this process or to the wellbeing of the frontline services.

The regions (Lots) and the Framework

It is, of course, necessary to have some choice at that Tier 1. But sufficient, appropriate choice – given the nature of these contracts – can be provided if we have between THREE and SIX Framework Agreement contractors nationally with only one per region (and with any one managing no more than five regions in total). This is, for example, how the markets are managed for the electronic tagging and court escorting which Serco delivers, where there is no sense to have in-region competing provision but nonetheless a desire to maintain some diversity within the potential contractors come contract re-bid.

There is clearly a political will to include the voluntary sector in the delivery of welfare to work. I certainly agree that there is expertise and commitment within this sector that can bring a great deal to the table. Around a third of Serco’s FND subcontractors are currently voluntary sector organisations. (We also, incidentally, subcontract to a number of public bodies.) In many cases they bring a very local perspective or offer a particular specialism that enhances our service delivery considerably.

If the differential pricing is structured well it will attach additional rewards to the outcomes for individuals who are furthest from the labour market. These people are likely to require the specialist interventions which the voluntary sector can deliver – prime contractors will be forced, or at least incentivised, to engage positively with the sector.

It would also be possible to stipulate a % of subcontracted provision (or % range) that must be let to the voluntary sector. (This might be difficult without clear Tier 1 and 2 separation.) I have suggested in the past that there is a role here for a strong Independent Regulator. The Regulator could be responsible for resetting the prime contractors fees, and also for overseeing the relationship (including financial) between primes and subcontractors.

The Work Programme offers us a unique opportunity to do so much. Its application could be far reaching and run deep into society. One of my colleagues described this to me as a life-defining year. However, unless we accept the fact that this is a new way of thinking along with a new way of procuring, with a new structure to be created for the market, then we run the risk of squandering that opportunity.

Richard Johnson
Managing Director

Serco Welfare to Work


  1. Yes, I agree with R.J. Trengrouse! I am highly qualified and skilled, a 55 year old (former) lone parent. I have a DPhil and some 10 years work experience in research in the policy field. Made redundant at the beginning of the summer of 2007 (end of a fixed-term contract), at 52 years old, I have now clocked nearly 3 years of unemployment. I interrupted my claim twice during that time: 2 short interruptions (very short term contracts)….. I was referred to a FND provider early February this year. For the last 6 months, I have been the ‘client’ of one of the FND providers. It is USELESS. COMPLETELY USELESS. A total waste of tax payers’ money. The whole premise is wrong. I have done participant observation for long enough. Now, I basically sign on at Job Centre Plus and sign on at FND. If someone wants to talk to me, please request my email from the moderator of this site and I will willingly engage to discuss this matter. I have contacted my MP, contacted the regional management of Job Centre Plus, to try to share my reflections on my experience. I am not sure anyone in that industry wishes to hear it… even less sure this government wants to hear it!

  2. Your argument is very odd – the market structure you are arguing for is a monopoly for large providers like Serco and competition for everyone else.

    So what is it about Serco that makes it more likely to succeed than a public sector monopoly?

    If your argument is that it is your management skills and knowledge and the profit motive that make you an effective provider rather than operating in a competitive free market.

    If this really is such an efficient structure why pay Serco at all – the regional government offices that have just been abolished, or a state owned for-profit company could play the role of the Tier 1 provider.

    If everyone would stop attacking the public sector they might even be able to hire a few smart types in suits to manage the programme properly.

  3. I appreciate the way Richard has laid out his logistical thinking with regard to the WP. From a politico-technical, or politico-logistical point of view his comment is insightful and relevant. He has built on Serco’s experience of delivering FND, and this model was arguably one of the more, if not the most, successful both financially and in terms of meaningful outcomes for the ‘end user’, ‘beneficiary’, ‘customer’, or unemployed person, depending on your preferred nuance of political correctness.

    There is always a however. This particular however, however, reflects less on Serco than on policy makers’ corrupted understanding of the ‘problem’ of unemployment. Simply put, policy makers the world over have allowed themselves to grossly misunderstand the very nature of competitive employment, unemployment, and underemployment in return for: a) quick fix solutions – which always fail (witness the ‘flagship’ policy of Pathways to Work which ‘people all over the world were interested in’); b) a growth industry which recycles ‘the unemployed’ but provides, in turn, a growth industry (which produces tax receipts), and a political sop when necessary; and c) deep rooted ‘invisible’ institutional support from powerful industry and professional lobbies which lend their support to what they consider relevant political initiatives in return.

    That’s all very well, but so what? The ‘So What’ is equally simple (assuming the above was simple, naturally). Unemployment and its related situations (underemployment, job loss, worklessness, and so on) are at once both well understood – and have devastating consequences in terms of both human cost and economic cost – and so poorly understood that they make the ignorance of inappropriately vested interests seem like an assumption that Dante’s Inferno is a reflection on the Bluebird of Happiness and that Genocide is something that takes place inSurbiton on a summer Sunday afternoon.

    Serco has at least invested an amount, and I assume a substantial amount, of effort into their model in order to generate real returns, and fair returns. Of course, Serco will make money out of their endeavour. And so they should. After all, they are a commercial enterprise and they have chosen to operate within an industry. The contribution they may make – time will tell – is in thier willingness to appropriately engage ‘those who do’, in this case the third sector, on realistic terms relevant to the modern world rather than giving handouts on the basis of ‘they/we are the “good guys” who have “our hearts in the right place”‘. I suspect Serco have their heart in the right place in terms of the Work Program; on their sleeve.

  4. God help the unemployed from cold calculating people like you.

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