The Department for Work and Pensions should look at surveying subcontractors on the Work Programme to be assured that adequate standards of management by prime contractors are being met.

This recommendation is one of several from the National Audit Office regarding the Work Programme, contained in the NAO’s report examining the first year of the Programme.

The NAO also recommends the DWP should carry out “spot checks” to ensure primes are treating their subcontractors fairly, as “early indications show that subcontractors are dissatisfied with the approach taken by some prime contractors”.

And it advises DWP to have clear steps in place for what it should do if a provider gets into “serious financial difficulty” during the term of the contract, as this looks possible.

The NAO used the report to chastise the Department for not sharing with bidders the assumptions and underlying data it used to arrive at its business plan for the Programme, and said that in future it should do so.  There is a “significant risk”, the NAO added, that these assumptions are “over-optimistic”.

DWP should also keenly monitor whether its existing management regime is effectively detecting any attempts by contractors to improve their performance by selectively focusing on those beneficiaries that are easiest to help, and leaving harder-to-help claimants for their subcontractors.

“Currently many fewer harder-to-help claimants than expected have been referred to prime contracts,” the NAO said. “As a consequence, some subcontractors are frustrated at the speed with which claimants have been referred to them.”

Shortcuts in risk management

The speedy introduction of the Programme – one year, as against four years for previous welfare-to-work programmes – was a “significant administrative achievement”, the NAO conceded, but also meant shortcuts were taken in risk reduction.

Also, the IT project to support the Programme was not up and running when the Work Programme was launched, leading to heightened risk of fraud and error, and DWP had to pay large sums to terminate existing welfare-to-work contracts early. Compensation payments totalling £63m have already been agreed with a further two settlements to come.

“Overall, the speed with which the Work Programme has been introduced has involved the acceptance of risks, or curtailing of safeguards, that potentially will have a bearing on the Programme’s success or failure.

“These include incurring charges for terminating previous schemes early; compiling the business case after the decision had been made to proceed; the absence of piloting; the rapid procurement phase; and going live before IT was in place.”

Responses

Margaret Hodge MP, chair of the Public Accounts Committee, said in response: “Referrals to sub-contractors are already lower than projected by the Department and this may have a devastating impact on small charities providing specialist support…we will want assurance that the Department has oversight of its prime contractors and that sub-contractors are not squeezed out of business.”

Gareth Thomas MP, Labour’s shadow minister for civil society, said: “The Work Programme was billed as the great solution to the funding crisis facing charities and community groups as ministers promised 40 per cent of referrals would go to voluntary sector organisations. Instead less than half of this level has materialised; yet another sign that the Big Society rhetoric hasn’t delivered.

“The revelation that terminating existing welfare to work contracts cost the taxpayer £63m is particularly shocking when so many charities and voluntary groups are struggling to keep their heads above water.”

Sir Stuart Etherington, chief executive of NCVO, said the recommendations for monitoring performance assumptions both for this and future initiatives are “particularly timely given the disappointing value and number of contracts which have gone to voluntary sector subcontractors”.

He added: “The report’s recommendations, if implemented by government, should go some way towards ironing out current issues in the Work Programme and help to raise the bar for future schemes.”