Welfare Markets: lessons from other countries

1
Welfare Markets lessons from other countries

• Dan Finn, Professor of Social Inclusion,
  University of Portsmouth and
• Associate Director of Inclusion
• 10 September 2009

2
Making Markets in Employment Services
Research Project

• Comparative research into quasi markets in
  countries/states that have introduced work
  first welfare reforms (UK, Netherlands,
  Australia and USA)
• Sources case studies, evidence and literature
  reviews, esp. findings from audit, oversight and
  regulatory authorities.
• Each country/state now been through at least 4
  contracting rounds
• Hard to disentangle market impacts from wider
  system changes evaluation research on delivery
  by private operators in its infancy.

3
From Grants to Payment By Results Black Box
contracts

• Payment by results black box give greater
  flexibility to providers. Advantages thought to
  include
• contractors agree to bear a greater share of the
  risk
• competition for contracts enables Government to
  obtain better VFM, as well as driving up quality
• flexibility for providers and new entrants should
  engender innovation, leading to better results.
• There are also risks
• Cream-skimming, Creaming and Parking
• Transaction costs
• Risk of market failure and/or withdrawal from
  contracts

4
Features of Welfare Markets

• Distinctive Purchaser/Provider arrangements in
  each country, but contracts usually managed
  through public tender/request for proposals
• Varied blends of competition between for
  profit, not for profit, and public sector
  organisations
• For profit contractors now play a significant
  role in each of the countries (competition issues
  concerning legal status and investment potential
  of for and nonprofits).
• Competition for markets dominant though some
  emphasis on competition within markets (choice
  of provider IROs)

5
Features of Quasi Markets

• Contracting regimes
• Large number of small contracts - less risk if
  poor performance specialist providers entry
  costs low.
• Prime contractors fewer, well-capitalised
  contractors. Reduced transaction costs,
  administration/monitoring, economies of scale.
• Extensive use of hybrid contracts that balance
  performance incentives, provider viability, and
  delivery of particular services.
• Performance standards
• Outcome measures job placement, retention,
  hours, earnings
• Process (milestone) measures enrolments,
  assessments, accuracy of referrals and,
  sometimes, participation in work activities

6
Features of Welfare Markets

• Contract durations vary between 1 and 3 years
  with some extensions/first refusal
• turbulence and performance impacts associated
  with tender periods and after
• purchaser/provider pressures for stability in
  markets
• Relational Contracts - require regular contact
  with officials, contract management, access,
  etc., with facility to renegotiate contract terms
  as operations/circumstances change.
• Governance - significant constraints on public
  scrutiny/access to information/oversight
  commercial in confidence clauses.

7
Findings

• Managing welfare markets complex - sharp
  learning curve, and takes time to learn how to
  steer for success government must be smart
  buyers good contract managers
• Difficult trade off between transaction costs,
  performance impacts and intensity of
  competition/potential for new entrants
  stability makes it hard to maintain competition
  as contractors develop inside information,
  expertise, and special relationships with
  government officials.
• Markets pose new challenges for regulators and
  for politicians with responsibility for oversight
  of public spending, supervision of activities of
  commissioners and contractors.

8
Findings

• Market incentives induce innovation and improved
  management but evidence of convergence and
  innovation plateau in mature markets with
  problems of mission drift for the non-profit
  sector.
• Varied impacts on non-profits and smaller
  providers reduction in number who survive in
  new market, some innovative responses
• Provider strategies shaped by contract incentives
  payment by results places more risk with
  contractors who in turn develop strategies to
  reduce costs risk (diversion parking of
  clients movement to in-house provision risk
  transfer to sub contractors).
• Market providers make less use of training and
  employment subsidies. Various re-regulations
  ring fence resources for client services or
  contracts for specific services.

9
Findings

• Complex handovers between benefit administration
  agencies and contractors impacts on service
  user journey and sanctions
• Importance of independent monitoring of client
  experience complaints procedure customer
  satisfaction as performance benchmark.
• Challenge to provide voice and choice for
  service users
• Need for frequent re-regulations to solve
  problems and reshape contract incentives to
  resolve delivery issues and meet new programme
  objectives. Not less but different governance.

10
Publications

• Contracting Out Welfare to Work in the USA
  Delivery Lessons , Department for Work and
  Pensions, at http//www.dwp.gov.uk/asd/asd5/rports
  2007-2008/rrep466.pdf
• Welfare Markets lessons from contracting out
  the delivery of welfare to work programmes in
  Australia and the Netherlands , Joseph Rowntree
  Foundation at http//www.jrf.org.uk/knowledge/find
  ings/socialpolicy/2307.asp
• Differential Pricing in Contracted Out Employment
  Programmes Review of International Evidence,
  Research Report No. 564, Department for Work and
  Pensions, London, at http//www.dwp.gov.uk/asd/asd
  5/rports2009-2010/rrep564.pdf