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Employment Zone bids

By Paul Convery

Working Brief 110, December 1999/January 2000

The Government has failed to find satisfactory bidders in 4 of the 15 planned Employment Zones (EZs). Announcing the successful bidders for 11 of the Zones on November 23rd, Ministers revealed that the Employment Service led consortium "Working Links" will be awarded contracts for 7 areas with private sector bidders Pertemps and Reed winning 4 contracts between them.(1) The 15 Zones which will run for two years from Spring 2000 are focused on areas of persistently high long-term unemployment.

These Zones represent a significant break from other programmes - including New Deal. The Government argues that despite falling unemployment there remain pockets of the country where a core of benefit claimants have been out of work for a considerable length of time. The DfEE concludes that "it is clear that for these people, existing strategies have not worked well enough" and that efforts need to be concentrated on small areas of highest unemployment. However, Ministers are "not convinced that more needs to be spent on this group". Instead, they are testing to see whether different approaches might result in more people getting back into sustainable employment.

Most importantly, the Government wants to see if it is effective to pool different streams of funding and to use this more flexibly. Additionally they want to "make it easier for jobseekers to understand and influence" how the funds are spent. The DfEE says that, people receiving support "have no idea how much it costs: they are not involved in the financial decision and therefore have no incentive to go for value-for-money options." So, the Zones will offer participants a "full personal adviser service" where claimant and adviser will decide how funds pooled into a Personal Job Account (PJA) can be drawn upon to tailor-make a package of assistance. The spending decision could include almost anything - training, community work or a job subsidy and then regular employment - providing it will succeed and it is what the claimant needs.

Because each Zone's operations will be partly financed from the Government's benefit budget, as a minimum requirement, the PJA must cover a participant's entitlement to Jobseeker's Allowance (JSA). A sum will continue to be paid from the Benefits Agency to ensure that 'passported' benefits remain available.

Funding for the Zones is also being drawn from budgets currently dedicated to discrete programmes of job search assistance and training provision like Work based Learning for Adults (presently funded through Training and Enterprise Councils). As a result, there will be no other provision available to those long term unemployed JSA claimants who will be required to participate in the Zone's activities. Not all long term unemployed claimants will have to sign-up for a Personal Job Account, however. Of the 4 re-tendered Zones, the PJA will apply to all claimants whilst in the other 3 areas, participants will be chosen by a random assignment technique. The DfEE says this is designed to "compare the fortunes" of non-Zone participants alongside those in the Zone.

The first bidding competition to run Employment Zones from Spring 2000 ended on 5th October when PricewaterhouseCoopers were commissioned to provide an independent assessment of the bids and the DfEE emphasised that bids were received "with at least one bid for each of the 15 Zones". Ministers have agreed to award eleven contracts, subject to successful post-tender negotiations, to the following organisations will run the Zones:

Working Links in Plymouth, Southwark, Brent, Brighton & Hove, Glasgow, Heads of the Valleys and Tower Hamlets.

REED in Haringey, Newham and Liverpool & Sefton.

Pertemps in Birmingham.

Working Links is a consortium of Ernst and Young, Manpower and the Employment Service (see Working Brief 107, page 3) Reed currently has 2 New Deal contracts (in Hackney, City and South Islington and in Colchester) whilst Pertemps has a New Deal contract in Solihull.

In the four remaining areas the DfEE says that a "short second tender round will be held as stated in the original invitation to tender document". Bids must be submitted to DfEE by noon on January 17th 2000. In its re-tendering documents, the DfEE says that winners should be announced in February and contracts agreed in March/April 2000 for a start in May 2000 - which is only a month later than the first 11 Zones go live.

Announcing the successful bidders, Employment Minister Tessa Jowell promised that the winning bidders "will bring fresh approaches to tackling long term unemployment" not least drawing from the five prototype Employment Zones which were launched in February 1998. The Government has learned that "there is an enormous amount of enthusiasm, a large stock of good ideas and plenty of goodwill to help long term unemployed people back to work".

The new Zones, according to the Minister "firmly tailor" the help to individual needs and "there will be flexibility to provide advice, training, business start up support, grant and loans for clothes and equipment, help with qualifications, transport and childcare expenses, basic skills, as well as new ways of matching people with jobs and planning careers."

The successful bidders have offered a number of innovative aspects to their proposals. Reed plans to create a "membership scheme" for their participants backed up with retail discount cards. Pertemps which will operate the largets Zone in Birmingham propose to establish "customised development centres" in different localities across the city. Working Links - the ES led bid - promises an "innovative toolkit" to identify skills and address barriers. This draws on the diagnostic tools developed by the ES for New Deal along with Manpower's established assessment mechanisms and a particular instrument that has been successfully developed in South Africa to help clients who face significant language barriers.

DfEE Minister Tessa Jowell also praised the Working Links bids as "an impressive example of a new kind of innovative partnership between the public and private sectors...drawing on all their strengths." However, the latest bidding guidance suggests that the Employment Service led consortium is unlikely to gain any further contracts. The DfEE says that "in the interests of diversity of approach" the Government "will prefer bids in each area which would not lead to a majority of Zones being led by a single organisation or consortium". Working Links might only be awarded contracts in the absence of "other good bidders meeting the minimum quality threshold". Working Links submitted bids for all 15 areas originally and it seems likely that they will bid for some or all of the remaining 4. Unattributable sources suggest that they will succeed in the Tees Valley area only.

Some changes have been made to the bidding guidance for this second round. In 2 of the 4 outstanding areas - Doncaster and Nottingham City - the Zones will target those unemployed for 12 months or more. The Doncaster Zone originally targeted the 18 month+ longer term unemployed population in a smaller geography - it now covers the full local authority area. As a result, the potential estimated population group has risen from 1,100 to 1,600.

In the other two Zones - North West Wales and Tees Valley - the service will target those unemployed 18 months or longer. In Tees Valley, although the area has been enlarged to cover all three local authority areas of Middlesbrough, Redcar and Cleveland, the estimated potential number of entrants remains unchanged at 2,200. The North West Wales EZ includes Anglesey, Conwy, Denbighshire and Gwynedd.

The decision not to award a contract in Nottingham will prove particularly difficult as the geography was deliberately designed to coincide with the 4 Wards that make up the City's New Deal for Communities area. This was because the DfEE wanted to test whether combining the activities of the Employment Zone and the New Deal for Communities would "deliver better outcomes for both initiatives". Bidding in Nottingham was handled differently with the Greater Nottingham Welfare to Work Strategic Partnership alone invited to submit a bid by 5th October. Ministers had originally said that if the bid did not meet their accepted quality threshold the "round will be thrown open to other bidders within a month". The Department now says that although "having decided to open bidding to others, no bid in Nottingham will succeed without clear and workable links with the local New Deal for Communities and in which the added value of such close working is well demonstrated."

If satisfactory bids are not received, there will not be a third round of bidding for these remaining 4 Zones. The DfEE says in its bidding guidance that they will either "work with the bid or bids which most closely meet the standards we have set" or not contract at all in that area.

Why did many bidders fail? The DfEE says that their assessors, PricewaterhouseCoopers, found many weaknesses common to failed bids. Financial and organisational limitations meant that bids contained a "general lack of financial detail", had undertaken only "limited risk assessments" and lacked a "convincing demonstration that the proposed initiatives are deliverable"; financial systems proposed for the Zones "generally required further development and detail".

A "weak understanding of the local labour market" resulted in many bids not containing a sufficiently detailed examination of the "dynamics of the local employment market" or understanding of the employer market; mechanisms to establish links with employers were "generally weak" and in particular there was "a lack of focus on the issues that are faced by employers" recruiting the long-term unemployed.

Many bidders were criticised for their reluctance "to share best practice" to any other Zone or operator. This is a startling observation considering the bidding competition's highly competitive nature and the extent to which the DfEE's payment system is based on "payment by results".

Most of the poorer bids came from organisations that either could not specify "measurable and appropriate performance targets" or else lacked clarity about their systems capable of delivering the monitoring targets. Additionally, flexibility in managing and operating the Zone was not always demonstrated in particular, the ability to respond to local circumstances and participants' individual needs. Crucially they also lacked "convincing demonstration" that partnerships with local organisations would be delivered.

Lastly, weaker bidders were unable to give specific minimum guarantees to participants in the Zones.

Partly to redress these failings, the criteria for re-bidding have changed subtly from the original specification. The main requirements of all bidders - such as - remain the same but the additional quality criteria include three new specifications have been inserted which between them account for about 8% of the score weighting:

"set minimum guarantees to participants for funding or service during the Second Step"

"ensuring that individual participants have a real stake in the use of the personal job account"

The funding formula for the re-tendered Zones is not significantly different to the first round. The total contract budget is 15 million across the 4 Zones which averages about 2,300 per participant.

However, the contractor must bear the risk of having to pay claimants an average sum of 64 per week - as an allowance that replaces their JSA entitlement - during the Personal Job Account period. As this could last as long as 39 weeks, the contractor could risk paying 2,500 but receiving no more than 1,340 in "Step 2" income (the equivalent of 21 weeks paid at the average rate). However, as the following table shows, a contractor achieving a successful entry into sustained employment, could draw almost 4,600 from its DfEE contract.

Nottingham

Doncaster

Tees Valley

N Wales

Expected number of referrals

900

1,600

2,200

1,850

Tariff 1 payments (< 3 years+ unemployed) 

Step 1 (on initial referral)

300

300

300

300

Step 2 (on starting with a Personal Job Account)

1,234

1,391

1,390

1,342

Step 3 (outcome payment on job entry)

396

435

435

435

Step 3 (outcome payment if job retained beyond 13 weeks)

2,245

2,468

2,468

2,468

 

In all 4 Zones, there are premium payments for the placement and retention in work of very long term unemployed participants (3 years or more unemployed). An extra 112 is paid for job entry and 630 if the participant subsequently remains off benefit for thirteen weeks after leaving the Zone. In the case of Nottingham, these payments have been increased fractionally - from the previous levels of 101 and 573 respectively. In Doncaster and Nottingham, these represent about 11% of the total EZ population whilst in North West Wales and in Tees Valley they will probably represent about 25% of all participants.

The DfEE admits that "organisations running the Zones will make a profit if they can improve on present performance" by helping more people get and keep work. However, if the Zones are less successful than present performance the DfEE says "they must bear the cost of paying benefit equivalent money to participants longer than they have been funded for."

(1) DfEE Press Notice, 523/99 (23rd November 1999)