This report by the Social Market Foundation looks at how the replacement of New Deal with Flexible New Deal (FND) from October 2009 will be effective in helping long-term unemployed people into work.
Under FND, after 12 months of unemployment, claimants will be referred to private or third sector contractors, who will be paid by results to find them work.
The report examines FND prospects of success in four key areas:
cost-effective commissioning
helping all jobseekers
preventing ‘revolving door’ employment
stimulating innovation in welfare-to-work provision
It finds that, in each area, FND in practice promises not to be as effective as it could or should be because of a failure to design the programme in a way that aligns incentives between contractors and government. In particular it notes that:
there are problems with the Department for Work and Pension’s (DWP) ability to assess the quality of bids by contractors
there is a potential conflict of interest where the DWP acts as market regulator whilst attempting to ensure stable service delivery
those organisations/companies subcontracted, by large contractors, to provide services may feel constrained by the FND structure which may cause problems for service delivery
there is a need to make more use of the voluntary sector because it offers the chance to engage people who would never usually enter a Jobcentre plus office
the value of the contracts on offer will be insufficient to achieve the 13 week sustained employment outcomes wanted by the DWP
the uniform payments made to contractors for each job outcome will mean that harder-to-help jobseekers will receive less support and will be “parked” whilst the contractors concentrate on those jobseekers more likely to find work
The report recommends practical approaches to resolve the tensions between procurer and contractor and in doing so, suggests the blueprint for a 21st century welfare-to-work programme that offers the improvement in performance that the government seeks. These include:
Replacement of national performance expectations with a more realistic assessment of central case outcome levels
Flexible New Deal should offer higher service payments to prime contractors, combined with fines for failure to place a jobseeker in employment by the 12 month point
Outcome payments to contractors should increase for each additional client they place in employment
Provider should receive a bonus payment for each job retained for 12 months
The power to fine and censor contractors in breach of the code of conduct should be devolved to an independent regulator or ombudsman
benefits 
