Contracting Employment Services by Results: Performance Targets, Differential Payments and Category Games

This blog is based on an article in Social Policy and Society.  Click here to access the article.

For many years, governments have turned to outcomes-based contracts as a way of driving innovation and efficiency in the delivery of welfare-to-work. Multinational human services agencies such as Maximus, Seetec, and People Plus are now major providers of public employment services along with transnational charities such as The Salvation Army.

While contracting-out is not new, recent years have seen a turn towards commissioning via Payment-by-Results (PbR). This is where a significant proportion of agencies’ funding depends on the outcomes they achieve, while payments for delivering fixed processes are minimal. The funding model of the UK’s Work Programme exemplified this approach, with fixed service fees accounting for just 20 per cent of total provider payments compared to almost half under previous contracts. The outcomes-based proportion of provider funding also increased over time so that, in its final years, almost all of providers’ revenues depended on clients’ job placement and sustainment rates. Australia too has intensified its use of PbR, with outcome payments accounting for more than half of funding under the current Jobactive programme compared to less than a third under the previous Job Services Australia model.

A long-standing concern about outcomes-based contracting is the worry that it incentivizes agencies to prioritise clients on the basis of employability. But another issue addressed by our article is the intersection between outcomes-based contracting and claimant assessment, and the potential for PbR models to motivate agencies to actively re-categorise how clients’ support needs and participation requirements are assessed.

Why Payment-by-Results?

The attractiveness of PbR is that it reduces expenditure on services that achieve poor results, usually defined in terms of employment or off-benefit outcomes. But a ‘perennial design’ challenge for such models is how to mitigate the risk that providers will respond to performance incentives by focusing resources on clients whom they perceive they can achieve outcomes most quickly (and cheaply) with, while limiting the support provided to more disadvantaged clients who are statistically harder (and more expensive) to place into employment.

Because PbR shifts the risk of employment support investment away from the government onto providers, it makes economic sense for providers to ration resources in ways that maximise employment outcomes at least cost. But, from a public policy perspective, the issue of ‘creaming’ and ‘parking’ is a substantial implementation problem. It results in the denial of meaningful support to those who need assistance the most, and whose reintegration in employment would most benefit the state, while redirecting resources towards less disadvantaged recipients liable to find employment without significant public investment.

To guard against this, governments have relied on differential pricing models that offer higher payments for outcomes with ‘harder-to-help’ clients. For example, the Work Programme’s pricing model included nine payment groups based on benefit type and other client characteristics. In the Australian model, outcome payments are differentiated by clients’ duration of unemployment and the service stream (A, B or C) they have been categorized into via a statistical profiling tool. Providers can earn AUD$11,000 in outcome payments for clients in Stream C versus AUD$3,400 for those in Stream A.

In our article, we show how differential payment models generate a second set of design challenges around the formal categorization of jobseekers and the risk that providers’ attention will be oriented towards working on client categorisation and assessment issues rather than employment support.

Differential payments and the categorisation problem

Differential pricing models face at least two challenges. Firstly, how to set the value of payments so that they accurately capture differences in the relative costs of assisting different clients into employment. This proved a major problem with the Work Programme’s pricing model. The value of the outcome payments that providers could earn for assisting those on Employment and Support Allowance was considered too low to cover the costs of the more intensive support they required. Secondly, how to disaggregate people into different categories in the first instance.

Benefit category is one approach, although it is a blunt instrument that masks the considerable heterogeneity in support needs among people on the same payment. In Australia, the preferred approach is to stream jobseekers via a statistical profiling tool that estimates their relative distance from employment using a range of indicators (health, housing, family circumstances, employment history, etc.). This initial assessment is carried out by Centrelink, the benefits administration agency, relying largely on information disclosed by recipients when claiming benefits. On this basis, welfare recipients are then referred to contracted Jobactive providers as Stream A, B or C clients or, alternatively, referred into Disability Employment Services. This assessment is pivotal in determining not only the value of the outcome payments that agencies can receive but also the level of clients’ mutual obligations such as their job search and work activity requirements.

In the context of PbR, this creates a dynamic in which streaming decisions carry a substantial financial value paving the way for re-categorisation strategies that unfold at an inter-organisational level and in ways that go beyond existing documented practices of creaming and parking.

Category games

Our article draws from case studies of four ‘high performing’ Jobactive agencies in Australia that included tracking how staff worked with more than 100 jobseekers over 18 months. We found that reassessing jobseekers so that they are moved into a more disadvantaged category, suspended from conditionality requirements, or removed from the system entirely were major elements of casework.

Agencies actively sought to re-categorise clients in several ways, including: working to suspend their participation requirements, reduce clients’ work-capacity requirements, and ‘upstream’ jobseekers into higher service streams either within Jobactive or into Disability Employment Services. To achieve these category manoeuvres, advisors and counsellors would work with clients to gather the medical evidence needed for re-categorisation, broker re-assessment appointments with local Centrelink offices and prime clients, as one consultant put it, about ‘the right things that you need to tell Centrelink so that you’re in the right stream.’ Almost a quarter of the jobseekers that we tracked were re-categorised in some way, including nine who were successfully up-streamed into a higher stream within Jobactive, seven who were up-streamed into Disability Employment Services, and a further eight who were re-categorised with reduced work requirements.

Category manoeuvres are motivated by multiple considerations. They can be interpreted as instances of caseworkers responding with empathy for clients to what they perceive as system failures. Nevertheless, we show how they are also embedded organizational practices that are driven by the performance management and accountability systems that providers and frontline staff are subject to. These category manoeuvres have multiple effects on the frontline implementation of welfare-to-work. They shield some clients from harsh sanctions while protecting providers against adverse performance rankings by the purchaser. Yet, an additional and paradoxical consequence is that jobseekers are rendered fully or partially inactive within the context of a system designed and mandated to activate.

About the authors

Siobhan O’Sullivan is Senior Lecturer in Social Policy and Research at the University of New South Wales (Sydney, Australia). Her research focuses on the delivery of contracted employment services in Australia, the UK, and around the world. She has a broad interest in the welfare state and ‘mission drift’ as well as an ongoing interest in animal welfare policy and environmental ethics. She is co-author of Getting welfare-to-work: street-level governance in Australia, the UK, and the Netherlands (Oxford University Press, 2015).

Michael McGann is a Research Fellow in the School of Social and Political Sciences at the University of Melbourne. His research addresses the intersection between employment and disadvantage, specialising in the labour market experiences of vulnerable groups such as mature-age workers and the long-term unemployed. His work has been published in journals such as Work, Employment and Society, Administration and Society, Policy Sciences and Social Policy and Society.

Mark Considine is Professor of Political Science and Provost of the University of Melbourne. He is one of Australia’s most respected political scientists, with a career spanning both academic research and applied policy work for government and civil society organisations. He has published widely in the area of public employment services reform and the frontline delivery of welfare-to-work, including articles in journals such as Public Administration Review, Social Policy and Administration, Public Management Review, and the Journal of Social Policy. He is also the author of Enterprising States: The Public Management of Welfare-to-Work (Cambridge University Press, 2001) and co-author of Getting Welfare-to-Work: Street-Level Governance in Australia, the UK, and the Netherlands (Oxford University Press, 2015).


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