Interview: Rob Wormald

Earlier this year, employment minister Chris Grayling described the Work Programme – his department’s new employment support scheme – as “the government’s first real foray into the world of payment by results”. Government has previously tried outcome-based funding “to a limited extent”, he conceded, but he argued that the Work Programme represents a revolutionary step in government commissioning.

Rob Wormald (pictured above), who until last month was the head of strategic market development at the Department for Work and Pensions, is not so sure. Wormald led the work contracting out all of the employment schemes under New Labour, and since 2009 has acted as a sort of “internal consultant”, helping DWP’s commercial teams to engage with suppliers effectively.
Under Labour’s Pathways to Work scheme, which targeted unemployed people who were also on Incapacity Benefit (IB), 70 per cent of payments to providers were based on results.

From that, says Wormald, who retired last month, it is “not a massive leap to what’s happening under the Work Programme” – though he notes that the scale of the new contracts (worth around £3bn to £5bn in total), and the fact that funding will in part come from expected savings in the benefits bill (transferring AME to DEL budgets) are both important developments.

“[The Work Programme] is an extension and it is a step forward,” says Wormald, “but it’s not true to say that the previous [schemes were] solely based on telling people how to do things, paying for process, and now it’s based on outcomes – it was always a mixture, moving more and more towards outcomes”.

Moving towards outcomes
Wormald has plenty of experience in working with external partners to deliver policy. From 1994 he was head of the Employment Services’ market-testing team; and in 1997 he became head of the commercial policy division, overseeing the implementation of New Labour’s flagship employment scheme the New Deal.

This was “a whole area of support for unemployed people that wasn’t offered previously”, says Wormald, “and people working in the agency had no particular expertise in dealing with individualised [support] for hard-to-help people, so it was a case of hiring in expertise that just didn’t exist elsewhere in government”.

Although the department recognised that it didn’t have the skills to deliver the work itself, in the early years officials were “still very keen to specify everything [suppliers] should be doing” in order to minimise risk and guarantee consistent delivery across the country, says Wormald. “Keeping a tight hold is a comfort,” he says. “It’s safety: you’re telling them exactly what they should be doing.”

As the DWP commercial team built better relationships with delivery partners, civil servants began to see the benefits of letting those partners be more flexible, and contracts evolved to allow partners to use their initiative. And if the initial focus on processes was rooted in civil servants’ risk aversion, a different kind of risk aversion helped to push the department towards funding outcomes. The Treasury, says Wormald, was “hugely influential”, in the move towards payment by results, because this reduces financial risks for the public purse. “That was an added impetus towards letting contractors take risks; paying contractors for success, but them taking the hit if they didn’t succeed,” says Wormald.

The shift towards outcomes was accelerated by David Freud’s 2007 report on welfare reform. Freud was then an adviser to Labour; now he is a lord and a minister in the coalition government. His report recommended greater use of larger, outcomes-based contracts and private providers to deliver employment services. It formed the basis of Labour’s most recent welfare-to-work schemes and also prompted a 2008 DWP Commissioning Strategy which set out a number of aims, including creating a system of large, almost regional contracts given to prime contractors which are expected to work with a range of specialist subcontractors. These principles have now come to fruition in the Work Programme.

Building a market
When the DWP made this shift, the welfare-to-work market was not best structured to meet these new contracting requirements. The new system required suppliers to hold sufficient financial reserves to absorb the costs of delivery until the emerging results triggered payments, while larger contracts for services to a wide range of people (as opposed to the very targeted New Deals of early Labour years) left them managing diverse supply chains. It is unlikely, says Wormald, that “one organisation can deal effectively with the numbers and types of individual needs”.

Part of the department’s commissioning strategy, therefore, was to develop this market, reaching out to companies which could fulfil the large, outcomes-focused contracts but had not previously considered entering the employment services market.

For other civil servants who are contracting in new ways, or contracting out services for the first time, Wormald believes it’s important to make the most of the time before a competition kicks off “to make sure the market’s in a position to react to what you want”.
While developing the Work Programme, DWP held events with investment bank Barclays Capital and the CBI, using the reach of these organisations to contact large companies with which DWP had no direct contract and which might have the financial or logistic expertise to act as prime contractors. Approaching these new suppliers, says Wormald, is one way of “making sure you’ve got a keener competition when you first come to tender”.

The presence of G4S – traditionally a security provider – on the Work Programme’s preferred bidder list suggests that the department’s work in encouraging new companies to enter the welfare support market has been a success.

Despite the importance of these large companies providing management and financial support, the success of welfare-to-work schemes remains reliant on the input of specialist SME and civil society organisations with the skills and capabilities to help specific customer groups. Protecting these “small, vulnerable, nervous organisations” which will increasingly be working for “big, savvy, profit-driven, in some cases multinational organisations, is obviously of very great concern”, says Wormald.

The department’s response has been to set up the Merlin standards, to which prime contractors must sign up: these aim to provide a level of assurance and protection for the small organisations subcontracting to DWP prime contractors. “Obviously, the key to it is getting meaningful enforcement,” he says. “We’ve set out a range of ways in which we would hope to have any infractions dealt with, but we’ve yet to have any live cases coming up. How well those get dealt with, and how effective they are seen to be by the community – that will be the key test.”

Competition and civil society
Despite the Merlin work, civil society organisations are already unhappy with the Work Programme. When the list of successful providers was announced this month, a slew of articles and commentators pointed out that very few VCS organisations are prime contractors; while in this issue of CSW, Crisis chief executive Lesley Morphy raises concerns about a cumbersome bidding process for subcontractors (p18).

Wormald accepts that there are risks and concerns for charities, but argues that these are an inevitable part of any tender. “There’s a tension here,” he says. “Any bidding process carries a risk within it ” – and you can’t remove the need for a bidding process when giving out contracts. “Any charity choosing to contract with government has to accept there’s a cost of contribution; the issue for us is how we can minimise it,” he says.

By contracting with a top-tier supplier, he argues, the department ensures that “only the top tier have to go through the full formal OJEU process; charities seeking to be partners can engage in whatever truncated process the prime contractor and they want to engage in”. There will inevitably still be costs, he says; although these can be minimised, he “can’t see any way of getting rid of that”.

Wormald doesn’t believe it would be realistic to let small contracts to provide support directly to specialist organisations. For one thing, this would be more expensive; but the key issue, he says, is that smaller contracts could mitigate against offering a broad, customer-focused approach to service delivery. The risk is that individual contracts would “compartmentalise the individual’s needs to suit the organisations you’re contracting with, and that’s not what we should be about”, he says. “We should be looking at things from the customers’ end, and that [involves addressing] a multiplicity of disadvantages that need to be dealt with as a whole”.

Before he retired, Wormald was involved in planning pilot schemes working with young people not in education, employment or training (NEETs). These people don’t fall within DWP’s remit but, without support, could do once they turn 18 – so investing to get them into work or training would result in benefit savings. This cross-departmental thinking is another area he is passionate about: “If you are serious about having the biggest bang for the taxpayer’s buck,” he says, “and trying to approach things in a customer-focused way, then in my view outcome funding shorn of departmental boundaries is the way to do it.”

While this utopian vision may be some way off, he believes departmental commercial teams could take steps towards it. They could line up the outcomes and measurements each department is targeting, he suggests, developing contracts which ensure they are not duplicating work or creating incoherent services.

Lessons learned
When asked about the trickiest element of getting outcome-focused contracts right, Wormald mentions the risks of perverse incentives. Flexible New Deal and Pathways to Work both included fixed payments for hitting a fixed target – creating the risk that suppliers would look for the easiest way of earning payments, perhaps by focusing on the clients who are easiest to get into jobs (known as ‘creaming’) or by writing off individuals who would take more work to support and therefore may not generate enough profit (known as ‘parking’).

On creaming, Wormald is relatively sanguine: “One person’s cherry-picking is someone else’s rational selection,” he says. If an organisation wants to focus on clients with the best chance of achieving sustainable work, “In my view that’s absolutely fine; the government wants the highest amount of placing into employment that can be achieved.”

He stresses, though, that “What you can’t do is have people being written off.” So contracts must balance a focus on outcomes with specifying minimum service levels. The Work Programme also uses ‘accelerator funding’ to reduce the risk of creaming and parking: this means that after providers have placed into jobs a certain proportion of any new tranche of clients, they get paid more per individual success story – recognising the higher levels of investment required to work with those slowest to find work.

Another lesson learnt through experience was the importance of having an “authoritative, well-understood information base” which allows the department to set funding parameters, and suppliers to make accurate profit and loss predictions.

In the Pathways to Work programme, Wormald suggests, “the data wasn’t that good”, and suppliers didn’t have a clear picture of the clients they would be working with; in fact, they were a more difficult group than anticipated, and results were consequently less good than expected. He concedes the department could have been more open about the challenges facing the client group, but adds that the system worked well to protect public cash. The DWP had “outsourced the risk there – the suppliers had a hell of a time; some of them went quite close to financial meltdown. The department had some losses, but much less.”

The new front line
I ask Wormald how he would describe the biggest change he has seen over the course of his career. It is, he says, the increasing value placed on operational and delivery skills. No longer is policymaking the ‘be all and end all’; professional skills such as procurement are increasingly valued, and the growing understanding that delivery and policymaking must be interlinked means senior civil servants take a greater interest in frontline organisations.

Today’s world of permanent secretaries making ‘shop floor visits’ to frontline workers is miles away from the early days of Wormald’s career. He remembers being summoned, along with a senior civil servant in the employment department, to discuss skills centres – run by the department – with the minister. The minister had been to visit a particular centre, and asked for the senior official’s thoughts on it. “Minister,” came the reply, “I’ve never been to a skills centre; it would destroy my objectivity.”

In those days, the idea that civil servants managed things remotely from the centre was “much more prevalent”, continues Wormald. “You were very much in a little vacuum in the centre, dealing with policy; dealing with ministers; dealing with issues and legislation. Doing happened somewhere else.” Now, civil servants accept that managing the ‘doing’ is an important part of their work – but that work is being carried out through an increasingly complex network of external partners.

Through the course of our interview, Wormald argues that civil servants need to break down barriers between officials and their suppliers – just as they have already begun to break down the barriers between the centre and the frontline.

Civil servants at all levels should spend more time with suppliers, he says, and ministers must take a greater interest in how their policy requirements are communicated to and delivered through suppliers. James Purnell was a good example of this, Wormald notes; so too are Chris Grayling and Lord Freud, who both took an active part in the early market engagement for the Work Programme.

Civil servants working on the Work Programme, Wormald says, are lucky to have ministers “who are very knowledgeable about the subject” and are “taking risks in a very knowing way”, leaving civil servants to sort out the details but retaining oversight and a clear understanding of the big picture. “Working in that environment is so much easier,” he says; but when ministers are churned quickly between departments and regularly handed new briefs, they “really don’t understand what risks they’re running, so it naturally inclines officials to be very risk-averse as well. Ministers are not going to thank you if you’ve dumped something on them they weren’t even aware of.”

A lifelong civil servant, Wormald believes that he could have been more effective in engaging with suppliers had he spent time working for a private company: there should be a comprehensive system of secondments between government and its suppliers, he says. His experience of employing and working with people who had acquired that external knowledge has convinced him of its value, and he argues officials should view time spent working in “a very much outcome-focused environment, where you’re at the receiving end of the department’s decisions” as an important part of their careers.

Many civil servants, he says, still cling to “the idea that we shouldn’t really get too close to our suppliers because it’s ‘us and them’. Well, there is a contract, so ultimately there are elements of that, but for huge areas of work we’re on the same side: it’s in all our interests to realise these outcomes as fully as possible, so we should get as close together as possible.”

CV Highlights
1971: Graduates from Bristol Polytechnic with a BSc in Economics
1972: Joins Employment Department, working in industrial relations, including implementing Acquired Rights Directive (TUPE)
1978: Moves to Manpower Services Commission
1990: Made deputy head, MSC industry bodies branch, privatising industrial training boards
1994: Moves to Employment Service as head of market testing team
1997: Responsible for New Deal private sector contracting
2009: Retires from full-time work; becomes DWP head of strategic market development