Proposed contracting of third party providers of employment services

Information Session

Friday 26 July 2013 Chartered Accountants House

Dublin

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Please power off mobile phones

Please note emergency exits

Email facility for questions/comments jobpath@welfare.ie

Event is being recorded – FAQ will be published

Nothing is cast in stone – reflects only current thinking

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Outline why contracting with private / third party providers of employment services is being considered

Provide high level overview of Irish Labour Market

Set out a ‘strawman’ contracting model

Invite questions/comments from interested parties

Use feedback to inform final design of any future RFT /contract (Subject to Government approval)

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John McKeon: Assistant Secretary (DSP)- Chair

Brendan Friel: Principal (DSP)

Brian McCormick: Assistant Principal (DSP)

Paul Hill: Assistant Principal (DSP)

Tony Wilson: Director (Centre for Economic &

Social Inclusion)

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Introduction – John McKeon

Labour market overview – Brian McCormick

JobPath model overview – Brendan Friel

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Addressing long-term unemployment is a key challenge facing our state…

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A person’s prospects of finding work diminish rapidly once they pass the 12 month threshold

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Past experience shows that employment levels are slow to respond to economic recovery

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And this delay imposes a real cost on our society

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That’s why we’ve been given a particular mandate to tackle long-term unemployment….

“Put simply, no-one who loses his/her job should be

allowed to drift, with no support, into long term

unemployment. “

Pathways to Work Paragraph 4, page 7.

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And that’s why we are changing the way we do business…

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1. A Capacity Advantage

The provision of additional capacity.

2. A Complementarity Advantage

The availability of complementary skillsets/competencies from outside the public sector.

3. An Efficiency Advantage

Payment by Results (e.g. UK, Australia)

4. An Innovation Advantage

Stimulation of innovation within public and private employment service providers

5. A Flexibility Advantage

The avoidance of long term cost commitments (i.e. A ‘flexible resourcing’ model to help manage of demand peaks)

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NEES Project Plan : 2011

“The Department will also explore the potential to augment internal resources through the complementary outsourcing of some elements of service (e.g. placement and employment advice services).”

Pathways to Work : 2012

“In order to address unemployment and develop a more flexible and responsive system the Department of Social Protection is examining the potential of contracting with the private sector as a means of complementing its own resources in areas such as case management of clients…”

Pathways to Work : 2013

“ensure that the resources of the State are combined effectively with resources from other sectors and deployed to maximum effective in the delivery of income and employment services to people who are unemployed….Finalise proposals for contracting additional capacity for employment services for long-term unemployed people” 15

A. Cream-skimming/parking:

Focus on clients most likely to secure employment at the expense of harder to place clients.

B. Employment Displacement:

Fixed no. of employment opportunities are filled by case managed clients with no net reduction in Live Register.

C. Deadweight:

Payments to contractors do not account for the fact that some clients would have secured employment without any help.

D. Third-Sector Displacement:

Activities of the state or its agents overlap with and displace the activities of community/voluntary/not for profit groups.

E. Contract gaming:

Contractors seek to exploit weaknesses in contract design to secure revenues not related to the delivery of services to clients. (The most extreme example of which is fraud).

F. Market failure:

Where market conditions change, or where contract terms are so tight, so as to deny contractors the ability to generate a return

G. Supplier Capture:

The development of a dependence on a few large contractors and/or profiteering by contractors

These risks already exist

in publicly managed

services

These risks are unique to

the contractor model and

can exacerbate risks

A – D.

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Supplement not Replace

◦ Contracting is not the same as outsourcing

◦ No intention to transfer staff to a contractor or get a contractor to perform work currently performed by staff

◦ Similar to Branch Offices (contracted) complementing local offices (DSP)

Complement not Displace

◦ Contractors work alongside Community and Voluntary Sector (CVS)

◦ CVS continue direct relationship with DSP

◦ CVS players free to bid to participate as a contractor if they wish

Payment by Outcomes not by Inputs

◦ Risk-Sharing not Fixed/Service Fee: i.e. Contractors asked to carry set-up and most operational costs at their own risk

◦ No gain unless performance exceeds DSP counterfactual.

Service Guarantee not ‘Black Box’

◦ Contractors commit to and must comply with minimum service levels

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GNP up 1.8% in 2012, GDP up 0.6%

Exports have been strong

Ironically – have benefited from Euro Crisis

FDI also strong

Domestic Economy has been weak

Consumer weighed down by debts

Q1 2013 – back in ‘technical’ recession

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Emp 2 UE UE 2 EMP EMP 2 InAct

InAct to Emp

Emp 2 Emp

LM flows 120,000 130,000 150,000 150,000 250,000

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Significant share of transitions are relatively low skilled.

Some inter-occupational movement upwards and transitions to education

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◦ ICT, high tech manufacturing (especially bio-pharma and medical devices), agri-food, sales, marketing, business, finance and healthcare.

◦Multilingual skills are a key aspect of some of these shortages. For example, shortages of multilingual IT technicians, finance accounts

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Thank you!

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2.3% GDP growth p.a.

MT employment growth of 1% p.a.

Unemployment rate to fall to 12.3% by 2016

Inflows to rise from 210k p.a. to 250k p.a.

Inflows likely to pick up more for const./clerical

But competition for jobs will be intense.

Significant ‘headwinds’

Much will depend on how debt crisis pans out

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Brendan Friel

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JobPath is a proposed new programme of activation aimed specifically at the long-term unemployed (over 12 months) and those most distant from the labour market

JobPath will be delivered by third party providers of employment services under contract to the Department

JobPath will supplement and complement existing DSP/Intreo, Local Employment Service (LES) and Job Clubs capacity

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Current capacity ~ 470

Target capacity ~ 1,900

Contracting ~ 930

Intreo Dividend (500) ~ 970

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Current (Incl LES) InternalRedeployment

Potentialcontract capacity

Target Capacity

Building Towards Target Capacity

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2011/2012: Examined programmes in other jurisdictions

2012: Commissioned Centre for Economic & Social Inclusion to carry out

study and draft report

2013 Jan - June: JobPath model design phase

2013: July – Dec Inform/engage with the market

Refine model

Government approval

2013 Dec – 2014 Sept Procure

Contract

Build

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1980 1990 1995 2000 2005 2010

USA JPTA (1982) WIA (1998) Prime Contractor Model (2000) We Care (NYC 2005) Back to Work (NYC 2006)

Working Nation (1994) Job Network 1 (JN1) (1996) JN2 (1999) JN3 (2003) Job Services Australia (2009)

New Deal (1997) Employment Zones (2000) Pathways to Work (2005) Freud Report (2007) Flexible New Deal (2009) Work Programme (2011) Social Code III (1998) Placement Vouchers (2002) Reintegration Service (2003 – 07) ARGE (2005)

SUVI Act (2001) 16 Tender Rounds (2002 – 2008) Individual Reintegration Agreements (2004) Purchase Framework (2008)

Aust.

UK

Ger.

Neth.

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Country is divided into a number of contract areas – exact number to be decided

Providers are contracted to deliver employment services for a defined period in those areas

Payments are made in respect of ◦ Verified production of an individual action plan for each client

◦ Sustained job placements

Target group = Long-term unemployed jobseekers

Representative ‘mix’ of jobseekers referred to providers based on DSP profiling

Individual client period with provider = 12 months

Contract term = 4 years (+ 2 workout years)

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Existing DSP/Intreo service will target short-term unemployed jobseekers

Local Employment Service will ◦ Support Intreo in delivering services to short-term

unemployed jobseekers

◦ Provide services to those jobseekers returning from JobPath

◦ Continue to engage with long-term unemployed jobseekers as roll-out takes place

JobPath will focus on ◦ Those jobseekers who are currently long-term unemployed;

◦ Those who become long-term unemployed and, potentially,

◦ Those jobseekers profiled as most at risk of becoming long term unemployed

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Profiling generates a Probability of Exiting the Live Register (PEX) score for each person

PEX is based on a person’s work experience, education, duration unemployed, age, access to transport etc.

Currently all new claimants are profiled

Project underway to profile all existing claimants – expected to conclude by the year end

Pending completion of profiling exercise the following data/categorisation of client groups is illustrative only

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18-24 year olds

becoming 12

months unemployed

25 plus becoming

12 months

unemployed

Disadvantaged new

claimants (5% of all

claims with lowest

PEX)

Those already long-

term unemployed

We anticipate that each group will attract different fee rates 45

Year 1 Year 2 Year 3 Year 4 Total

18 - 24 5,000 5,000 5,000 25,000 40,000

25+ 20,000 20,000 20,000 35,000 95,000

Most Disadvantaged 5,000 5,000 5,000 10,000 25,000

Existing LTU 40,000 40,000 40,000 0 120,000

Total 70,000 70,000 70,000 70,000 280,000

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Eligible Group Estimated leavers to work

18-24 reaching 12 months on Live

Register 11%

25+ reaching 12 months on live

register 13%

Most disadvantaged new claimants 8%

Existing long-term unemployed 6%

Indicative proportion securing sustained employment over a 12 month period

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Experience abroad shows that providers need flexibility to customise their own solutions but that this flexibility needs to be tempered by specification of minimum standards.

Service Guarantee (SG) DSP will specify minimum basic requirements e.g. personal action plan,

regular face-to-face meetings, minimum level of ‘in-work’ follow-up

Providers to specify other SG elements and how they will deliver on SG

Compliance with basic minimum SG will be a qualifying criterion for inclusion in any RFT process

Service commitments in excess of basic SG will be scoring elements of any RFT response

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A Referral Fee ◦ Paid on verified production of a personal action plan for each

client

Outcome Fees ◦ Anticipate that tenderers will submit fees based on client

categorisation

Higher fees for harder to place categories

Lower fees for easier to place categories

◦ Fees paid periodically in arrears e.g. after 3,6,9,12 months in employment

◦ Outcome fees paid over 12 months of sustained employment which can extend beyond engagement period e.g. a client finding employment in month 12 of the engagement may attract fee payments for the subsequent 12 months

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Intreo refers eligible clients

ClientAssessment

Service payment paid

Starts in a job

Personal Action Plan signed

Remains in job or builds up 12 weeks of

employment

12 weeks trigger for outcome

payments

3 month job outcome payment

6 month job outcome payment

9 month job outcome payment

12 month job

outcome

Fees will be bid by providers as part of RFT process

For any individual client we anticipate ◦ Referral fee ~ 10% of total maximum payment

◦ Outcome fees ~ 90% of total maximum payment

Aggregated across all clients ◦ Referral fees ~ 30 – 50% of total provider income

◦ Outcome fees ~ 50 – 70% of total provider income 50

Complete a spread-sheet template

Outline their service model indicating key components of price calculations including: ◦ Number of offices/outlets

◦ Number and salaries of staff

◦ Target placement rates (High, medium and low)

◦ Service offer in excess of the base level SG

◦ Set-up and operational costs

◦ Projected cash flow statements and P&L

Projections of successful bidders may be compared to actual performance on an ‘open-book’ accounting basis.

Based on other countries we anticipate providers will set the ‘low’ scenario at c 50% performance above counter-factual

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In the past profiteering has been a cause for concern in other countries.

Recognise that providers need to generate a return on investment however

We are conscious that the reference period for ‘counterfactual’ performance is a period of extended recession

Tender/contract may provide for review e.g. ◦ If economic environment changes significantly

◦ If contract performance exceeds tender submissions significantly

◦ If underlying welfare/employment incentives change significantly

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Contracts likely to be over 4 years with 2 add-on years for end period referrals and placements

Likely to define 3 – 5 areas of roughly equal size ◦ Measured in terms of long-term unemployed jobseekers.

◦ i.e. Total of c 60,000 – 100,000 referrals per region over contract duration

Dublin likely to be divided due to scale effect.

Straw-man assumes one contractor per area with no intra-area competition.

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Division

Long Term

Unemployed

May 13

Notified Posts

Vacant

1 Jan - 31 May %

Cork Central 11,512 3,346 29.1%

Dublin Central 15,000 6,896 46.0%

Dublin South 12,770 3,625 28.4%

Dublin North 13,811 3,181 23.0%

Midlands North 14,204 1,902 13.4%

Midlands South 14,929 1,982 13.3%

Mid Leinster 14,761 3,140 21.3%

Mid West 11,820 2,106 17.8%

North East 12,479 1,887 15.1%

North West 11,571 1,475 12.7%

South East 14,336 1,660 11.6%

South West 8,930 1,452 16.3%

West 12,750 2,992 23.5%

TOTAL 168,873 35,644 21.1%

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Clients to be referred for 12 month engagement with provider

Mandatory for those selected

Risk of penalties for non-engagement

Providers may refer clients to recognised training/skills courses and employment programmes ◦ Engagement paused for duration of course/programme but

time added back to ensure a full 12 month engagement.

◦ There will be no outcome fees paid for referral to such courses/programmes.

Anticipate use of a common DSP owned IT system to manage referrals, updates and payments

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Only Jobseekers – no incapacity group

Grey Box v Black Box

Service Guarantee

Programme duration 12 months (WP = 2 yrs)

Contract duration 4 years (WP =5 yrs)

Price bidding vs price fixed tenders

One contractor per area

Time-out for training & upskilling

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July 13 – PIN and Information Sessions

Aug 13 – Evaluation of Info Sessions

Sept/Nov – Finalise JobPath Design – Draft RFT

Nov 13/Jan 14– Publish RFT

Feb/Mar 14 – Evaluation of Tenders

Mar/Apr 14 – Award contract

5/6 month set-up phase

Sept 14 – Go Live

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Open and transparent

Information will be made available to all

Info published on www.welfare.ie

Use of eTenders.gov.ie and OJEU

Working with Dept. of Public Expenditure & Reform's (Reform & Delivery Office)

National Procurement Service

Final decision on procurement not yet taken

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Please use roving microphone

Please state your name and organisation

We will publish FAQ on our website

Email facility for questions/comments

jobpath@welfare.ie

Reminder – nothing is cast in stone

Final decision rests with Government

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Email questions / comments to

jobpath@welfare.ie

Information will be published on

www.welfare.ie

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