1. Pay for performance contracts in social services – do’s and don’ts Assaf Shalvi A4e

2. 2 Business Overview We are an international government services provider, managing employment and other social programmes for government organisations around the world Founded in 1991 with the mission of improving people’s lives, we have grown to be the largest private provider of government employment services in the United Kingdom Our 3,700 staff in more than 260 offices in the United Kingdom, Australia, France, Germany, India and Poland are delivering critical public services on behalf of government We are a fast growing company with 24.6% CAGR in 2007 – 2011 reaching £250m revenue and 49% CAGR in EBITDA for the same period Revenue growth 2007 - 2011 CAGR 24.6% 0 50 100 150 200 250 20072008200920102011 0% 5% 10% 15% 20% 25% 30% 35% Revenue £m

3. A4e in Poland Since 2008 A4e delivers 5 ESF funded contracts operated from 5 Work Centres in: Woj. Zachodniopomorskie (Szczecin) Woj. Małopolskie (Olkusz i Oświęcim) Woj. Śląskie (Zabrze i Świętochłowice) We have assisted over 1500 clients in Poland We helped 61% of our clients find job We helped 69% of the clients sustain job for at least 3 months 3

4. 4 Our Services Government Employment Solutions Learning and Development Advice and Guidance Welfare to Work Ex-offendersFamily Services DisabilityOutplacement Recruitment VOX Centres Interview & Job Preparation Vocational Training Apprenticeships Entrepreneurship Programmes Legal Clinics Money Advice

5. Governments that implement performance based welfare to work programmes manage to reduce their caseloads and improve the system’s overall performance Cost per outcome decreased since commencing outsourcing in 1998 5

6. Performance based social services contracts have great gains but also very great risks 6 When it works: The Tax payer is sure to be paying only for real value (performance + quality) the Government manages to keep its promises to the public Agents who provide the service are covering their costs. When it doesn’t work: × Tax payer is not receiving the service × the government loses time, money and credibility × long and expensive legal processes, × Throwing away thousands of hours of work invested by its consultant’s, civil servants and lawyer’s in developing these huge tenders × In short - everyone loses. A lot

7. It is even more risky when providing a critical social service than when contracting other public services The beneficiaries of the service are often vulnerable population and lose hope, making future efforts more difficult Measurement of progress and success is done over more than a year into the contract – risk of loss of valuable time with no results Almost no tangible assets therefore switching providers = going back to step 1 7

8. 10 things to think about when developing a performance based contract for social services 1.Define success clearly 2.Measure it in a SMART way 3.Set clear boundaries around the risk of the government and the private sector 4.Align Responsibility, Authority, Accountability and Reward 5.Measure outputs not inputs and activities 6.Take a partnership approach 7.Procure for quality 8.Make it a win-win for all stakeholders 9.Pay for the performance you wish to achieve 10.Create a competition on performance and quality 8

9. Clearly defining success means we know what is the problem we are trying to solve, and how do we know when we solved it. Pay for achieving the objective. 9 DoDon’ts Focus on the key problem Try to solve all the problems with one contract Define what success looks like. How do we know we solved it? Keep moving the bar once the project started or change the success criteria Examples of success definition for Welfare to Work Programmes: Reducing long-term benefit dependency Reducing expenditure on welfare benefits Placing long term unemployed in jobs Increasing the earnings of long term unemployed

10. SMART measurement of success is important for contract measurement and both sides feeling that payment is made for value created Specific Measureable Acheivable Relevant Timely 10 DoDon’ts Choose measurements that are clear to measure on a daily/monthly basis Create dependency on 3 rd body to provide the data for measuring results Find proxies for outcomes that are hard to measure Spend on measuring more than required Focus on one key measurement for success

11. Set clear boundaries around the risk of government and the risk of the provider. This will attract good providers that will bid to get the performance and not to share the blame for failure. Performance based contracts transfer the risk to the provider Providers can manage and mitigate probable risks Government draws the line around the risk it transfers to the provider 11 Economy, Local labour market, Benefit dependency, Job losses, Financial Risk Contract scope Legislation Referral to Programme Regulation Lack of Enforcement Political Risks Access to data

12. What the provider is authorised to do: Prescribe activities Track outcomes Contact stakeholders Provide support services Manage a flexible service Allocate resources Hire staff What the provider needs to do to succeed: Find jobs Prepare candidates Manage placement Provide In-Work Support Manage processes Report data What the government is paying for: Measurement of contract success SMART objectives Periodical reports What the provider is Accountable for: Job placement Job retention Reduction in caseloads Reduction in expenditure Align Responsibility Authority and Accountability. This ensures the providers are able to get the results and are focused on the contract objective and not on administrative processes. 12

13. Measure outputs and not inputs. Communicate the results to all stakeholders. Measure quality and performance and create competition between providers. 13 DoDon’ts Measure outcomes that lead to success Prescribe activities Measure quality Prescribe HR requirements Set clear directives and administrative procedures Prescribe individual budget constraints Allow for individual, tailored approach Complicate the activities with bureaucracy and extensive reports InputOutput Number of hours spent per participant Number of participants placed and retained job this month Case manager’s education/certification Placements per case managers satisfaction Upheld Appeals Spending on individual cases Savings of programme Number of phone calls to employers Placement and retention Employer satisfaction

14. Manage the programme as a partnership as this is a win-win contract. Deal with crisis in a joint-up way. We are all on the same ship… Communicate concerns and changes Improvement to the programme Risks and risk management Adjustment to budget Public Relations and external communication 14

15. Procure quality so that government is confident it can achieve the objectives. ~ A successful track record of delivering similar performance, while working with similar populations, in similar scale contracts Similar scope Similar caseload Similar payment structure Similar outcomes ~ A successful track record in managing pay-for-performance contracts and mitigating the risks involved in such contracts Obtaining outcomes Obtaining quality of service Clients (government departments) satisfaction ~ A reputation for keeping high quality service delivery even when performance are harder to achieve than projected and even at the risk of incurring a loss 15

16. Thank you Assaf Shalvi International Strategy Development Director ashalvi@a4e.co.uk