Welfare-to-work groups seek scale before next round of contracts

14 May 2014

Following the purchase of Avanta by the recruitment agency Staffline, private sector suppliers of the government’s £5bn welfare-to-work programme are braced for a wave of consolidation as they seek to bolster their position ahead of the next round of contracts in 2016.

Just weeks after Ingeus Deloitte was sold to Providence Service Corporation, for $225m: Staffline, which runs one work programme contract, bought privately-owned Avanta that runs the service in three regions, for £65m, making it the third-largest provider behind Ingeus Deloitte and A4E.

Staffline is one of 18 main providers, including Serco, G4S and A4E that were commissioned in 2010 to deliver 40 contracts to help the long-term unemployed into work, at a cost of up to £5bn.The programme was presented as a model for public service reform when it was introduced three years ago, but it has been heavily criticised by the National Audit Office and the Public Accounts Committee, which is planning to examine it this year.

The organisations under most pressure are those, like Avanta, that offered the biggest discounts to the price suggested by the Department for Work and Pensions (DWP). Due to the structure of the programme, these discounts take effect this year, at the same time the government is withdrawing up-front referral fees. Richard Johnson, who worked in the industry and is a parliamentary consultant to the Work and Pensions Committee, said this was likely to increase consolidation because companies will seek to merge before the contracts become less profitable.

Staffline said the DWP was supportive of the deal because they want fewer bigger providers that are easier to manage.