CHAPTER 7: OUTCOMES, FEES AND INCENTIVES

This chapter describes the general principles which will govern payment arrangements in the employment placement market and suggests an indicative set of fee structures which might be used in the first round of market tenders.

The labour market assistance reforms announced in this Statement will radically change the way that jobseekers are helped into jobs. To support these reforms, it is essential that payment arrangements provide incentives for EPEs to get real jobs for unemployed people.

An important requirement under the new competitive framework will be to move to price­based tendering as soon as possible. The provision of services through a price­based tendering model will help to ensure that the market is truly competitive and that taxpayers get value for money.

The Government believes that it should be possible to move quickly to implement price­based tendering for labour exchange services under the arrangements outlined in Chapter 5. For intensive employment assistance, however, an immediate introduction of price­based tendering could undermine a smooth transition to the new market arrangements, given the tighter definition of 'outcome' now proposed and uncertainties about the precise levels of assistance needed to generate a given level of outcomes. For this reason the Government is prepared to consider the use of a fixed­fee schedule for the first round of tenders in the market, and has developed an indicative fee structure for this purpose. It proposes that this issue should be open to further discussion as part of the forthcoming public consultation process.

A framework for fees in the employment placement market payment

Payment arrangements need to provide clear incentives for EPEs to place clients into real jobs. These incentives can be built into payment schedules in a number of ways.

Outcome payments

Payments to EPEs will be weighted towards outcome payments. This means EPEs will get most of their payment after a jobseeker has got a job and kept it.

However, subject to suitable financial safeguards and quality assurance arrangements, there will also be scope for paying up­front fees to EPEs. These will be paid after a jobseeker has been referred to an EPE. The provision of up­front fees recognises that some organisations will need a measure of funding at the outset so that they have sufficient cash to maintain operations and help jobseekers until they get an outcome. Up­front fees will be limited to a defined proportion (no more than 30 per cent) of total payments.

Outcomes

Chapter 3 defined the two forms of outcomes which will qualify for payments in the employment placement market:

• primary outcomes involving full­time jobs, traineeships or apprenticeships; and
• secondary outcomes, involving placements into substantial part­time work or accredited education and training courses.

As discussed in Chapter 3, EPEs will generally be paid a higher fee for achieving a primary outcome than a secondary outcome.

To be counted as an outcome, jobs or training places will need to substantially reduce or end a jobseeker's allowance or benefit for at least six months. For the first time, under these arrangements, labour market assistance will incorporate real incentives to get people into jobs.

An outcome period of six months will ensure that the employment placement market focuses on permanent jobs. It will also provide the best chance for the jobseeker to become genuinely attached to the labour market. A real job or training placement for at least six months will substantially enhance the future labour market competitiveness of the jobseeker. Put simply, a significantly shorter period than this would result in little more than queue shuffling.

Secondary outcomes may better suit the needs of some jobseekers, such as youth, sole parents and people with disabilities. In these cases, such secondary outcomes could qualify for payment at the primary outcome rate. Other groups may also need to be considered in this context.

Under the current case management arrangements, a part­time employment outcome requires an average of at least 20 hours of work per week over 13 weeks. The corresponding definition to be used in the employment placement market should be discussed in the public consultation process.

Level of need

Some jobseekers need more assistance than others, and payment levels should recognise these different levels of need. This is particularly important for any transitional fee structure. To be effective, a payment system needs to:

• allow different levels of payment to reflect the level of client disadvantage;
• ensure that clients who are the most difficult to place attract the highest payments; and
• provide incentives for EPEs to focus on hard­to­place clients.

Retention of unspent funds

When LMP funds are cashed out, EPEs will spend their money on providing or buying services to help jobseekers. EPEs will be funded to help a specific number of jobseekers into jobs. At times, they will have to spend more on a jobseeker than the funds coming with that jobseeker while at other times, they will spend less.

EPEs will be able to keep any payments not spent on assisting a jobseeker. The operation of price competition will ensure that these payments are kept to moderate levels. Although it could be argued that funds not spent on assisting a particular client should be returned, this would be inconsistent with a flexible, outcome­focused approach. It would also ignore the fact that for some jobseekers, EPEs may need to spend more than they receive.

As outcome payments will form the larger part of EPE payments and will be paid in full only after a jobseeker has held an outcome for at least six months, there is minimal risk that EPEs will under-service jobseekers.

The Government will not implement a system requiring EPEs to report expenditure incurred on each individual jobseeker. This would be a waste of the Government's and EPEs' time and energy and would not add any value. Instead, EPEs will be accountable through their contracts for their performance against the outcomes they have committed themselves to deliver.

Advance payments

Some community and not-for-profit EPEs may be able to apply for advanced payments to meet establishment costs. Whereas up­front fees would not be recoverable, advance payments would need to be repaid. Interested organisations may wish to comment in the consultation process on the level of advances needed to meet set­up costs. Repayment arrangements also need to be considered.

EPEs not requiring advance payments will be given preferential treatment in the tendering process. This means that, all other things being equal, an organisation not requesting advance funding would be more likely to win a contract than one which sought such funding.

Moving towards a price­based tender

A price­based tendering model for intensive employment assistance will be introduced as soon as possible. This will allow the employment placement market to set the true cost of obtaining real outcomes for jobseekers. As noted above, however, it may be desirable to use a fixed­fee schedule in the first round of tenders in the market. This issue will be discussed further in the public consultation process.

Possible arrangements for the first tender round

This section examines an indicative fee structure which might be used in the first round of tenders if it were decided not to move immediately to full price competition. The final shape of any such fee structure would be determined after detailed community consultation and further analysis.

An indicative fee structure

For illustrative purposes only, Table 7.1 provides an example of a possible fixed­fee structure for intensive employment assistance. Under this model, it is assumed that an EPE obtaining an outcome for a jobseeker would be eligible for three payments:

• an up­front payment;
• an initial outcome payment 13 weeks after the outcome was obtained (subject to the outcome being maintained to this point); and
• a final outcome payment 13 weeks later again, at 26 weeks (subject to the same condition).

A higher payment would be made for a full­time job (including apprenticeships and traineeships) and a lower payment for accredited education or training places or a part­time employment outcome. EPEs not successful in securing a jobseeker an outcome would receive the up­front payment only. In the following illustration, EPEs receive:

• 30 per cent of their total payment up­front;
• 40 per cent at the first outcome payment; and
• the remaining 30 per cent at the final outcome payment.

Table 7.1: An indicative fixed­fee structure for intensive employment assistance

Client category(1)	Up­front service fee (30%)(2)	Primary outcome payment after 13 weeks (40%)	Secondary outcome payment after 13 weeks	Primary outcome payment after 26 weeks (30%)	Secondary outcome payment after 26 weeks	Total payment (primary outcome)	Total payment (secondary outcome)
1	$1,500	$2,000	$500	$1,500	$500	$5,000	$2,500
2	$2,250	$3,000	$500	$2,250	$500	$7,500	$3,250
3	$3,000	$4,000	$500	$3,000	$500	$10,000	$4,000

(1) Jobseekers eligible for intensive employment assistance as discussed in Chapter 6:

Category 1: jobseekers who are newly unemployed but at high risk of long­term unemployment, and long­term unemployed clients with less serious forms of disadvantage;

Category 2: more seriously disadvantaged long­term unemployed jobseekers; and

Category 3: persons with disabilities and Aboriginal and Torres Strait Islander clients who confront multiple barriers to employment.

(2) Initial fee paid on referral to EPE.

Under the indicative model described above, and on certain assumptions about the proportions of outcomes achieved, the average payment per client under this fee structure is estimated at $3,250. This estimated average is lower than the maximum amount payable for assisting EPE clients, as it would be unrealistic to expect that all clients will be able to get a job. Consistent with the general principles discussed above, the payments in this model vary according to different levels of jobseeker need. Final details of a transitional payment structure, if adopted, will be settled at the end of the public consultation process.

Issues for public consultation

Prospective EPEs and other interested groups may wish to consider the following issues relating to fees, outcomes and incentives in the employment placement market.

• At what speed should the employment placement market move towards price-based tendering for intensive employment assistance?
• How many hours of work per week should be regarded as the minimum necessary for a secondary outcome of part­time work?
• Is it appropriate that, for certain groups of clients in intensive employment assistance, placements into part­time jobs or accredited education and training courses should rate equally with placements into full­time jobs for payment purposes? If so, which are these groups, and why?
• What are the conditions under which advance payments should be made? What terms should apply to the repayment of such advances?
• If a fixed­fee structure were to be used in the first round of market tenders, how satisfactory is the indicative model described in this chapter? In answering this question organisations may wish to consider:
  • the level of funding per client needed to assist unemployed people into jobs;
  • the need for, and level of, up­front fees; and
  • at what points outcome payments should be made to EPEs (eg, at 13 and 26 weeks as in the indicative model).
• If a fixed­fee structure were to be used in the transitional period, what are the appropriate differentials between different categories of client?

CHAPTER 8: THE ROLE OF A COMMONWEALTH SERVICE DELIVERY AGENCY

A new agency for the integrated delivery of Commonwealth services will be established within the Social Security portfolio. It will become the delivery agency for all DSS services and a number of DEETYA services to jobseekers, students and youth. The agency will operate under a system of service agreements with relevant Commonwealth policy Departments. DSS will become the income support policy department and DEETYA the policy department for employment, education, training, student and youth affairs.

It is expected that the agency will add to its initial range of functions over time and become a one­stop­shop for a wide range of Government services. For example, from the beginning of 1998, child care payments will be paid by the agency and families will have to deal only with the new agency, rather than the three separate agencies involved currently. The new agency will be responsible for the expenditure of approximately 30 per cent of total Commonwealth budget outlays.

The establishment of this agency will mark a major change in service delivery arrangements for the Commonwealth. Even in the shorter term its income support and related employment services will extend across families, the unemployed, students, retired persons, carers and widows, the short­term incapacitated and people with disabilities. It will therefore be the public presence for some of the most important social responsibilities of Government. The new agency offers a great opportunity to improve and re-focus customer services and to build on recent efforts to increase the efficiency and effectiveness of public services. It will take advantage of economies of scale, eliminate duplication of services and improve accountability.

Innovation will be encouraged, with scope for the re-engineering of traditional processes. Teleservicing, for example, offers significant potential for service improvement and efficiency savings, and the new agency will make widespread use of this and related electronic communication strategies. A new network of touchscreens will enable clients to access all jobs registered on the national vacancy database and to obtain information on Government programmes.

The objectives of the agency

The agency will aim to apply world's best practice in the delivery of Government services to clients. It will improve the quality and consistency of services, enhance the access of unemployed people to active participation in the labour market and increase the efficiency and effectiveness of Commonwealth service delivery overall.

The Departments with which the agency deals will focus on policy development and programme design as their core roles, contracting the delivery of services to the agency. Although policy Departments and the agency will be independent of each other, very close linkages will be achieved particularly through membership of the Secretaries of DEETYA and DSS on the agency board.

The management of the agency

Governance

The agency will be established under statute within the Social Security portfolio and be responsible to the Minister for Social Security. It will make decisions about the best way to deliver services and be fully accountable through the normal parliamentary mechanisms.

The Government will introduce legislation which will enable the Minister for Social Security to appoint an executive board. The board will then appoint a Chief Executive Officer (CEO). The CEO will be responsible for managing the day­to­day functions of the agency, ensuring that the outcomes specified in service agreements with client departments are met. The board will comprise a Chairperson and at least two other voting members. The Secretaries of DSS and DEETYA will be non­voting members of the board. Interim arrangements will be put in place pending the passage of legislation.

Benefits for customers

The agency will provide better services to customers. Specifically it will:

• simplify service delivery arrangements by providing a one-stop-shop for many Commonwealth services;
• have a more streamlined and customer­focused approach;
• offer a variety of forms of service, including face­to­face, by telephone or via a computer terminal;
• provide greater access to Commonwealth services; and
• adopt a customer charter, including a guarantee to customers of certain standards of service.

The agency's functions

As noted above, the new agency will assume responsibility for the delivery of all DSS services, a range of DEETYA services to jobseekers, students and youth, and the delivery of certain child care payments to families. This range of responsibilities could expand over time to incorporate additional service delivery functions currently performed by other Commonwealth portfolios.

Functions relating to employment assistance

The agency's role in labour market assistance services to unemployed people will involve:

• the registration and assessment of all new applicants for income support and employment assistance;
• the provision of self-help job search facilities, including access to the national vacancy database via touchscreens; and
• referrals for labour market assistance by employment placement enterprises.

The agency will also provide a range of specialist services to facilitate access to labour market assistance by disadvantaged groups, eg, sole parents, people with disabilities, Aboriginals and Torres Strait Islanders and young people.

Registration

The agency will register and assess new applicants for income support and unemployment assistance. This will remove inefficiencies in the dual registration processes currently used by DSS and DEETYA for unemployment assistance.

Self-help services

As outlined in Chapter 4, the agency will provide self­help job search services to anyone looking for work, including those who do not qualify for income support. These services will include on-line access to a national vacancy database and other self­help services, as listed in Chapter 4.

Referral to employment assistance by EPEs

The agency will refer to EPEs those clients selected for intensive employment assistance. As discussed in Chapter 6, this will include people on unemployment allowances who are considered to be at risk of long-term unemployment and recipients of other income support payments who are assessed as in need and likely to benefit from IEA. Young people aged 15­20 who do not receive income support but are at risk of long-term unemployment may also qualify for intensive assistance. The Jobseeker Classification Instrument will be used to identify those at risk of long­term unemployment.

Where jobseekers are eligible for intensive employment assistance the agency would assess their capacity to benefit from such assistance. It would also select jobseekers for referral to EPEs in accordance with the arrangements described in Chapter 6, and within guidelines specified in its service agreement with DEETYA. Income support recipients such as JET clients and people with disabilities would continue to have their needs assessed under separate criteria developed in consultation with key stakeholders. These assessments would be undertaken by specialist staff located within the agency.

The agency will also refer eligible jobseekers to the other forms of assistance described in Chapter 4, namely labour exchange services and additional job search assistance services for those unemployed beyond a certain defined period. In some cases also, as part of its responsibilities for activity testing and compliance (see below), the agency may require a jobseeker to follow up vacancies registered on the national vacancy database.

Specialist services

The agency will deliver specialist services to the following groups of clients:

• clients in remote locations;
• Aboriginal and Torres Strait Islander clients;
• recently arrived migrants;
• JET clients, chiefly sole parent pension recipients;
• people with a disability; and
• youth.

The principles guiding the proposed arrangements for specialist services are that:

• relevant services to individual customers should be delivered by the agency if they are not to be contracted in a contestable environment (in which case the agency will play a role in providing information on and referral to such services); and
• policy dealings between the Commonwealth (as represented by various departments) and other bodies such as state governments and their departments, industry, welfare other special interest bodies should be performed by the core policy departments (ie, DSS and DEETYA).

Disability services

Disability support officers will be located in agency outlets. They will be responsible for assessing the extent and nature of clients' disabilities and their need for employment assistance or related services. They will be a point of referral for clients to service providers. They will also play a key role in the determination of clients' entitlements to disability related payments.

Services for youth

In the interests of a coherent approach to youth servicing, the agency will be the primary means of delivering assessment, referral and income support services for young people. In addition to performing mainstream youth servicing functions currently undertaken through the CES and DSS networks, it will integrate the functions of specialist youth and student services including Student Assistance Centres (SACs), Youth Access Centres (YACs) and Youth Servicing Units (YSUs). This co­ordinated service for young people will include information on the full range of services available from government and community agencies.

The agency will refer young people to the most appropriate providers of specialist services, whether they be employment placement enterprises, education and training institutions or community welfare agencies. For those young people aged less than 18 in particular it will need to be sensitive to the importance of education and training to effective skill development and future labour market prospects.

The agency will be a major point of contact with young people and serve as an 'early detection' point for young people at risk of homelessness, abuse and long­term unemployment. It will provide referrals and contact points for other youth service providers, particularly those targeted to homeless and at­risk young people.

The agency will also be responsible for acceptance and assessment of claims for student assistance and associated payment processing.

Compliance

People receiving unemployment allowances are required to comply with the conditions of the activity test (demonstrating active job search and willingness to take up available employment). They are also required to comply with the more general notification requirements applying to all income support recipients. A key requirement placed on unemployment allowees is to report all significant changes in their employment circumstances. Other events affecting qualification or payment include receipt of income or assets, changes to marital status, imprisonment or engaging in activities which are inconsistent with availability for employment.

The agency will have prime responsibility for the administration of the activity test and other compliance measures within guidelines agreed with the Department of Social Security, which will have policy responsibility for such matters.

It is expected that existing measures which check or enforce compliance with general notification requirements (eg, verification of income and assets) would not be affected by the establishment of the new agency. However, the integration into the agency of current CES and DSS functions relating to unemployment allowances will provide opportunities to resolve confusion in roles and responsibilities for activity test issues, reduce double­handling and better integrate information about the job search behaviour of individual jobseekers.

Current DSS procedures for monitoring compliance with the requirement to undertake active job search rely on the successful completion of administrative requirements (eg, reporting job search efforts fortnightly or keeping a record of job search activities) but job search activity can only be verified by imposing additional administrative requirements on employers. The availability of vacancy data, referral to employment assistance and links between the agency and EPEs should improve the quality of activity testing while avoiding additional administration. There will also be scope to build on promising developments in information technology such as the new network of touchscreen terminals by including an electronic log of job search activities.

The agency will work closely with EPEs on activity testing and compliance issues. As noted in Chapter 6, EPEs will be required to report to the agency any breach of activity test requirements identified through their employment placement activities. Where jobseekers are receiving intensive employment assistance through an EPE, that EPE will be responsible for monitoring compliance with the activity test requirements. EPEs will be in the best position to monitor the jobseeker's activities and determine if individual jobseekers are breaching their requirements. This approach will also eliminate the duplication of responsibility associated with current arrangements for case managed clients.

Activity test requirements for long­term unemployed jobseekers not selected for intensive assistance will be more flexible, with some being given the option of either meeting standard job search requirements (as described above) or participating in alternative activities which contribute to improving job­readiness, help to overcome barriers to employment or contribute to the community. Activities could include participation in voluntary work, community development activities, community education or other activities suggested by the jobseeker subject to approval by the agency.

Timing

Planning for the implementation of the new agency will begin immediately. The period to December 1996 will concentrate on information and consultation processes, the development of legislation and the re­engineering of processes to integrate income support and employment services. The next stage of implementation will involve the identification of jobs and staff for the agency, an intensive programme of staff training and the installation of touchscreen facilities in the agency's offices.

The agency is expected to be formally established in July 1997. It will progressively assume its new responsibilities over the period July­September 1997, and is expected to be fully operational by December 1997. Overall there will be a strong focus on ensuring a smooth transition to the new arrangements for staff, customers and the community.