Chapter 2
Background
2.1
This chapter provides a background to the provision of employment
services since the first competitive tender in 1997-98 and a description of the
purchaser-provider model. It also briefly covers the role of DEEWR, the
performance rating system and the considerable number of reviews and
evaluations that have occurred over the years.
Background to employment services
2.2
As part of the 1996-97 Budget, the Coalition government announced its
intention to replace the public provision of employment services through the Commonwealth
Employment Service (CES) and its related agencies with a competitive employment
services market.[1]
Services have since been delivered through a combination of private and
community-based (and originally also government) providers, known as the Job
Network, under a purchaser-provider contract determined and managed by the now Department
of Education, Employment and Workplace Relations (DEEWR).
2.3
Since the establishment of the Job Network in May 1998, three tender
rounds, referred to as Employment Service Contracts (ESCs), have been
undertaken:
- ESC1 ran from May 1998 to February 2000;
- ESC2 ran from February 2000 to June 2003; and
- ESC3 2003-2006, started on 1 July 2003 (in two stages).
2.4
Initially, contracts were to be contested every three years to ensure
value for money and a competitive client service. The strategy for ESC3 was, in
stage 1, to roll over around 60 per cent of the contracts based on performance
(ESC 2006-09) with business set at a pre-set payment rate rather than determined
by tender offers. The remaining 40 per cent went out to public tender. In
the process, the remainder of the CES, trading as Employment National, was sold
off to the private sector.[2]
With stage 2 of ESC3, around 95 per cent of business was rolled over to
already-contracted providers.[3]
Composition of providers
2.5
The composition of the providers has changed substantially since ESC1.
In 1998 the network consisted of private and community as well as government
organisations with the private and community sectors gaining around two-thirds
of the market for services, and the remaining third held by public providers.
With ESC2 the market share of community-based and not-for-profit providers
increased to around half, as did the share of private providers, whereas public
providers were reduced to fewer than 10 per cent. ESC 3 more or less kept the same
split between community, commercial and private providers as for ESC2 with half
from non-profit organisations, 47 per cent commercial and three per cent local
or state government organisations.[4]
Use of the purchaser-provider model
2.6
In announcing the initial reforms in 1996, the Coalition government
listed four key objectives:
- to deliver a better quality of assistance to unemployed people,
leading to better and more sustainable outcomes;
- to address the structural weaknesses and inefficiencies inherent
in previous arrangements for labour market assistance,
- to put into effect the lessons learnt from international and
domestic experiences of labour market assistance; and
- to achieve better value for money.[5]
2.7
A purchaser-provider approach was considered the best way to focus on
outcomes rather than processes and to address criticisms of the CES, including
lack of flexibility to target assistance as well as inefficiencies resulting
from a lack of competition.[6]
2.8
In 2002, the Productivity Commission review of the Job Network, agreed
with the application of the purchaser-provider framework to the Job Network.[7]
However, it noted that provision by external organisations can be achieved
through different mechanisms, such as licensing, competitive tenders, vouchers
and franchising.[8]
This issue is further addressed in chapter four.
Role of DEEWR
2.9
Under the current model, the government has become a purchaser, rather
than a provider of employment assistance. DEEWR purchases the provision of
services to job seekers from a network of providers. DEEWR specifies, purchases
and monitors services. It manages the tender process and the contracts with the
providers. While not directly providing services to job seekers, DEEWR is
ultimately accountable for the quality of services provided to job seekers and
the achievement of results consistent with the department's outcomes and
outputs.[9]
2.10
To purchase the services, the department runs the competitive tender
process. In accordance with the Commonwealth Procurement Guidelines, the
guiding principle has been the delivery of value for money to the Commonwealth.
The tender process includes developing a request for tender, tender evaluation
and announcement of results.
Performance of providers
2.11
During the contracts, the performance of providers across Australia was
assessed by DEEWR using a star rating system which began in March 2001. Ratings
varied from a minimum of 1 star, indicating room for improvement, to a maximum
of 5 stars, which reflected excellent performance.[10]
2.12
The star ratings were determined using a norm referencing approach
developed with the assistance of the South Australian Centre for Economic
Studies. The ratings reflected the relative performance of the providers and
conveyed no information about the absolute level of performance of the overall
effectiveness of Job Network services. For example, a low rating did not mean a
provider was not performing satisfactorily but that it was performing at a
level below that of other providers.[11]
2.13
The Productivity Commission described the operation of the ratings as
follows:
The star rating model is designed to assess the performance
of Job Network members for each service in each region in which they operate.
The model uses a set of performance indicators and associated weights based on
the performance indicators outlined in the Job Network Contracts...A provider's
actual performance is assessed against its expected performance where expected
performance is adjusted to take account of variations in client mix (such as
age, educational attainment and duration of unemployment) and local labour
market conditions (adjusted using ABS unemployment rates and jobs growth).
Scores are distributed between one and five stars such that 70 per cent of
providers in a region are rated at three stars or better.[12]
2.14
In one of their reports, the ANAO emphasised that the star ratings were
a comparative measure of performance, not absolute performance which means:
- each site's star rating compares it with every other site;
- if the performance of all sites across the Job Network were to
change uniformly (up or down), their star ratings would not. Only a change in
relative performance between any one site and all others can cause a change in
a rating; and
- a site whose own performance is constant while the Job Network as
a whole improves may experience a decline in its star rating.[13]
2.15
The ANAO found that the performance information was rarely used by job
seekers to choose their provider and the ratings were primarily a means for DEEWR
to press providers for higher levels of performance. While finding the system
had value, the ANAO noted opportunities for the department to improve the
transparency of the system and better inform job seekers how to use the
ratings.[14]
2.16
Despite reviews which have concluded that the star ratings method is
sound,[15]
over the years providers identified problems with the performance framework, complaining
that it was overly complicated, does not allow fair comparisons, discourages
the skilling and training of job seekers and leads to business uncertainty. To
address these issues, a new performance framework will operate from 1 July
2009. This is further described in chapter three.
Previous reviews and evaluations
2.17
A substantial number of reviews and evaluations of various aspects of
the purchaser-provider model have been undertaken since the establishment of
the competitive employment services market. These include:
- eight reports by the Australian National Audit Office (ANAO);[16]
- an OECD analysis of the Job Network[17];
- an extensive Inquiry Report by the Productivity Commission in
2002;[18]
- an independent review of the star rating system by Access
Economics in 2002[19];
and
- a significant number of reviews conducted by DEEWR and various
other stakeholders.
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