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Too little competition when contracting out reintegration services

Competition weakens after contract is awarded
12 March 2014

Municipal authorities have spent too much money and been inefficient in their efforts to help the unemployed to find work over the last ten years. This is largely because they were bound by too many tendering rules when contracting out employment reintegration services, and finding it hard to cut the ties with reintegration agencies that were not up to scratch. Furthermore, the municipalities were unable to get a clear picture of the services being provided by the reintegration agencies they awarded contracts to. These are the conclusions of employment market researcher Alex Corrà, who will be awarded a PhD by the University of Groningen on 20 March. According to Corrà, municipalities have now taken over much of the work. ‘Having seen how the reintegration agencies work, they prefer to do it themselves.’

The introduction of the Work and Social Assistance Act (Wet Werk en Bijstand) in 2003 put municipalities in charge of reintegrating unemployed workers. Municipalities had a financial incentive for getting people back to work as soon as possible; they could keep the money they would have spent on welfare benefits for their budgets for the years that followed. Conversely, too many people on welfare benefits would be a drain on their budgets.

Tendering requirements

Under the terms of this new law, the municipalities were given a total annual budget of around € 2 billion until 2007. This amount dropped sharply, and is now € 700 million. ‘In the first two years, municipalities mainly wrote contract documents that concentrated on results, and most of the agreements they made with the reintegration agencies were about reducing the number of people drawing benefits. But it was very difficult to work out what these agencies were delivering for the price, so the stipulations of the contract documents became increasingly strict and formal,’ says Corrà. ‘The formal aspects gradually became more important than reliability. Meeting a whole series of tendering requirements took precedence over simply doing what had been agreed. And as the agencies became more skilled in making offers that satisfied all the rules, price eventually became the determining factor.’

Weakened competition

Corrà studied nine municipalities to see how they dealt with this tendering process. He concluded that municipalities were much more stringent about applying the rules than required by law. This is because although they had experience of ‘hard’ tendering (for a contract to construct a road, or to purchase laptops), they were not familiar with the vaguer process of contracting out job application courses, for example. There was too much focus on ‘hard’ quantifiable criteria and too little on the human element of service, which is probably the most important aspect of employment reintegration. ‘The tendering system also meant that municipalities were finding it difficult to dispense with agencies they had hired in and so competition weakened considerably once the contract had been awarded. Tenders make it enormously expensive to switch suppliers, which reduces competitive pressure. This unintended side-effect of observing the rules of tendering made it harder toss the ‘rotten apples’ out of the reintegration market.’

Too high a price for poor service

The upshot of this tendering system is that the municipalities have probably been paying too high a price for poor service, although this is difficult to say in retrospect. As a result, they have taken on a lot of the reintegration work themselves over the past few years. Corrà thinks that this is giving them valuable experience, which they can put to good use when implementing the Participation Act (Participatiewet). ‘Municipalities could, for example, decide to award contracts to several parties, and reward the partner that performs best with the majority of the work. Whatever else, they have to stop awarding contracts on the basis of seemingly objective criteria and focus on reliability instead.’

Curriculum vitae

Alex Corrà (Cesena, Italy, 1977) studied European Law before taking a Master’s degree in Comparative Labour and Organisation Studies. He worked as a researcher at VU University Amsterdam until January of this year. He will be awarded a PhD by the Faculty of Law of the University of Groningen on 20 March. His thesis is entitled: Contracting for public values. Investigating the contracting out of employment reintegration services, in the Netherlands, and his supervisors are Prof. J. de Ridder and Prof. G.J. Vonk.

More information: Alex Corrà, alex-c[at]dds.nl

Last modified:15 September 2017 3.34 p.m.
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