Charities subcontracted to place unemployed people in work under the Department for Work and Pensions' Flexible New Deal programme have seen a steep fall in the payments they receive from prime contractors, according to the head of an umbrella body for regeneration charities.
Steve Wyler, chief executive of the Development Trusts Association, said several of his members had reported reductions in the amount they had received for placing each unemployed person in work. In one case the amount had fallen from £1,700 to £1,100.
"Some prime contractors are creaming off big surpluses," said Wyler. "It raises a question about whether these contracts are offering good value."
His organisation did not favour large contracts for people-based services, he said. "People end up having to fit into the system, rather than receive the help that's right for them."
Seb Elsworth, head of policy at chief executives body Acevo, said both prime contractors and subcontractors were suffering because of the difficult economic conditions. "These contracts are results-based," he said. "Everyone is struggling to make money now."
Richard Johnson, managing director of welfare to work at services company Serco, which is a prime contractor, said the existing system allowed his organisation to pay charities more than it received for each person who found work, he said.
Johnson said this was because his company ran a three-stage process. "Third sector organisations usually deal with the last, the most difficult cases," he said. "We make a profit on the first stage, so we can make a loss on the third stage."