Unemployed people in the new Workforce Australia system will continue to be squeezed through “mutual obligations” and suffer the penalties of non-compliance because ending the punitive regime would affect the profitability of the $7.1 billion network of private providers, the government says.

The new employment services regime – created by the Coalition and endorsed with minor tweaks by the current Labor government – began this month with the promise that hundreds of thousands of jobseekers would have more “flexibility” in the way they engaged with the obligations imposed on them in order to receive social security payments.

Instead, despite some minor improvements, many of the worst features of the old jobactive system remain. Billions of dollars’ worth of new contracts to support this scheme were inked by the Coalition just months before it lost government.

Under new terms being kept by Labor, the notorious Work for the Dole program will remain. So will other mandatory activities, such as “employability skills training” (EST) for younger jobseekers or “career transition assistance” (CTA) for Australians aged over 45. When job network providers offer these services for people receiving welfare payments, like JobSeeker or Parenting Payment, they are paid additional fees.

For example, every unemployed person placed in a Work for the Dole program earns the job provider a $500 “placement” fee. PaTH internships and National Work Experience Program placements are worth $1000 to a job provider. Participants referred for EST are either partly or fully funded by the taxpayer at $1250 a pop, with a $250 “placement” fee to the job network provider. CTA fees are between $1800 and $2250, fully funded by the government.

While the details appear complex it is important to understand the connection between mutual obligations, the “activities” such as those offered above, and the profitability of private job agencies. Because of these obligations, job providers are guaranteed a revolving door of funding for which the organisations earn bonuses or outcome payments.

When The Saturday Paper asked Employment Minister Tony Burke whether suspending mutual obligations for a significant period of time, or permanently, would have a material effect on the profitability of these providers, the minister’s department responded on his behalf.

“The current suspension of mutual obligation requirements [for one month] is not anticipated to impact provider viability, noting providers are still commencing participants,” a spokesperson for the Department of Education, Skills and Employment said. “However, the situation is being closely monitored.”

In short: the federal government is wary of relieving the burden on jobseekers because it would anger the employment services industry.

Antipoverty Centre spokesperson Kristin O’Connell told The Saturday Paper that “mutual obligations exist because if they didn’t the industry would not get profit”. She continued: “That is the only reason they exist. People don’t get jobs through this system. So, it is very clear that the public money being spent on it is entirely to serve the interests of private organisations who donate to political parties.”

The Saturday Paper understands Tony Burke and other Labor MPs were lobbied aggressively by the body representing job service providers, the National Employment Services Association, to keep mutual obligations. They apparently presented figures warning that the sector could topple if conditions were not favourable. Burke denies this: “This claim is entirely untrue. The conversation described here never occurred and I have no idea where this comes from.”

In a December 2020 policy paper, NESA argued that “market and/or provider failure are significant risks in any major reform and have destabilising effectiveness and efficiency consequences”.

The paper says, “To commit to such investment it is critical that potential new and existing employment service providers are able to produce a reliable financial model to assess with a level of confidence whether they have the financial capacity and risk appetite to participate in NESM [the New Employment Services Model, now called Workforce Australia].”

The department spokesperson told The Saturday Paper that “independent financial viability analyses found Workforce Australia Services will be viable but noted providers will need to adjust their operating and business models to succeed”.

Market results suggest things aren’t quite so dire for business. When the successful tender results were first announced on March 25, the share price of listed employment services giant APM Human Management Services International jumped more than 10 per cent to $3.15. It is now worth $3.42, and the business has a market capitalisation of $3.1 billion.

On Monday, the individual contracts for the new Workforce Australia model were published on the AusTender website. According to a Jobs Australia report to its members, “performance results do not appear to have had any impact on the tender results”.

A subsidiary of APM Human Management Services International, run by billionaire Perth founder Megan Wynne and majority owned by American private equity firm Madison Dearborn Partners, received an astonishing $335 million in contracts over a three-year period.

More than $226 million has been handed to atWork Australia Pty Ltd, a company whose directors are all based in the United States. The outfit is owned by MedHealth, which is in turn owned by US-based ExamWorks, which is itself majority owned by private equity giants CVC Capital Partners. That Medicare compliance business “serves a global customer base of property and casualty insurers, law firms, third-party claim administrators and government agencies across the United States, United Kingdom, Australia and Canada”.

A $116 million licence to provide employment services was also signed to Asuria People Services Pty Ltd, a sprawling global brand which, according to founder and majority shareholder Con Kittos on LinkedIn, has a presence in Saudi Arabia, Sweden and Britain. The Salvation Army, one of the largest operators of Work for the Dole sites in Australia, received $190 million.

About 18 new organisations have entered the employment services space for the first time, or the first time as “generalists”, including construction services company WorkPac, which registered a spinoff company on October 7 last year and won almost $10 million in contracts.

Less than a month after an excoriating February appearance before the Disability royal commission, AimBig Employment Pty Ltd discovered it had won almost $22 million to provide general employment services under Workforce Australia. This was particularly startling news given the details of what emerged during those hearings.

Before July this year, AimBig was solely involved in the Disability Employment Services system, which is similar to but separate from the old jobactive. In 2019, the business, founded and controlled by Marcella Romero, created a training program named BusyBeans to teach participants with disabilities how to become baristas and barista trainers.

AimBig was contracted by the federal government to provide the employment services. It then sent some participants to its subsidiary Rehab Management, where the BusyBeans program was hosted. Rehab Management then struck an arrangement with an external company, TLH Recruitment, a labour hire business, to hire the bulk of the BusyBeans barista trainers as “in-house” baristas.

TLH would pay the hourly rate and superannuation of the “employees”, but this was directly reimbursed by Rehab Management. In addition, TLH charged a management fee and was provided with $111,000 in taxpayer-funded wage subsidies paid directly to it by AimBig. The BusyBeans program ran for precisely 26 weeks. In all, AimBig received $874,832 outcome payments “in respect of milestones achieved by the BusyBeans participants”. Within a day or two of the program ending, participants “had their employment terminated”.

Leanne Divertie, national business manager at TLH Recruitment, told the royal commission in February that the arrangement “definitely gets – adds to our profit”.

In 2020, the Department of Social Services inquired about the program and asked how it could be that the majority of BusyBeans participants were employed by an external company and not AimBig or its subsidiaries.

When questioned about this on the stand, founder and sole director Marcella Romero was unable to explain.

The AimBig experience is instructive because the royal commission chair, Ronald Sackville, noted that the use of convoluted company structures and, in this case, labour hire firms, “seems to be part of the business model”.

Under previous arrangements, employment service providers were able to discreetly refer jobseekers to related entities within a corporate structure for “training” or other activities that delivered fees back to the company. When questioned about it, departmental officials would declare that it was not “supposed” to happen. Rather than crack down on the practice with the new contracts, the Australian government has codified it and explicitly allowed it.

The new contracts state that providers can refer clients to their own subsidiaries, but no more than 50 per cent of the time. This is called a “referral cap”.

In a June webinar about the new system, interested providers who asked how the cap would be “managed and reported on” were told by the Department of Employment that it would “regularly review referral and commencement data to ensure that referring providers are not exceeding their 50 per cent cap”.

“Providers that exceed the referral cap may be requested to cease referring to their own organisation, related entity or subcontractor,” the department said.

Later, however, it encouraged providers to use their own networks freely. “EST providers can also remind Workforce Australia Employment Services providers that participation in EST can contribute towards a progress payment for the participant,” the department said.

Where the job provider and the EST agent are part of the same corporate structure, the department insists one should still charge the other for the services rendered but notes that they “can make their own arrangements to facilitate payment”.

Last year, AimBig Pty Ltd made $12.3 million in outcome fees, according to its financial records lodged with the corporate regulator. This represents almost one-fifth of the group’s $65 million in revenue from fees and contracts with customers.

“The consolidated net profit after income tax for the financial year was $8 million, compared to a profit after tax of $3,463,000 for the prior year,” Romero wrote in her director’s report.

“The significant turnaround in profitability was mainly due to the pleasing results from both the Rehab Management and AimBig Employment businesses.”

Service providers have created entire ecosystems of related entities in which to shuffle unemployed people, gathering so-called “points” for participants, which keep mutual obligations satisfied and delivering a range of fees and payments back to the group.

Take Asuria, for example, and its $116 million contract. The company has a subsidiary named Australian Employment and Training Solutions or AETS. In addition to offering qualifications in cyber security, aged and disability care or early childhood education, AETS is also licensed to provide both the employability skills training and career transition assistance under Workforce Australia.

Under the regime of mutual obligations, people on benefits who fail to complete the activities required of them are threatened with the suspension or termination of those welfare payments.

What makes these measures galling to many in the jobs queue is that the reason they are unemployed in the first place often has nothing to do with lacking a qualification or the ability to search job vacancies.

“The reasons people aren’t in paid work are structural,” Kristin O’Connell says. “It’s because they are disabled. It’s because they are doing unpaid caring work. It’s because they live in areas that don’t have jobs and can’t afford to move to areas that do have jobs and a whole range of other reasons that will never, ever be helped by these pointless and punitive activities.”

On Thursday, the Australian Bureau of Statistics announced the unemployment rate had fallen to its lowest level in almost half a century, at just 3.5 per cent.

The latest quarterly data for payments from the Department of Social Services shows there were 866,780 people on JobSeeker in March. Almost half – 360,038 – have some form of a disability. Further, some 576,000 people on this payment have been stuck there for two or more years. The average duration on income support is more than five years.

All this is to say: for most people in the unemployment queue, the factors keeping them there are far from simple. According to evaluation report after evaluation report, they are not solved by the breathtakingly expensive employment service sector.

Employment Minister Tony Burke, who initially claimed it was “too late” to scrap the Coalition model, responded on Monday to concerns about Workforce Australia that had been escalating for weeks prior to its launch.

“First, the claims that you will receive suspensions while navigating a new system this month are wrong. There will be no suspensions this month for anyone using Workforce Australia, ParentsNext, Transition to Work and DES,” he tweeted.

“Some people have also raised specific concerns about individual providers. I’m watching this closely, but I do need to be clear my discretion here is more limited. Shortly before caretaker the previous Govt signed contracts worth $7.1 billion.”

Community sector groups and anti-poverty activists are calling for at least a 90-day suspension of mutual obligations while participants take the time to learn the new system, but this has been rejected.

Labor has declared it supports the concept of such obligations. Rather than reform, the party has opted to temporarily “wipe the slate clean” so that people with noncompliance marks against their name in the system will start afresh.

In addition, the minimum number of mandatory job searches a person in the system must perform each month has been reduced from five to four. If jobseekers find the new points system too confusing, Burke says, or “if you would prefer to keep doing the 20 applications a month that you used to do, this will still satisfy your points obligation”.

While Burke claims he has been constrained by contracts and legislation, many of the changes sought by community groups could be brought in at the stroke of a pen. Significant details not prescribed by the legislation, for example, are instead intended to be furnished by legislative instruments and regulations at the initiative of the minister.

A spokesperson for the Employment department said: “The government is consulting on a number of legislative instruments required under the Social Security Act to help people to understand their requirements and ensure that their rights and responsibilities are appropriately considered.”

In the eyes of critics, the problem is not so much that change can’t be made but that the will to antagonise the powerful employment services sector is just not there.

“For too long employment services have been dominated by endless rounds of inflexible ‘tick a box’ activities, such as having to apply for 20 jobs a month and participating in unpaid ‘make work’ schemes like Work for the Dole that don’t help people find regular employment…” says Edwina MacDonald, the acting chief executive of the Australian Council of Social Service.

“The main problem with Workforce Australia is that it is built on top of a flawed system of requirements and employment programs which have not yet been fully reformed.”

There is a distinct tension between actually helping poor people into work and keeping a private provider network well-funded and profitable.

Under the current system, the winners are not people finding jobs but the businesses profiting from their arbitrary and often fruitless search.

This story was modified on July 17, 2022, to include further comment from Tony Burke.

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