Appendix 3
STAGE 1: STRATEGIC CASE
Project title: London Works
3-line project description: To support the set up and management of a commercial
recruitment agency whose purpose is to support talented low-income, disadvantaged
people to find and maintain jobs using their graduate or A-level leaver skills through
mainstream temporary and contract work.
Lead delivery team: Regeneration Unit
Envisaged delivery start and end dates: February 2014 – September 2015 (ongoing
funding repayment commitment to 2017
A- STRATEGIC AIMS
What is the aim of the project, its top objectives (up to 3) and the expected outcomes?
Overall strategic aim of
the project:
Overall impact of this
proposal:
Which Mayoral
commitment or objective
does it help deliver:
The project seeks to deliver and demonstrate a new way to tackle
graduate unemployment and underemployment in East London by connecting
would-be workers, from disadvantaged communities, and corporate
employers through mainstream and contract work.
The project will deliver direct and measurable long-term economic
growth through increased access to private sector employment for
disadvantaged communities. The project aims to support 1700 unemployed
or underemployed Londoners into employment or progress in employment in
its first 3 years.
The activity measured supports the Mayor’s manifesto commitment of
creating 200,000 jobs in London over the course of this Mayoral term.
The project supports the Mayor’s efforts in championing the London
Living Wage as at least the LLW will be paid to all temporary and
permanent appointments.
Support the objectives set out in the Mayor’s 2020 vision and the Mayor’s
Economic Development Strategy to promote greater convergence of
social and economic chances in East London with the rest of the capital.
Other GLA teams
involved in
development/delivery:
The project has been endorsed by the LEP to be funded from the Growing Places
Fund Round 2 budget subject to IPB approvals and a Mayoral Decision. The
proposal was evaluated by a number of GLA officers including from Regeneration,
EBPU, Transport, Legal and Finance.
The Regeneration Unit (with responsibility for Programme Management of
Growing Places Fund) and Economic and Business Policy Unit are leading on the
development of the project. Like other Growing Places Fund Round 2 projects, the
project is likely to be project managed by the Regeneration Unit, however it is
being considered whether this role could be taken on by EBPU.
Objective 1:
To support low income, disadvantaged people to access employment appropriate
[Type text]
to their graduate or A-level skill level.
Measurable benefits and key
outputs (including jobs):
1
2
Non measurable benefits:
1200 adult Londoners receiving support which helps them to find
or progress in employment (support/training of at least 14 hours)
(KPI)
800 adult Londoners starting or progressing in employment
Quarterly
Q
At least London Living Wage paid by the Agency to contractors.
Improved awareness of temping as a career option – supporting the reduction of unemployment
and skills underutilisation.
B- PROJECT RESOURCING AND DELIVERY STRUCTURE
1- Why is the investment necessary and why should GLA make this investment?
London Works is a commercial recruitment agency which will operate in east London with the aim of
integrating the business goal of mainstream temporary and permanent staffing agencies with the social
mission of helping talented low-income, disadvantaged people find and maintain jobs using their graduate
or A-level leaver skills. It is will operate as a trading subsidiary of the East London Business Alliance (ELBA)
charity. ELBA’s experience in the local skills and employment arena has led them to the conclusion that
temporary/contract work offers a very good, but yet largely untapped, route into work for those facing
social disadvantages. Typical barriers faced by this group include being the first family member to attend
University, limited or no social capital, under 300 UCAS points as well as the classic deprivation problems of
over-crowding, low household incomes and little or no soft skills training in advance of applying for jobs.
ELBA’s unique status as a representative alliance of east London based, large corporations and institutions committed to the area’s social and economic regeneration, with a membership of over 100 local employers positions them well to deliver London Works. The initial geographic focus of the agency will be the east
London boroughs of Tower Hamlets, Hackney, Newham, Waltham Forest, Greenwich and Barking &
Dagenham and the project will therefore support growth and the long-term goal of convergence for these
boroughs. In particular this project addresses the target of convergence in median earnings by helping
young residents of these boroughs find better paid jobs which also offer greater potential for career
progression than they would otherwise be able to access
Disadvantaged people, especially those from ethnic minority communities need LW as an access route to
work as it is well documented that they struggle to find work through traditional commercial recruitment
agencies. This was backed up by a recent study (Feb 2012) by Race for Opportunity, part of the Business in
the Community charity, and Diversity Works for London, a mayoral programme to encourage businesses to
become more diverse. It found, through a study of 2,500 job hunters, ethnic minority candidates face
“casual racial discrimination” when they look for work through recruitment agencies, resulting in job offers
being skewed towards white applicants. It is clear that London’s candidates, particularly those from ethnic
minority background face greater challenges in accessing opportunities; hence the rational for creating
London Works.
The project seeks £100,000 GLA funding to support the set up and early stage running costs of the agency
before sufficient revenue is generated to achieve a sustainable business. This will be matched by a minimum
of £492,000 sourced from the private and public sector. The following match is confirmed (additional match
is sought from London & Quadrant and LB Greenwich):
£300,000
£100,000
£92,000
Barclays (secured)
City of London (secured)
University of East London (secured – in-kind staff time)
In the absence of GLA funding the financial profile of the London Works business would show reduced cash
flow and available funding for working capital in the first two years of business. This would cause the
business to struggle to meet costs in its first couple of years and would increase the risk of failure.
Recruitment agencies require funds to support cash flow for candidate payroll, for example payroll for just
[Type text]
100 candidates out on placement will be £39,000 per week and average payment period for employers is six
weeks from the date of invoice. Support from the Mayor of London will also significantly improve the profile
of the project and encourage engagement from employers.
This project has been endorsed by the LEP for funding from the Growing Places Fund budget and is aligned
to the Skills and Employment priority of the LEP’s Jobs and Growth Plan.
2- What is the overall cost of the project? Is this scalable? How will the project be resourced?
Table 1. London Works Financial Forecast
GLA investment of £100,000 is proposed from the Growing Places Fund to support the working capital costs
of setting up in the early stages of the business.
£100,000 of revenue funding has been identified from the LEP’s Growing Places Fund budget for this
project which is proposed to be paid via grant agreement to London Works in Q4 2013/14 and Q1 2014/15
during the first year of delivery.
GLA costs /
funding
Others
costs /
funding
Finance
£100,000 revenue
Staffing implications
Regeneration Unit/EBPU officer
staff time is required provided for
from a separate approved budget.
£300,000
Barclays (secured)
£100,000
City of London (secured)
£92,000
University of East London (secured – inkind staff time)
3- What assumptions have been made?
The set up phase of the London Works business plan is underway. The company has been registered,
memorandum of articles agreed, shadow board members appointed (Neale Coleman is a representative),
banking, insurance and legal documentation is in place and key personnel have been appointed.
London Works have also made progress in attracting early adopter employers and contract negotiations are
underway with 13 employers including Canary Wharf Group, Deutsche Bank, Societe General, East London
NHS and others.
4- How are we proposing to structure our intervention and why is it the preferred option?
The intervention is proposed to be structured as a grant made to London Works. The grant agreement will
include a clause that sets out the requirements for repayment of the funding from 2015/16. The proposed
structure is based on advice from the finance team and legal and reflects the principles of the Growing
Places Fund whilst using an existing form of agreement appropriate for the relatively low value of the
funding (as opposed to, for example, the use of a bespoke loan instrument).
[Type text]
The Growing Places Fund requires that projects repay funding and a repayment profile is provided in the
Stage 2 paper, which will be included in the grant agreement to commence in 2015/16. It is proposed that
repayment of funding is reviewed with London Works in March 2015 prior to their planned expansion of the
project into Haringey and Croydon. It is expected that London Works will put forward a proposal to recycle
funding for expansion of the project. The grant agreement will set out repayment of the funding from
October 2015.
The grant will be paid to London Works on completion and evidence of delivery of milestones and
expenditure against the project. The GLA funding will pay for a proportion of overall working capital costs
which include staff salaries, overheads and contractor payroll.
5- Will there be continuing financial obligations or continued expectations that stem from this
investment?
This proposal is for the provision of funding to support the working capital costs of set up of the London
Works recruitment agency in 2013/14 and 2014/15. The long term business model shows that the agency is
sustainable and in 2015/16 the business is forecast to achieve positive net cash flow. From this point the
business is expected to generate sufficient revenue to repay the funding from October 2015 over a two year
period. There are therefore no continuing financial obligations entailed by this grant.
Outcomes delivered by the project will be reported on a quarterly basis from the point at which a funding
agreement is in place, to Q2 2015/16, prior to funding repayments begin.
C- VALUE FOR MONEY, EVALUATION
6- Value for money / assessment and impact of the investment:
Some illustrative calculations
This paper suggests 800 adult Londoners will start or progress in employment. This number is treated as the
central assumption (but see below). Those who are starters are assumed to earn the London Living Wage of
£8.80 per hour (= £16,391.00 per annum). The figure of 800 is then broken down into three categories:
A. Net additional jobs secured – say 20 (2.5%) with an average persistence of 10 years
B. Jobs brought forward – say 140 (= 17.5 %) by an average of two years, with an average persistence
of five years
C. “Better” jobs secured – 640 (80%) with duration of effect of 5 years, an improvement of 20% and
additionality of 10%
A 20 x 8.3165 x £16,931 = £2,816,133
B 140 x (1 – 0.9335) x 4.515 x £16,931 = £711,689
C 640 x 4.515 x 0.2 x 0.1 x £16,931 = £978,476
A + B + C = £4,506,298 – the present value of benefits.
If there are only 600 successes but in the same proportions, benefits fall to £3,379,723
A further sensitivity test could have 25% being part-time and half time; this further reduces the PV of
benefits to £2,957,258.
[Type text]
Costs are estimated at £740,000 plus some modest staff time for oversight by GLA, say £3,000 in each of
three years. Some of these might be a little less in practice due to the effects of discounting. This is ignored
as minimal. Overall costs are thus in the order of £755,000 in present value terms.
On the more pessimistic assumptions, the Net Present Value is £2,202,258. The BCR is 3.92.
These illustrative calculations suggest this would be a very worthwhile project and should soon become
sustainable in purely commercial terms therefore market failure can be considered as follows:
 Initial coordination may not succeed without some limited public intervention; and securing
sufficient working capital may be difficult
 The participation of the Mayor and support of LEP may induce significant proportions of leverage
more generally
GLA Economics Comments
There are limited market failure grounds for this proposal, but there is significant reputational risk attached
to non-participation. The funding of a modest share of the overall costs should secure a significantly larger
quantum of benefits even on conservative assumptions. This should therefore offer value for money and its
commercial viability in the near future should mean that the GLA contribution is repaid in a relatively short
period.
7- How will the project be monitored? When and how can we know if the investment has been
successful?
GLA Governance –
The project will be managed by the Growing Places Fund team within the regeneration unit with specific
project management responsibility held by the GPF Programme Officer. Project performance will be
reported through monthly dashboards and presented to the GPF Programme Board and the LEP. Growing
Places Fund projects, including this one, which have identified amber and red risks, will be required to report
to the Regeneration Unit Business and Performance Review process to ensure all steps are taken to reduce
the likelihood and potential impact of risks. The GPF Programme Officer will meet with ELBA on a quarterly
basis to review progress.
Project Governance London Works will be required to report progress on a monthly and quarterly basis, including an explanation
of spend, milestone and output/outcome delivery and updated risks register.
Project progress will be measured against identified and agreed milestones and targets set out in the
Funding Agreement.
London Works will be required to undertake a self-evaluation towards the end of the delivery period. The
effectiveness of the project will be measured by the number of previously unemployed or previously
underemployed Londoners supported to fund employment or progress in employment and sustain work for
a period of 26 weeks. London Works will obtain specific information about each candidate upon registration
to confirm their status as a disadvantaged previously unemployment or underemployed person and will then
track the candidate through placements to 26 weeks of employment.
London Works will be invited to deliver a presentation to the LEP Skills and Employment at a future date.
8- What are the mechanisms for recovery of the investment if the project hits issues or delays?
The GLA will ensure that appropriate contract provisions are included in the Funding Agreement to ensure
that payment is aligned with specific, measurable, achievable, realistic and time bound milestones. Where
milestones are delayed or not delivered payment will be withheld, unless good reason is provided and that
overall delivery of objectives is still on target.