Is relational contracting the next big shift for employment services?
In our previous blog, we explored the Australian Government's ‘Shaping the Future of Employment Services’ discussion paper and the proposed three-stream model for employment services. That article focused on what is changing in service delivery, from online and brief interventions through to intensive, community-based support.
But another important shift is emerging, one that could fundamentally change how Government works with existing and future service providers.
It's called relational contracting.
While relational contracting has not yet been formally adopted as part of Department of Workplace Relations (DEWR) employment services reform, the Department of Social Services (DSS) is already actively developing this approach for community services and has released draft documents as part of its consultation process. Internationally, relational contracting is already influencing how governments think about complex public services.
For employment service providers, the question is becoming increasingly relevant: how could relational contracting play a role in DEWR’s reforms, and shape the next generation of employment services, and what would that mean in practice?
What is relational contracting?
DSS describes relational contracting as a longer-term, more flexible partnership approach between Government and service providers that focuses on delivering better outcomes for people and communities.
Rather than relying on highly prescriptive contracts centred on compliance, activities and outputs, relational contracting seeks to build partnerships based on shared goals, trust, transparency and continuous improvement.
Key characteristics include:
Longer-term partnerships between Government and providers
Shared responsibility for achieving outcomes
Greater flexibility to adapt services as community needs change
Ongoing learning through shared data, evidence and evaluation
Joint governance and collaborative decision making.
Importantly, relational contracting does not remove accountability. Service providers are still expected to demonstrate strong performance and responsible stewardship of taxpayers' money. The difference is that accountability becomes part of an ongoing partnership focused on learning and continuous improvement, rather than simply measuring against a rigid, one size fits all performance framework.
Why is Government exploring this approach?
Across many human services, governments are recognising the limitations of traditional procurement models.
Short-term contracts, detailed compliance requirements, and fragmented funding arrangements can create an administrative burden, discourage innovation, and make it difficult for service providers to respond to changing community needs.
The aim is to create stronger partnerships that improve outcomes while reducing unnecessary administration.
Although this work in Australia is currently focused on DSS’ families and children programs, the principles are highly relevant to DEWR & DSS employment services.
The United Kingdom: moving towards relational contracting
In the United Kingdom, Oxford University’s Government Outcomes Lab has developed a public sector guide and playbook. It highlights that relational contracting is particularly relevant where services are complex, outcomes are hard to identify in advance, and success depends on trust, flexibility and ongoing collaboration between commissioners and service providers.
In addition, the UK Department for Work and Pensions commissioned research into effective contracting of employment and health services, reflecting many of the same questions now being asked in Australia: how to design contracts that improve outcomes for people, while maintaining value for money and strong public accountability. The research found that Payment by Results (PbR) contracts can improve efficiency and value for money, but the evidence on whether they improve participant outcomes is mixed. This has prompted increasing interest in commissioning approaches that place greater emphasis on collaboration, flexibility and continuous improvement alongside performance accountability.
How does this connect to employment services reform?
As stated earlier, it is important to note that relational contracting is currently being developed by DSS, while employment services reform is being led by DEWR.
These are separate reform processes and there has been no announcement that DEWR will adopt a formal relational contracting model.
However, both reforms are moving in similar directions. They share an emphasis on collaboration, stronger community partnerships, greater flexibility and a stronger focus on outcomes rather than compliance alone.
The employment services discussion paper proposes:
Greater provider diversity
Increased involvement of community-based organisations and First Nations organisations
Stronger local partnerships
Better employer engagement
More personalised and flexible services
Continuous improvement informed by participant feedback and evidence.
For Stream 3 - intensive services in particular, providers will be expected to demonstrate integrated service models that work closely with health, housing and community organisations.
In Prospert's view, these reforms naturally raise the question of whether traditional compliance-based contracting remains the best model for supporting collaborative, place-based services.
While no decisions have been made, the direction suggests employment service providers should start thinking beyond contracts that simply measure outputs and towards partnerships that support continuous improvement and shared outcomes.
What could this mean for providers?
If employment services evolve towards more relational forms of contracting, providers may need to demonstrate capability well beyond compliance and contract management.
Four areas are likely to become increasingly important:
Shared governance: Providers will need to contribute constructively to joint forums with Government and partners, using data and lived experience to understand what is working and where improvements are needed.
Adaptive service delivery: Rather than delivering fixed activities, providers will need to demonstrate they can respond to local needs, emerging evidence and changing participant circumstances.
Strong local partnerships: Success is likely to depend on genuine collaboration with employers, community organisations, First Nations organisations, health services and social enterprises, particularly for people with complex barriers to employment.
Relational leadership: High-trust partnerships require leaders and frontline teams who can build relationships, navigate complexity, have honest conversations and work collaboratively to solve problems.
In other words, relational contracts require relational capability. The contract may create the opportunity, but people still need the skills to make the partnership work.
Equally, Government teams will need to learn new skills as they adapt to these changes. Our United Kingdom experience suggests there is a very steep learning curve for those involved in commissioning and contract management.
This has always been Prospert's focus
At Prospert, we've long believed that strong relationships drive better outcomes.
Whether its helping frontline staff build meaningful engagement with participants, strengthening employer and community partnerships, or supporting leaders in creating learning cultures, our work has always focused on building capability rather than simply meeting compliance requirements.
In many ways, relational contracting reflects the same principles we have been advocating for years: trust, collaboration, shared goals and continuous improvement.
In our view, relational contracting is a shift from transactional relationships, where one party largely sets the rules and measures compliance, to genuine partnerships focused on achieving better outcomes for participants, employers and communities.
Preparing for the future
Relational contracting is not yet part of employment services reform.
However, the broader direction across Government is becoming clearer. There is growing recognition that complex social challenges are best addressed through trusted partnerships, greater flexibility and a stronger focus on long-term outcomes.
Whether or not DEWR ultimately adopts a formal relational contracting model, providers that strengthen their partnership capability, invest in local relationships and build cultures of continuous improvement will be well positioned for whatever comes next.
We will have more to say on this topic as DEWR’s consultation process gains momentum.
In the meantime, if you would like to explore how Prospert can help your organisation prepare for this changing environment, from preparing for bid management through to all forms of external stakeholder engagement, we'd love to start the conversation.