Apprenticeships and skills minister Anne Milton has told MPs that subcontracting fees are “wasted money” and she would like to see less top-slicing - but she currently has no plans to take action over the practice.
She was speaking to the Commons Education Select Committee today as part of an inquiry into the quality of apprenticeships and skills training.
Keith Smith, director of apprenticeships at the Education and Skills Funding Agency (ESFA), also told MPs that there had already been a reduction in subcontracting because of “changes and controls” it had introduced. The ESFA would consider taking further action if it was "right and proper", he added.
He said that fees and charges were something the funding agency were “keeping under constant review,” adding: “If we feel now, in light of the new policy in relation to the controls we have introduced, that there has to be delivery by the lead, if it is right and proper that we introduce some capping and controls around management fees, then that is something we will do.”
Top-slicing happens when prime FE or skills providers cream off funding for subcontracting or management fees in order to cover their costs in managing contracts. The chief executive of the Association of Employment and Learning Providers (AELP) Mark Dawe said in March he heard of some prime providers charging 40 per cent in management fees.
'This is wasted money'
At today's session, Labour MP Lucy Powell asked Ms Milton what more could be done to reduce the “huge amounts of top-slicing”.
Ms Milton said: “I feel like you do. I feel this is wasted money. This is not always the case, some sub-contracting is probably necessary.”
She was then asked by committee chairman Robert Halfon asked her to clarify if there is “too much top-slicing”. She replied: “I wouldn’t use the words ‘too much’; I would say, I would like less. I would always like less because it is money that is going to the main provider that could be spent on training."
Ms Milton added: “There are instances, where colleges carry the overhead for approaching employers or the relationship management and in instances like that where a small training provider wouldn’t have the necessary overheads to do, that it works well.”
'Excessive management fees are gaming'
The skills minister said that she thought it was important that sub-contracting and management fees continued to be published so employers could see where the money is going in order to promote transparency.
Mr Halfon, Ms Milton's predecessor as skills minister, continued: “If you are saying you think there should be less sub-contracting and less slicing of management fees then surely you as a minister can take action to limit it?”
Ms Milton replied: “If there is gaming, and to me taking excessive management fees is gaming – in effect –because you’re taking more than you’re worth, once those budgets are with employers I think they will be the ones that say ‘hang on a minute’. I can take action, I think it is too early to take action at this stage.”
Mr Smith told the committee that fees and charges were something the funding agency was “keeping under constant review”, adding: “If we feel now, in light of the new policy in relation to the controls we have introduced, that there has to be delivery by the lead, if it is right and proper that we introduce some capping and controls around management fees, then that is something we will do.”
In March the AELP, the Collab Group of colleges and adult education body Holex issued guidance to their respective members to “facilitate value-for-money relationships between a prime provider and a subcontractor”. They recommended that sub-contracting fees should not exceed 20 per cent, and encouraged whistleblowing in the sector when providers caught wind of higher figures.