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Subcontract killing: how colleges make millions

Calls for transparency amid fears that contracts are ‘revenue-raising ventures’

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The biggest FE providers in the country have retained tens of millions of pounds in government funding for training that they then subcontracted to other organisations, TES can reveal.

The 26 biggest providers that have published their management fees collectively retained £66 million in 2014-15 – more than a fifth of the funding that they were allocated by the Skills Funding Agency (SFA) for delivering this provision.

The biggest provider, Learndirect, top-sliced more than a third of the funding it received for its subcontracted provision.

Across the providers analysed by TES, management fees stood at an average of 22 per cent. If this were replicated across the sector, more than £200 million of government funding would have been lost from frontline provision in one year.

Experts called for more transparency to counter the perception that subcontracting has become a “revenue-raising venture” for larger providers.

Prime providers funded directly by government were required to publish on their websites the amount of funding paid and retained for each of their subcontractors by 23 November 2015, with those failing to comply threatened with having their funding suspended by the SFA.

But four of the biggest 30 providers had, by this week, still not published the information. An SFA spokeswoman said that it was still checking which providers had failed to comply before taking further action.

Learndirect retained more than £24 million in 2014-15, 35.6 per cent of the total funding that it was allocated.

This was the biggest top-slice out of all of the providers analysed by TES, followed by New College Durham (30.6 per cent), Gateshead College (26.8 per cent) and Barnet and Southgate College (26.5 per cent).

Contentious issue

The issue of subcontracting in FE has long been a contentious one. Since 2011, the SFA has limited direct funding to providers with contracts worth at least £500,000, with smaller providers forced to subcontract through other, larger organisations.

A 2012 report by Ofsted said that some providers were taking as much as 35 per cent of funding in administration fees. It concluded that, while some subcontracting helped to meet the needs of employers, “others clearly saw it as a way of generating income for doing little work”. Almost £1 billion was diverted through intermediate providers in 2014-15.

Last February, skills minister Nick Boles and Vince Cable, then business secretary, insisted that “responsible subcontracting” had a role to play, but said that “short-term tactical subcontracting [was] causing concern”.

Jim Carley, managing director of funding consultancy Carley Consult, told TES that while there were often “valid strategic reasons” for providers to subcontract provision, the practice was often perceived as “a revenue-raising venture in itself”.

“Fees charged need to reflect real added value and we know that different levels of fees are charged for providing very different levels of service,” said Stewart Segal, chief executive of the Association of Employment and Learning Providers (AELP). “It will be very hard to have hard and fast fee levels.”

Policy analyst Mick Fletcher said that while the management fees sounded “surprisingly high”, lead providers were often forced to take on additional tasks. “If lead providers are doing their job properly, 20 per cent is not an unreasonable figure,” he added.

A spokeswoman for Learndirect said that it provided bespoke services based on the needs of individual providers. “Learndirect provides marketing, the content, and the quality audit and contract management framework within which they sit. The level of charges depends on the contract being delivered,” she added.

A spokeswoman for Gateshead College said that it contracted with partners with expertise in niche areas. “Our contracting process is rigorous and transparent; we are an Ofsted outstanding provider and need to ensure that the quality delivered on our behalf is of the highest standards,” she added.

A spokeswoman for the SFA said that it was checking which providers had failed to publish data, before determining action. “Our lead providers hold the accountability for their subcontracting arrangements,” she added. “Whilst the SFA does not set a maximum percentage for the fees and charges, we highly recommend that providers refer to publicly available good practice guidance.”

‘We need subcontractors’

In 2014-15, New College Durham subcontracted provision worth £17.3 million and retained management fees of £5.3 million, 30.6 per cent of the total – a higher proportion than all bar one of the providers analysed by TES.

Principal John Widdowson says that it works with subcontractors because “no single organisation can offer a full range of training and skills provision throughout the region”. “Any organisation that wishes to deliver a wide range of provision must use subcontracting to ensure that the isolated communities and the most rural parts of the whole region can benefit,” he says.

@JBelgutay

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