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ViewPoint: It’s Time to Take on the Subcontracting Profiteers
February 19, 2020
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By SIMON ASHWORTH Chief Operating Officer, Association of Employment and Learning Providers

Subcontractors account for more than 10 per cent of ESFA funding. They need overseeing properly, says Simon Ashworth

It was good to see the ESFA’s Peter Mucklow in edition 306 of FE Week confirming government recognition that subcontracting plays an important role and that there will be not be a complete ban on it.

Some interesting numbers were published as part of the ESFA’s consultation: 674 prime providers subcontract provision to 2,288 subcontractors. The total value of subcontracted provision is £484.5 million – or 10.6 per cent of total ESFA funding. These are big numbers, so it’s no wonder the regulators are keen to ensure appropriate oversight, quality and robustness of provision.

Unfortunately, the ESFA has yet again missed a trick – by failing to implement a cap on fees and charges which could address ‘profiteering’ from subcontracting. They make it clear, though, that they “do not expect funding retained to exceed 20 per cent”, and have linked this to two points previously raised by the Association of Employment and Learning Providers (AELP). Firstly, if more than 20 per cent of the funding is retained, it raises questions about the capacity of the subcontractor to deliver. Secondly, can good quality can be achieved when funding is so reduced?

Apprenticeship subcontracting has already been reformed with the removal of whole programme subcontracting. And the opening up of the Apprenticeship Service to non-levy employers will allow hundreds of providers on the main Register of Apprenticeship Training Providers (RoATP) to access funding directly, without a non-levy contract.

This will impact on those subcontracting relationships – study programmes, traineeships, adult education – which have hitherto been unable to obtain funding. In the case of AEB, a move to full procurement which rewarded prime providers and subcontractors that actually deliver would also reduce the need for subcontracting.

The proposals around geographical restrictions are attracting the most questions from providers. The “no more than one hour away from the prime contractor by car” pledge begs a question: if a prime provider is undertaking the minimum checks as required by the funding rules, then distance should make no difference in terms of oversight of the relationship. What matters, surely, is that properly checked subcontractors might be based miles from their primes while learners might be on their doorstep.

The ESFA also acknowledged that when working with national employers, a distance arrangement for subcontracting “is beneficial”. The focus on geographical restrictions is more about ‘out of area’ funding, particularly the expectations and justification of grant funding being spent on subcontracting in other far-flung areas of the country. The test is whether provision is supporting the local community or being used to generate additional income.

To date, Ofsted has chosen not to inspect subcontractors directly, and they recently gave me an example of why: a subcontractor that worked with three prime providers, where two-thirds of the provision was good and a third poor. The underpinning rationale was that two of the prime providers had full and suitable oversight and supported the subcontractor appropriately, while the third prime provider took a management fee and had no oversight. This highlights the importance of considering the role that the prime provider has in the process (rather than looking at subcontractors in isolation). But political pressure will probably require Ofsted to inspect a selection of the larger subcontractors as part of their risk-based approach.

The ESFA certainly don’t like managing agent models, and within the sector there are still examples of providers that operate as managing agents in all but name – subcontracting out comparably large portions of their allocations. The ESFA is now proposing a phased transition from all providers to a subcontracting limit of just 10 per cent of their total ESFA post-16 income in 2023-24.

Again, this will be a real challenge for parts of the sector that have for too long relied on subcontracting. Ultimately if the funding isn’t being used, let’s get it reallocated to providers who can spend it directly.

Government to Consult on Subcontracting Limits

The government is set to launch its consultation on a radical overhaul of subcontracting rules this week – and is expected to include a proposal to limit out-of-area deals.

Government to consult on subcontracting limits
Eileen Milner

Eileen Milner, the chief executive of the Education and Skills Funding Agency, sent a sector-wide letter in October warning of rule changes and that she will take strong action against any provider that abuses the system.

She said there were 11 live investigations into subcontracting at the time, with issues underpinning them ranging in seriousness from “complacency and mismanagement”, through to matters of “deliberate and systematic fraud”.

As per Milner’s letter, areas expected to be under consideration in the consultation include “placing limits on the permitted geographical distance between a directly funded institution and the location where subcontracted provision is delivered”.

It comes just months after the Greater London Authority announced plans to end out-of-area providers subcontracting in London.

This year, the GLA provides around £14 million of AEB grant funding to providers located further than what is considered to be a “reasonable travel-to-learn distances for London learners”.

Officials say the majority of this funding is subcontracted to training providers based in London who are then charged a “substantial” management fee.

Mayor Sadiq Khan has now announced plans to stop funding for providers based outside the capital’s fringe – typically more than 30 miles away from central London.

Aside from out-of-area subcontracting, the ESFA’s consultation is expected to cover how much funding can be subcontracted by a single provider, actions to prevent non-compliance, failure and fraud, and potentially precluding the use of some subcontractors.

It is not expected that the ESFA will suggest imposing a cap on management fees under subcontracting arrangements, as called for by sector bodies such as the Association of Employment and Learning Providers.

Milner said at the time of the October letter that where “poor subcontracting practice is evident to us we will act decisively”.

The review will be concluded this academic year and the ESFA plans to start implementing the changes at the start of 2020-21.

There have been a number of high-profile subcontracting scandals in recent years, including the Luis Michael Training case where its owners, which included two former professional footballers, created “ghost learners” and were jailed for over 25 years combined.

The most recent subcontracting scandal, exposed by FE Week, involved Brooklands College and resulted in the ESFA demanding a £20 million clawback.

Milner has said the ESFA will, in future, be “more forensic in our examination of the data and information available to us to hold individuals and organisations to account”.

“We will recover public money where appropriate,” she added in her letter from October.

The ESFA isn’t the only body taking a closer look at subcontracting: Ofsted announced in November that it was launching research into the practice.

AELP Fears re ESFA Subcontracting Ban
November 19, 2019
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The Association of Employment and Learning Providers (AELP) has today recommended a new, more “robust approach” to subcontracting in an effort to avoid an outright ban.

Subcontracting in FE, the practice of one provider paying another to deliver the training, has never been far from scandal and controversy. It has already been banned for advanced learner loan funded courses.

AELP fear funding agency considering outright subcontracting ban

In what the AELP describes as a “last chance saloon” for subcontracting apprenticeships and adult education budget funding, its chief executive, Mark Dawe, claims “by incorporating the recommendations in our submission into its rules, the agency can avoid ministers demanding a ban”.

The ESFA announced plans last month for a radical overhaul of its subcontracting rules amid high-profile cases of fraud, while Ofsted has launched research into the practice.

In its submission, the AELP said the “vast majority” of subcontracting is “high quality” and officials must not take a “damagingly blunt” approach to address the behaviours of a small number of providers.

The requirement and expectations of main providers who subcontract out government funding should be “much more robust” in order to ensure integrity.

AELP has produced a checklist of the “minimum expectations” of the main provider, which they say is significantly above and beyond the current ESFA rules and “should be adopted across the sector”.

This includes: acceptable fees, charges and additional services, quality monitoring and quality assurance, MIS, audit and ILR services, and contracting management (read the full report here).

The association says there also needs to be clarity on the “different types of subcontracting and what is and what isn’t a subcontract to help alleviate confusion across the sector, including with employers”.

AELP has used its submission paper to again call again for fees and charges not to exceed 20 per cent of the funding – a recommendation that has been adopted by the Greater London Authority and other mayoral combined authorities with devolved adult education funding.

This maximum cap would “block the profiteering of a small number of providers who commoditise their privileged access to government funding and ensure value for money”.

AELP adds that there should be a clear policy on management fees and charges being only applicable to core funding and not additional funding “designed to support specific groups of learners or to support certain additional needs”.

ESFA should also procure funding from providers that is “continuously subcontracted out on a transitional basis”, the association’s submission said.

“Recent examples of subcontracting malpractice do not justify at all a call for an outright ban on subcontracting in the sector, but a much more robust approach on the part of the ESFA and Ofsted would make a huge difference in stopping further examples occurring,” Dawe (pictured) said.

“Over the last ten years, AELP feels that the ESFA has rather dragged its heels in making the required changes needed in its funding rules to put the issue to bed and we are probably now in the last chance saloon.”

He added: “Let’s have no more prevarication around this issue which has been damaging the sector’s reputation for far too long. Change the rules now.”

Eileen Milner, the chief executive of the ESFA, sent a sector-wide letter last month warning of rule changes to subcontracting and that she will take strong action against any provider that abuses the system.

She said there are currently 11 live investigations into subcontracting, with issues underpinning them ranging in seriousness from “complacency and mismanagement”, through to matters of “deliberate and systematic fraud”.

She revealed the government will review its current subcontracting rules later this year.

Ofsted’s research will mainly look at whether management fees, which have controversially grown to as much as 40 per cent on subcontract values, are having a detrimental impact on learners’ education.

There have been a number of high-profile subcontracting scandals in recent years. The most recent involved Brooklands College and resulted in the ESFA demanding a £20 million clawback.

Research into Further Education Subcontracting Launched
November 7, 2019
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Ofsted is launching a new research project to look at the subcontracting landscape within further education #FE

Subcontracting remains a popular option for FE providers. Last academic year, subcontracting accounted for around £650 million in government funding on adult learning and apprenticeship provision and also fully or partially funded courses for over 25,000 students aged 16 to 19 at hundreds of subcontractors.

Most FE providers were judged as good or outstanding at their last inspection. Since February 2018, we have increased our focus on the management and quality of subcontracted provision during inspections, and this increased focus continues in our new education inspection framework (EIF).

A subcontractor’s offering cannot be disentangled from the contract agreed with the main provider. Therefore, we place responsibility for learners’ experiences on the main provider and do not directly inspect standalone subcontractors. This research will explore the relationship between the main provider’s contracting arrangements and the quality of provision offered by subcontractors.

The aims of our new research are to learn more about the subcontracting landscape and the impact that a contract between a main provider and subcontractor can have on the learning experience. The research will also inform how we inspect main providers that choose to use subcontracted provision.

This autumn, we will carry out pre-arranged visits to a variety of subcontractors that have contracts with FE providers we’ve recently inspected. At the same time, we will examine our previous inspection reports for references to subcontracting, and hold focus groups with inspectors about the process of evaluating subcontracted learning.

Visits are not inspections and will not result in a written report for the subcontractor.

Ofsted Deputy Director, Further Education and Skills, Paul Joyce, said:

We made a commitment to increase our focus on subcontracting, which remains a major part of the FE landscape. I hope this research will give us more insight into the experience learners get at a provider, which in turn will help us refine this part of our inspection work.

We will work with subcontractors who take part in the research to make sure we do not place an additional burden on staff. All visits will be carried out purely for research purposes and will not double up as inspections. This research is part of our commitment to be a force for improvement in the sectors we inspect, and to make sure that everything we do is supported by evidence.

ESFA Crack Down on Poor Sub-Contracting Practice – Sector Response

ESFA Chief Executive writes to post-16 education and training providers to underline the strict sub-contractor rules.

ESFA Chief Executive, Eileen Milner, has written to education and training providers to remind them that the ESFA will take action where there is evidence any provider is not playing by its strict sub-contracted rules.

Under the rules, a sub-contractor can deliver education and training on behalf of a lead provider in receipt of ESFA funds. However, lead providers have a legal duty to make sure public funds are spent according to the ESFA’s sub-contracting rules, so that learners receive the best possible education or training. The majority of subcontracting is done well and in accordance with the rules.

In accepting ESFA or public funds, providers confirm they accept the terms and conditions of their funding agreement, and that they have a process in place to ensure that sub-contracted provision is delivered properly, securely and meets ESFA rules.

Sector Response

Jim Carley, Managing Director, Carley Consult Ltd, said:

“I personally think a review of this kind is welcome. Whilst providers subcontracting over £100K are obligated to have their compliance with ESFA subcontracting rules independently audited, there are no standards set in terms of who an appropriately competent auditor should be. The result is many providers look for the cheapest audit option, rather than the most rigorous, which in the extreme is no more than a rubber stamping exercise.

“Those subcontracting less than £100K are not subject to any type of audit! At the same time, the ESFA need to be clearer in their expectation. In some cases the rules for subcontracting vary between provisions (e.g. AEB and Apprenticeships) which results in a confusing message on compliance. The new requirement for prime providers to provide a full breakdown of their costs in subcontract agreements is also unnecessarily heavy handed. More work is needed on all sides.”

Association of Employment and Learning Providers chief executive Mark Dawe said:

“The ESFA letter correctly sets out that subcontracting can be done well for the right curriculum reasons and in our view underlines why ITPs and colleges must have strong governance and auditing arrangements in place to ensure that either abuse or inefficient use of public money is avoided. 

“However AELP believes that the agency could still go much further in limiting the potential for misuse if it followed the GLA’s example and imposed a 20% cap on management fees under subcontracting arrangements.  We haven’t seen any justification for it not taking this step after the Commons education committee made its recommendations a year ago.”

Matt Garvey, Managing Director of West Berkshire Training Consortium comments:

“At WBTC have successfully subcontracted for many years with praise from Ofsted and auditors on the way we support, manage and risk assess our subcontractors. I welcome the somewhat belated intervention by the ESFA, malpractice has been rife for too long. One intervention, not mentioned in the letter, is that the ESFA could take a more active interest in disputes between main providers and their subcontractors. Sadly, to date, they have viewed these as contractual issues between the two parties and have taken little or no interest. Yet such disputes  can easily lead to learners and employers being disadvantaged. Through this announcement I hope that the ESFA are starting to realise that they need to be more actively involved in the sector; after recent scandals at AAA and Brooklands we can all understand why.” 

Association of Colleges (AoC) Deputy Chief Executive, Julian Gravatt said:

“It’s clear that this review is necessary, and consulting on changes for 2020 is a useful start to firm up the subcontracting process. We will use this opportunity to submit our response to the consultation.”

The letter builds on the action the ESFA has already taken this year to tighten its sub-contracting requirements.

This includes launching a review to improve subcontracting arrangements, more robust examination of data and information, holding individuals and organisations to full account, pursuing all avenues available and, where appropriate recovering public money.

Later this year, ESFA will also be seeking views from the sector to inform the ongoing review of sub-contracting.

Detailed ESFA Guide: Subcontracting: Using Funding to Offer Education and Training

Information for providers of adult education and training services, including apprenticeships and traineeships on subcontracting ESFA funding.

Contents
  1. Subcontracting: for the first time
  2. Subcontracting: second-level
  3. Providing external assurance on subcontracting controls
  4. List of declared subcontractors (formerly the ‘subcontracting register’)

A lead provider is a college, training organisation or employer that has a direct contractual relationship with the ESFA.

A subcontractor is an organisation that is engaged in a contractual and legally binding arrangement with one or more lead providers, to deliver education and training provision that the ESFA funds.

Each lead provider and subcontractor must have a valid UK Provider Registration Number (UKPRN).

ESFA recognises that subcontracting has an important role to play in delivering quality learning to apprentices and adult learners. In recent years, we have strengthened our funding rules on subcontracting and we are continuing to do so. We expect providers to maximise the amount of funding that reaches front line delivery of high-quality learning.

When subcontracting, ESFA will require providers to:

  • clearly describe, before each subcontracting relationship is agreed the reason for subcontracting and all services they will provide and the associated costs when doing so. This will include a list of specific costs for managing the subcontractor, quality monitoring activities, and for any other support activities offered by the main provider to the subcontractor
  • ensure all costs are individually itemised and describe how each cost contributes to delivering high-quality learning. Providers must also explain how such costs are reasonable and proportionate to delivery of the learning or apprenticeship training
  • include a breakdown of all services and costs in each subcontract

ESFA will, ready for delivery from 1 August 2019:

  • revise funding rules and associated compliance measures to incorporate the requirements set out above
  • implement a risk-based approach for monitoring these rules
  • impose compliance measures when appropriate

These expectations will be reviewed in 18 months.

The implementation of the revisions to the AEB and apprenticeship funding rules will apply to new learner, or apprentice starts from 1 August 2019. We realise there should be an implementation period to allow providers to adjust to the changes and to revise their contracts with their subcontractors.

The implementation period of the revised rules will apply as follows:

  • From 1 August 2019 for new learner and apprentice starts where a new subcontract is yet to be agreed and entered into, and
  • By 30 November 2019 for new learner and apprentice starts where revised subcontracts are required

This means that from 1 December 2019, these revised subcontracting rules apply to all new learner or apprentice starts

Subcontracting: For the First Time

If the funding rules you are working to require permission from the ESFA to subcontract for the first time, you must obtain the ESFA’s written permission before doing so.

Subcontracting for the first time: seeking written approval (PDF, 150KB, 4 pages) describes the process for getting permission to subcontract funding for education and training.

Along with the request to subcontract, you must also provide a report from an external auditor.

Subcontracting: Second-Level

If the funding rules you are working to allow subcontracting to a second level (where a subcontractor further subcontracts to another legal entity), you must first obtain the ESFA’s written permission. You must obtain permission from the ESFA to subcontract to a second level every year.

You can find the information we need in order to review requests from providers to subcontract to a second level:

Subcontracting to a second level: seeking written approval (PDF, 156KB, 6 pages)

Providing External Assurance on Subcontracting Controls

The ESFA funding agreements contain a clause about an annual subcontracting assurance requirement. The clause requires lead providers that will subcontract more than a defined level of provision to obtain a report from an external auditor that provides assurance on the arrangements in place to manage and control their subcontractors. The clause requires lead providers in scope to supply us with a certificate confirming that the report provides satisfactory assurance.

We’ve published guidance on the clause and the information we need from lead providers.

List of Declared Subcontractors (formerly the ‘subcontracting register’)

The list of declared subcontractors provides information about subcontractors that hold contracts worth at least £100,000 in aggregate with one or more ESFA-funded providers of adult education and training services, including apprenticeships and traineeships.

Subcontractors are shown with their lead or main provider/s and the individual values of their contracts.

Some subcontractors are ‘lead or main providers’ in their own right. We have used data taken from subcontractor declarations that lead or main providers submit each funding year.

Published 31 January 2018 
Last updated 10 July 2019 + show all updates

  1. 10 July 2019 We have updated the first part of this page to reflect that our funding rules on subcontracting apprentice training have been strengthened.
  2. 6 August 2018 Added information explaining our intention to work with the sector to develop and publish expectations around subcontracting fees and charges in the coming months.
  3. 31 January 2018 First published.
ViewPoint: Markets Aren’t the Panacea for Public Services
March 6, 2019
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The failure of the provider should prompt us to reflect seriously on the role of the marketplace in learning and skills, says Stephen Evans, Chief executive, Learning and Work Institute 

Working Links’ fall into administration is bad news for the people they support and their employees. Its case is different to that of learndirect and other providers. But together, they should give pause for thought about the nature of markets in learning and skills and their limits.

Firstly, commissioners need to be realistic. A large part of Working Links’ problems came from its struggling probation contracts. Its management and staff bear responsibility for bad practice, such as assessing probation users as lower risk to avoid putting sufficient resources into helping them. But the government should have heeded the warnings at the time of procurement that you couldn’t cut huge amounts of money out of the system without affecting the service. Added to a focus on price, rather than value, this leads to a vicious circle where providers either put in unrealistic bids or face going out of business. Read more

Ofsted and Subcontracting
May 4, 2018
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Paul Joyce is Deputy Director of further education and skills at Ofsted explains the two new forms of visit Ofsted will be making in the FE sector.

Ofsted recently announced it would be conducting two new types of monitoring visit. The first, as announced by HM chief inspector Amanda Spielman last November, are monitoring visits to a sample of new apprenticeship providers. The second, announced in February, are monitoring visits to directly funded providers to look specifically at subcontracted provision.

The subcontractor monitoring visits were undertaken as part of an increased focus on this kind of provision, though we are also looking at it in more detail during both our full and short inspections. This reflects our corporate strategy, in which we are committed to ensuring that inspections have the right focus in order to really see what education and training learners are getting.

These monitoring visits focus on how the main contractor manages the quality of its subcontracted provision. We have published the first two of these monitoring visit reports; both found that the
management of these subcontractors was not good enough.

Subcontracting is changing significantly, a fact which is, at least in part, linked to funding-rule changes and the apprenticeship levy. We do see some providers expanding their subcontracting, but on inspection, we have also seen a number of providers drastically reducing and reorganising their subcontracted provision and sometimes even bringing the services back in-house.

When main providers lose sight of what is going on in the subcontracted provision, it can lead to problems with quality. Through our standard inspection process, we see that many subcontractors do a great job and have a positive and effective relationship with their main provider. We know that this is not always the case, however. Read more

Apprenticeships: Subcontracting
April 11, 2018
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The Education and Skills Funding Agency has published guidance on subcontracting Apprenticeships.

The publication provides policy context, clarification of key terminology and some illustrative examples around the use of subcontractors in the delivery of apprenticeships.

Using subcontractors in the delivery of apprenticeships

You should read this guidance alongside the apprenticeship funding and performance management rules 2017 to 2018.