Lead contractors ‘top-slice’ more than £175 million

Lead providers charged more than £175 million in management fees to subcontractors in the 2011/12 academic year, an analysis by FE Week suggests.

A Skills Funding Agency (SFA) spreadsheet published on the agency website suggests that contract holders took an average “top-slice” of 23 per cent from subcontractors. It also suggests that subcontractors earned about £581 million, based on original provider allocations worth just over £759 million.

A spokesperson for the SFA told FE Week: “There is an expectation that the funding provided is used for the benefit of the learner and spent on their learning programme or provision.

“The amount of funding retained by a lead provider for programmes and provision delivered in whole, or part, by a subcontractor must represent good value for money and reflect the actual costs incurred by each party in the delivery of that provision.”

The data, gathered from declaration forms submitted by lead providers, shows that Somerset County Council kept, on average, 37 per cent of the funding it gave to subcontractors, amounting to almost £200,000 in the 2011/12 academic year.

In this climate we cannot afford to run apprenticeships for nothing.”

A spokesperson for the council said it had a project and performance management role – checks on the quality of delivery accounted for 15 per cent of the retained funding.

“If a subcontractor cannot complete all the duties they are usually expected to do, the council will take on these duties and keep the appropriate funds,” the spokesperson told FE Week.

“These duties include promotional activity to recruit learners, providing venues, conducting induction sessions, learner and employer reviews, providing additional support for learners, assessment centre functions and responsibilities, key and functional skills delivery, curriculum development and delivery support.”

The spokesperson added that it was a “tailored approach” that reflected the different tasks undertaken by the council and the subcontractor.

However, a subcontractor used by Somerset County Council told FE Week: “This particular provider provides us with very few learners; in the main we source them ourselves and engage in huge and costly marketing opportunities to secure both learners and employers.

“We spend a lot of our time chasing the provider for things not completed, which often results in us doing certain aspects ourselves. (Therefore) a 35 per cent management fee is not giving us value for money.

“In this climate we cannot afford to run apprenticeships for nothing. Providers need to realise that we are a business, a business that is completely learner-focused, but one that needs funds to support local employers and their apprentices in achieving their goals.”

If colleges are greedily taking bigger and bigger slices of the pie then that has to impact on the overall quality of the training.”

One subcontractor told FE Week in June that the management fees of some FE colleges were a “rip off”  a concern since echoed by the Forum of Private Business (FPB).

A spokesperson for the forum told FE Week: “Quite simply FE colleges should not be making huge profits at the expense of subcontractors or businesses, the latter who are parting with money in good faith so that their staff are trained to the best possible standard.

“If colleges are greedily taking bigger and bigger slices of the pie then that has to impact on the overall quality of the training.”

Lead providers who subcontract will need to supply a report at the end of the 2012/13 contractual year which proves their top-slice is “no more than is required to cover the actual costs directly incurred in managing its subcontractors.”

The Association of Employment and Learning Providers (AELP) said it was discussing a number of solutions, including a new code of conduct, with the Association of Colleges (AoC).

“Subcontracting is a legitimate business practice that we would like to see maintained in the skills sector, but at the same time we don’t want to see unjustifiable management fees taking money away from frontline provision,” an AELP spokesperson said.

“There are some meaty issues to address here and that’s why AELP and AoC have got together to look at possible solutions carefully rather than wait for an imposed solution from above which may not work best for the sector.”