Small but key changes to Skills Funding Agency (SFA) subcontracting rules could lead to big problems for lead providers if not considered and followed, says Denise Bishop.

In times of great change it is very easy to allow less urgent things to fall down the to-do list with an ‘I’ll-get–to-it-tomorrow’ attitude.

And for FE providers currently dealing with transformation on a massive scale it is understandable that a myriad of decisions would fall into this category on a daily basis.

However, two seemingly incongruous changes made by the SFA in August this year have the potential to trip up leadership teams across the country if they do not take action.

We are talking about changes made to contract service agreements between colleges or independent learning providers (ILPs) and their subcontractors for education and training.

In particular, the relevant issues involve those providers entering into subcontracts that deliver services with an aggregate value of £100,000 or more in any one contract year.

There is now the legal responsibility on leadership teams to ensure businesses carrying out training are not misappropriating government funding

In layman’s terms the main additions are colleges and ILPs that subcontract must ensure that the subcontractor is financially viable and obtain various pieces of evidence to prove due diligence has been undertaken.

The other main addition is that the original contractor is independently audited to ensure they have adequate subcontractor management in place in accordance with the SFA rules.

While both of these elements have always been alluded to, there is now the legal responsibility on leadership teams to ensure those businesses that are carrying out training are not misappropriating government funding.

Primarily, the lead contractor must carry out its own due diligence checks when appointing, or continuing to subcontact with, subcontractors — and not use the Register of Training Organisations as a substitute for carrying out due diligence checks.

This must include obtaining an annual report from external auditors, which provides assurances on the arrangements that the contractor has in place to manage its subcontractors.

The report must comply with the guidance issued from time to time by the SFA and the contractor must supply the SFA with a certificate signed by its external auditors and an authorised signatory confirming it has received a report providing satisfactory assurance.

The SFA sates that it “reserves the right to require the contractor to provide a copy of the full report and can, at any time, assess arrangements for subcontracting”. It can also require a contracting body to commission an independent report on these arrangements from a third party, such as external auditors.

Other issues range from ensuring the subcontractor does not have an above average risk warning from a credit agency and looking at whether its statutory accounts are overdue.

It is also critical to make sure learners and employers supported through subcontracting arrangements are clear about every party’s roles and responsibilities in providing the learning.

In terms of monitoring from the SFA, there will always be an element of trust involved — ie that the providers will implicitly follow the letter of the law.

But the most feared scenarios are that the SFA descends on a provider to carry out an audit and finds anomalies in the due diligence, or that the subcontractor fails to deliver, as the college or ILP will be responsible for making alternative arrangements for the delivery of education and training and/or repaying SFA or loan funding.

And, of course, there is always the fact that under the new common inspection framework these arrangement may also be looked at and leadership teams could find themselves being ‘marked down’ for poor subcontracting management, potentially putting contracts at risk and — ultimately — could create an argument for special measures.

Central to not falling foul of these issues, FE leaders in charge of contracting should review their priorities and ask: ‘Am I spending too much time on what is urgent, instead of what is important?’

This will help assess the future impact of decisions made today — and ensure it’s not the little things that cause big problems down the line.