£142m contractor top-slicing ‘extortionate’ 40 pc



The country’s biggest Skills Funding Agency (SFA) contractor is charging management fees up to an “extortionate” 40 per cent of contract values, it has been revealed.

Learndirect, with a current allocation of £142m and 70 subcontractors including colleges, charities and independent learning providers, was easily the biggest SFA provider this year — and lists the range of fees it charges subcontractors on its website.

A spokesperson for Learndirect, a formerly public-owned company that reportedly made a gross profit last year of just over £22m, told FE Week its fees included central services such as IT and marketing along with performance monitoring, and often fell short of the 40 per cent maximum.

The SFA has, since August last year, required providers to list the range of management fees they charge when taking on subcontractors. And since Monday last week (November 24) the SFA has also required providers to specify what they charged each subcontractor last academic year. Learndirect failed to meet the new duty, but the 40 per cent top-slice was declared in its range of fees.

“As this is the first year of this requirement we have had to introduce new systems and complete checks to ensure the information is displayed in line with the policy. While it’s yet not available it will be within the next two weeks,” said the Learndirect spokesperson.

However, HIT Training, which had the fifth largest SFA allocation with £25m did meet the new duty and did publish specific details of its management fees to its 15 subcontractors, which reached 15 per cent. Operations director Sara Goldie said: “We are keen to ensure our subcontractors don’t experience the extortionate service charges that HIT experienced in the early days when some primes were charging as much as 40 per cent.”

It comes after an Ofsted survey of subcontractors in 2012 uncovered fees of more than 15 per cent — overcharging according to SFA guidance. An SFA spokesperson would not comment on the size of individual providers’ fees or their compliance with the publication duties, but said a “programme of compliance work to check that actual supply chain fees and charges for 2013/14 have been published” would begin soon.

Newcastle College Group (NCG) and Leeds City College were also in the top five biggest SFA contractors. NCG, which has a current allocation of £34m, met the new duty and charges up to just over 20 per cent, but Leeds City College, with an allocation of £26m didn’t. It charges up to 30 per cent in fees according to its published range of fees.

A Leeds City College spokesperson said: “The college is awaiting its final reconciliation statement from the SFA. As one of the UK’s largest colleges, this can be a larger task than it is for smaller general FE colleges. Once the ILR is finalised the college will publish its subcontractor data.”

Babcock Training, which has a current allocation of £27m and 35 subcontractors made up mostly of colleges and a few charities, was also among the top five SFA contractors, but did not meet either duty. It claimed it did not need to under SFA rules because it did not subcontract entire programmes.

A spokesperson said: “Babcock self-delivers all programmes as far as possible and has no learners entirely subcontracted. In a small number of cases we subcontract part of a programme to a specialist provider or a college.”

NCG declined to comment on its fees. Leeds City College was unavailable for comment on its fees.

Editor’s Comment

The nasty taste of the top-slice

When the Skills Funding Agency said early last year that it would be making providers go public with ‘management fee’ details, this newspaper welcomed the move.

The agency was right to introduce rules to bring in transparency over multi-million pound subcontracting top-slices.

We had previously reported how the average ‘management fee’ looked to be 23 per cent. And that seems reasonable compared to the 40 per cent fee that Learndirect charges, as it revealed in compliance with just part of the new rules.

But exactly what it charged which subcontractors we can’t tell because Learndirect hasn’t fully complied. No, we can’t yet tell how much of its £153m agency allocation last academic year Learndirect top-sliced.

These ‘management fees’ represent public money being withheld from the provider working with learners. Every single penny withheld should be identified and justified, publicly.

The transparency rules go some way to ensuring this accountability and to not meet them must bring punishment that makes compliance the more attractive option.

And so we find ourselves with the deadline for meeting these rules having passed. The agency must act. No grey area, no excuses.

Chris Henwood

chris.henwood@feweek.co.uk



Your thoughts

Leave a Reply

Your email address will not be published. Required fields are marked *

5 Comments

  1. David Neal

    No great surprises. The requirement to publish the fee strategy at the start of last year, together with the actual amounts after the year end, is quite clear in the Funding Rules. The SFA have the teeth, but do not use them.

    The article points out a number of providers who have not complied, some surprisingly not even with the first part! It is a contractural requirement. The solution is simple. DO NOT PAY THEM. Then audit them to check the valididy of any figures they publish late.

  2. The 15% management fee at the time I wrote ‘Ensuring Quality in Apprenticeships’ was a recommended maximum fee. When it was clear two years ago that very few lead contractors actually recognised this the SFA simply pulled that part of the guidance when they saw it would embarrass them, with no explanation. There is nothing wrong with charging higher fees if there is value for money (and many lead contractors have improved their subcontractors) but the whole concept of ‘transparency’ is one the SFA seems to struggle with. Has anyone spotted that they have removed the need for conducting reviews from the apprenticeship funding guidance for the 2014/15 funding year. Believe me it will not be long before some will think of dropping them if no longer a contractual requirement, even though evidence points to them being the key factor, when done well, in achieving high timely success rates. There is such a thing as being too ‘hands off’ in financial control. This is history repeating itself, going back to the chaos that were the TECs

  3. Yes not a surprise if you are a provider on the other end of this!! It would be easy to go out and ask providers, especially those of us ho subscribe to FE week, to detail their sub contracts and ask what they are charged – we are not going to hide figures !!!

  4. All Learndirect sub contractors received the spreadsheet detailing funding & the amounts “retained” by Learndirect for 2013/2014 a few days ago. Interesting to note that the list of providers excluded their own centres!

  5. We currently only top-slice 15% but are considering an increase in 15/16. Having reviewed the level of monitoring, support and intervention we are providing to sub-contractors, we believe that it is now costing us more than the funding we are retaining. More generally though, a higher level of top-slice would, for most GFEs, be used to cross-subsidise provision in less lucrative areas, where private providers would not be interested in operating.