An Ofsted probe into subcontracting has uncovered lead contractors charging management fees “as a way of generating income for doing little work”.

The Ensuring Quality in Apprenticeships report highlights how subcontractors felt they were getting “poor value for money” from management fees and reveals many lead contractors were overcharging according to Skills Funding Agency (SFA) guidance.

Released today, the report said: “Although some lead contractors legitimately regarded subcontracting as a way of meeting the needs of employers or expanding their training offer where they did not have the expertise themselves, others clearly saw it as a way of generating income for doing little work.”

It added: “Subcontractors who were not part of a training group or consortium were unhappy at what they perceived as poor value for money for the management fees charged by lead contractors.

“Of the 45 lead contractor fees charged to subcontractors in the survey, just around half were above the maximum of 15 per cent of the contract value that was the expectation of the SFA.”

Inspectors also found some apprenticeship programmes too short to embed the skills being developed.

There were even examples of apprentices, particularly younger ones, being used as cheap labour during training and then being discarded in favour of new apprentices.

The report, based on surveys of 17 subcontractors and interviews with 110 apprentices and 40 employers, comes a year after the SFA introduced a policy of £500k minimum contract values.

This meant smaller providers could either form a consortium to reach the minimum value or set up as a subcontractor for larger providers. The use of the latter option saw subcontractors surveyed endure a cut in their funding of between 10 and 35 per cent.

Just four months ago FE Week told how lead contractors appeared to take an average management fee — or top-slice — of 23 per cent from subcontractors. Research from the SFA suggested that lead contractors charged subcontractors more than £175m, based on allocations worth almost £760m.

Ofsted’s national director of learning and skills, Matthew Coffey, said: “The introduction of the minimum contract value has forced often very good smaller providers to either work together or become a subcontractor of a larger provider.

“In several cases this has diluted accountability and has placed a greater distance between the learner and those responsible for learning.”

Ofsted has recommended the government and other agencies look at an independent whistleblowing hotline and called for guidance on who can act as a lead contractor, linked to performance rather than contract value.

FE and skills Minister Matthew Hancock said: “We have already taken extensive measures to safeguard and improve the quality of learning provided through the apprenticeships programme, and tighten up subcontracting arrangements.

“We have introduced a minimum duration period, meaning all apprenticeships must be between one and four years, with limited flexibility to allow adult apprentices with prior experience to complete more quickly. But the changes we’ve made will take time to have effect.”

He added: “I will consider the report and its recommendations for the government in detail, and take any necessary further action to improve the quality of apprenticeships, and expect providers to do the same.”

An SFA spokesperson said: “We will look in detail at the Ofsted report and will consider, with the sector, its recommendations. We continue to work with the sector to support and guide on subcontracting, including where additional controls may be needed.

“The engagement and management of subcontractors are the legal and contractual responsibility of lead providers.

“We have very clear rules and expectations on how lead providers must assure themselves that they use subcontracting appropriately and we intervene where it identifies that public funds or learners are at risk.”