ESFA set to rule on calls for a subcontracting management fee cap

The Education and Skills Funding Agency will imminently publish its first ever policy for management fees in subcontracting – but it is unlikely to enforce a hard cap, FE Week understands.

The announcement, which could come as soon as this afternoon, will be the outcome of the agency’s review into top-slicing which got underway in April.

Rather than introducing a strict cap on the percentage that can be claimed by a prime provider as a management fee, it is likely that guidance will be offered.

It will undoubtedly please the college sector, who has been lobbying hard against the introduction of a hard cap, but at the same time disappoint the Association of Employment and Learning Providers, which wants fees to be restricted to 20 per cent.

The announcement is expected to align with what skills minister Anne Milton told the education select committee last month, where she stated she was “hesitant” to introduce a limit.

“I hesitate, because how would you assess what that limit should be and for what?” she said.

“You would have to categorise all the different work that the prime contractor did and put a price on that, which would not be that easy because the sector is so variable.”

She added that one alternative would be that “all subcontracted contracts are looked at— i.e. look at what percentage the management fee should be and have a level above which you might investigate further”.

FE Week has exposed many situations where primes levy excessive management fees of up to 40 per cent.

We revealed last month that more than 10 providers charged an average of over 30 per cent last year, while Learndirect took a £4.7 million (40 per cent) top-slice a deal involving £11.9 million of the adult education budget.

When presented with our findings, the Department for Education surprisingly said it had “no concerns” about the subcontracting fees.

But Ms Milton backtracked during her education committee appearance when quizzed on this.

“I most certainly did not say that,” she said. “It is not a line I approved.

“I do share your concerns.”

Lead providers often claim management fees are needed to cover administrative costs, but many in the sector, including MPs on the education committee led by chair and former skills minister Robert Halfon, believe that too much money is being diverted from frontline learning.

The AELP, Holex, and provider group Collab signed-up in March to new best-practice guidance on relationships between primes and subcontractors.

These state that management fees should not be more than 20 per cent of the programme funding.

However, it was quickly undermined when the AoC confirmed it would not commit to any recommended limit.

It claimed it was developing other guidance “properly” with the ESFA and University Vocational Awards Council.