Controversial management fees in subcontracting are set to be capped for the first time, FE Week can reveal.
The Greater London Authority has set out plans to introduce a 20 per cent limit on top slices for adult skills provision when devolution kicks in next year.
The Department for Education’s decision about introducing a cap was kicked into the long grass in August – delaying any verdict until at least the end of 2018 despite calls for a quick outcome.
We are not convinced that establishing a ‘norm’ on subcontractor fees would be helpful
But while ministers continue to mull over their decision, London mayor Sadiq Khan (pictured) has made up his mind and is currently changing the GLA’s funding rules.
A briefing document published ahead of a GLA meeting about the adult education budget this month states two “key proposed changes in our approach, compared with that of ESFA” regarding “conditions of funding”.
The main change includes a “requirement for providers to seek approval for any in-year changes to subcontracting and a proposed cap of 20 per cent on subcontracting fees”.
The briefing document also provides an interim analysis report of the consultation responses gathered through the GLA’s ‘Skills for Londoners Framework’.
“There was majority support for a 20 per cent cap on subcontractor management fees, providing higher or varied fees could be negotiated where required,” it said.
A GLA spokesperson told FE Week the cap will apply to all funding, both procured contracts and grant awards.
The news of the limit is likely to send alarm bells ringing at London providers that charge higher than 20 per cent top-slices as it will make a heavy dent in their income.
Using ESFA subcontracting data for 2016/17, FE Week identified eight colleges that entered arrangements where they charged more than 20 per cent fees.
At Capital City College, for example, it had subcontracting deals totalling £1,159,424 last year and top-sliced £486,280, or 42 per cent.
If the GLA’s 20 per cent cap had been introduced last year the college would have lost £254,391.
The college group said its member, the College of Haringey, Enfield and North East London, would be most affected by the limit.
“The college negotiates its management fees with sub-contractors based on the extent of services it provides,” said CONEL’s interim principal Kurt Hintz.
“Any caps, although well intended, will interfere with this process and make sub-contracting less flexible and potentially disadvantage or exclude especially unique or small providers from accessing the support they need from a large ‘prime’ contractor.”
New City College, which had top-slices of up to 34 per cent in 2016/17 for AEB deals, told FE Week it did not support the proposed cap as it believes it is “motivated by the wrong reasons”.
“Some smaller providers need substantial support to build their capacity and this justifies a higher subcontracting fee,” a spokesperson said.
Richmond upon Thames College had management fees reaching 31 per cent last year.
Its principal, Robin Ghurbhurun, said that while a 20 per cent cap is “not unreasonable” and it poses no problem for the college “as we have planned to move” to the amount, there should be the “flexibility to locally negotiate a higher per cent rate if additional services are provided”.
Given the college responses, it came as no surprise that the Association of Colleges wasn’t supportive of the plan.
“We are not convinced that establishing a ‘norm’ on subcontractor fees would be helpful,” said Mary Vine-Morris, the AoC’s area director for London.
“Subcontracting receives misleading attention. It can be an enabling mechanism that allows smaller organisations and niche providers to contribute to the delivery of a comprehensive package of learner support.”
Several FE sector representative groups, with the notable exception of the AoC, published best practice guidance in March stating that management fees in subcontracting should not be more than 20 per cent.
Mark Dawe, boss of the AELP – which led on the guidance – welcomed the GLA’s cap.
“This means more taxpayers’ money reaches frontline delivery for the benefit of London’s businesses and adult learners,” he told FE Week.
“There is no reason why the 20 per cent cap shouldn’t be adopted as a maximum nationally and in many cases it should be substantially less.
“We very much welcome the lead that the GLA has taken on this.”