New subcontracting rule slammed as ‘immensely bureaucratic' and 'shockingly late in the day’

The Education and Skills Funding Agency has “shocked” hundreds of providers by requiring thousands of subcontracting contracts to be rewritten just four weeks before the new academic year.

The agency is demanding that all subcontracting contracts, for both adult education budget and apprenticeship funding, include for the first time a “list of individually itemised, specific costs for managing the subcontractor”.

In addition to listing the services, the contract must include “how each cost contributes to delivering high-quality training” and “how each specific cost is reasonable and proportionate to delivery of the subcontracted teaching or learning”.

These costs are typically referred to as a management fee or “top-slice” and have proven controversial for many years.

Nearly all providers currently charge their subcontractor a percentage of the funding, with some colleges still charging in excess of 30 per cent.

The ESFA committed to considering a per cent cap last year, but this new rule, requiring costs to be listed, appears to be a different solution and could force providers into a very different pricing model.

Training providers have reacted angrily to the requirement, which appeared this afternoon (July 4) in a new version of the funding rules for 2019-20.

Mark Dawe, chief executive of the Association of Employment and Learning Providers, said: “We proposed a 20 per cent cap solution to end extortionate subcontracting management fees. But once again, a simple solution has been ignored and instead, this immensely bureaucratic process appears both out of the blue and shockingly late in the day.

“The ESFA should implement a percentage cap and bin this complicated rule of listing and justifying management services immediately, before thousands of providers spend even more scarce resources with lawyers and accountants rewriting contacts or worse, start looking for obvious loopholes.”

And a spokesperson for Learning Curve Group, a provider that operates as both a prime and subcontractor, told FE Week: “We would always support additional scrutiny on management fees as there have been a series of examples which would not be regarded as beneficial either to the subcontractor or the learner.

“However, the administration connected to these updated requirements seems overly onerous and ambiguous from an audit perspective.  

“The investment needed to monitor subcontracted activity tends to be fairly standard across Primes, so a capped percentage rate would be something we support. It is also hugely unhelpful that the publication of the rules is so late.”

According to ESFA figures for 2017-18, there were over 3,292 subcontracting contracts involving 516 main contractors and 1,032 subcontractors.

The new rule reads, in full: “You must include in your contract with each delivery subcontractor a list of all services you will provide to them and the associated costs for doing so. This must include a list of individually itemised, specific costs for managing the subcontractor, specific costs for quality-monitoring activities and specific costs for any other support activities offered by you to the subcontractor.

“You must include in your contract with each delivery subcontractor a description of how each specific cost is reasonable and proportionate to delivery of the subcontracted teaching or learning and how each cost contributes to delivering high quality learning.”

The Department for Education was approached for comment.