Apprenticeships will become unprofitable if ineligible costs excluded from funding bands

22 Sep 2020, 14:50

The Institute for Apprenticeship and Technical Education’s new funding band proposals are a step forward, but still need to address the thorny issue of ineligible costs, writes Simon Ashworth 

Consulting on funding rates for apprenticeships is a perennial but necessary hand grenade that will always prompt a lively debate.  But let’s credit the Institute for Apprenticeships (IfATE) for taking on board the concerns of AELP and others that its proposed funding band models for calculating and allocating funding bands to apprenticeship standards in its first consultation were blunt and arbitrary, with the Institute confusing simplicity with a quest for transparency. 

The Institute is consulting on a new consolidated single model which critically now allows trailblazer employers the option to submit variable costs for teaching and consumables. These are two aspects where costs and delivery model vary significantly and quite rightly need to be bespoke and individualised. It is even more critical to have providers and end point assessment organisations being involved and supporting trailblazer employers to make informed choices throughout the process. In fact, it is not unreasonable to ask why offer trailblazer employers the option of fixed inputs for teaching and consumables aspects in the first place when the impact analysis from both the Institute’s consultations clearly demonstrate the significantly detrimental impact this could have on the overall outcome. 

The Institute commissioned a research study by IFF in October 2018  which at 133 pages is a significant piece of work. However, the research is based on only 54 standards, with 204 data points and from 138 training providers. Such a sample is clearly insufficient when we have in excess of 550 apprenticeship standards now available, being delivered by some 1,500 main providers on the ESFA’s Register of Apprenticeship Training Providers and we have to question the timeliness of the research.

Arguably the biggest issue yet to be grasped is the thorny one of ‘ineligible’ costs. The IFF research reported that the actual cost of delivery of apprenticeships standards includes a significant 22 per cent of a provider’s costs are deemed to be ‘ineligible’. How can the likes of “enrolment, induction, initial assessment, initial diagnostic testing, or similar activity” be deemed to be ineligible costs when these are activities mandated by the ESFA and/or an expectation of what Ofsted would expect to see during inspection?  

It is too easy for IfATE to pass the buck to the ESFA and argue that their hands are tied by the agency’s funding rules on eligible and ineligible costs. Both the Institute and the ESFA need to work together to develop a solution; in AELP’s view, this means ESFA reviewing their funding rules on ineligible costs and the Institute properly accounting for key mandated activity in the form of a general overhead input as part of their new funding band methodology model.

Under the proposed model, providers should only be able to make a 9 per cent margin on the basis of their eligible costs, which as things stand would also need to cover the current ineligible costs. Without the ineligible costs issue being tackled,  most apprenticeship delivery will become unprofitable unless the provider were to charge substantial commercial fees or reduce their support for apprentices, which undermines the objective of providing a high quality and sustainable apprenticeship offer to support employers of all sizes.

It is important to recognise that the 9 per cent eligible cost margin is applied to the sum of teaching, formative assessment and administration estimates on the end of the costing process. This percentage is borrowed from the ESFA Financial Health Assessment, which is the margin needed to score maximum points within the ‘sustainability’ section of the assessment. But in the ESFA’s case and in contrast to the IfATE model, the 9 per cent is overall profit after both eligible and ineligible costs are taken into account. 

Finally, on implementation you don’t need to have a long memory to see the impact of what happens when funding bands were reduced with little warning and on short notice periods. A prime example of this was the slashing of 33 per cent off the funding band for level 4 Associate Project Manager, resulting in most providers pulling out of offering this apprenticeship and leaving employers with limited options from where they could access the training they needed. The Institute needs to recognise apprenticeship strategies of training providers and the employers they serve is not a short-term game. In many instances programmes are co-created on the basis of a long-term initial upfront investment, paying back over a 3 to 5-year period.

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