ESFA to ‘review’ rules on subcontracting fees and charges

Subcontracting fees and charges will be reviewed to ensure government funding is being used for “recognised costs”, the Education and Skills Funding Agency has revealed.

“In the coming months, we will be reviewing… aspects of the subcontracting funding rules,” it said in its announcement, published online last night.

This includes “subcontracting fees and charges, so that we can be assured that our funding is being used for recognised costs”.

Any subsequent changes to subcontracting rules will come into force from August.

The ESFA also “believes it’s important that government funds are not diverted away from training and assessment in the form of fees and other charges”.

The priority is to “make sure that the main and subcontracted providers both add value to the employer’s apprenticeship programme”.

FE Week has exposed many situations in which cash meant for learning has been diverted to third-party brokers who fix deals between prime providers and subcontractors, and examples of primes levying excessive management fees of up to 40 per cent.

The government had already promised to crack down on brokering, which can see subcontractors charged up to five per cent of total their contract funding in commission.

The Association of Employment and Learning Providers has also demanded reforms to “ensure the need for brokerage is eliminated”.

The apprenticeship training provider funding rules for 2017/18 is now on its sixth version, yet it still includes no direct references to subcontracting fees or charges.

Paragraph P91.16 does however rule out using apprenticeship funding for “managing agents”, “brokerage” and “procurement registers or opportunities to secure business”.

But as reported by FE Week in January, there is a loophole that permits charges that aren’t included in the negotiated levy price.

Even the civil service has launched a brokerage charge to recoup millions of pounds in apprenticeship levy payments.

Providers who want to train government apprentices were told to register with the Crown Commercial Service, which is a government agency representing the Cabinet Office.

But a group of 16 given access to at least £360 million funding learned last month that CCS will retain a one-per-cent “management fee” on any apprenticeships that they deliver.

We also found two examples last year in which the NHS attempted to charge providers around one per cent of the value of their contracts in brokerage schemes. Such one-per-cent brokerage charges could reach up to £2 million across the country.

Nottingham city council was found attempting a scheme on similar lines last summer.

Subcontracting management fees have caused added controversy by reaching as much as 40 per cent, a figure infamously levied in some cases by Learndirect.

Lead providers often claim the 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 last month 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 Association of Colleges 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.