It’s time to take on the subcontracting profiteers

18 Feb 2020, 6:00

Subcontractors account for more than 10 per cent of ESFA funding. They need overseeing properly, says Simon Ashworth

It was good to see the ESFA’s Peter Mucklow in edition 306 of FE Week confirming government recognition that subcontracting plays an important role and that there will be not be a complete ban on it.

Some interesting numbers were published as part of the ESFA’s consultation: 674 prime providers subcontract provision to 2,288 subcontractors. The total value of subcontracted provision is £484.5 million – or 10.6 per cent of total ESFA funding. These are big numbers, so it’s no wonder the regulators are keen to ensure appropriate oversight, quality and robustness of provision.

Unfortunately, the ESFA has yet again missed a trick

Unfortunately, the ESFA has yet again missed a trick – by failing to implement a cap on fees and charges which could address ‘profiteering’ from subcontracting. They make it clear, though, that they “do not expect funding retained to exceed 20 per cent”, and have linked this to two points previously raised by the Association of Employment and Learning Providers (AELP). Firstly, if more than 20 per cent of the funding is retained, it raises questions about the capacity of the subcontractor to deliver. Secondly, can good quality can be achieved when funding is so reduced?

Apprenticeship subcontracting has already been reformed with the removal of whole programme subcontracting. And the opening up of the Apprenticeship Service to non-levy employers will allow hundreds of providers on the main Register of Apprenticeship Training Providers (RoATP) to access funding directly, without a non-levy contract.

This will impact on those subcontracting relationships – study programmes, traineeships, adult education – which have hitherto been unable to obtain funding. In the case of AEB, a move to full procurement which rewarded prime providers and subcontractors that actually deliver would also reduce the need for subcontracting.

The proposals around geographical restrictions are attracting the most questions from providers. The “no more than one hour away from the prime contractor by car” pledge begs a question: if a prime provider is undertaking the minimum checks as required by the funding rules, then distance should make no difference in terms of oversight of the relationship. What matters, surely, is that properly checked subcontractors might be based miles from their primes while learners might be on their doorstep.

The ESFA also acknowledged that when working with national employers, a distance arrangement for subcontracting “is beneficial”. The focus on geographical restrictions is more about ‘out of area’ funding, particularly the expectations and justification of grant funding being spent on subcontracting in other far-flung areas of the country. The test is whether provision is supporting the local community or being used to generate additional income.

To date, Ofsted has chosen not to inspect subcontractors directly, and they recently gave me an example of why: a subcontractor that worked with three prime providers, where two-thirds of the provision was good and a third poor. The underpinning rationale was that two of the prime providers had full and suitable oversight and supported the subcontractor appropriately, while the third prime provider took a management fee and had no oversight. This highlights the importance of considering the role that the prime provider has in the process (rather than looking at subcontractors in isolation). But political pressure will probably require Ofsted to inspect a selection of the larger subcontractors as part of their risk-based approach.

The ESFA certainly don’t like managing agent models, and within the sector there are still examples of providers that operate as managing agents in all but name – subcontracting out comparably large portions of their allocations. The ESFA is now proposing a phased transition from all providers to a subcontracting limit of just 10 per cent of their total ESFA post-16 income in 2023-24.

Again, this will be a real challenge for parts of the sector that have for too long relied on subcontracting. Ultimately if the funding isn’t being used, let’s get it reallocated to providers who can spend it directly.

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  1. david jones

    I am astonished that Simon and the AELP would allow such a headline which hits in the face of its members ! or is it that FE Week developed the headline because the text certainly doesn’t bear much resemblence to the headline itself.

    People ignore that sub-contracting is not without risk to a prime and often they are managing relatively small amounts of funding with an individual sub-contractor where the costs of management are not insignificant. It is easy to say that £2m is sub-contracted and with a 30% management fee £300,000 is profiteering but the facts simply don’t support that with the amount of time and effort required to effectively manage all aspects of the programme, payment, quality assurance, observation of teaching and learning, etc etc. Any margin they do make is not profiteering, it is recognition for the risks they are taking so say a margin of £100,000 on £2m is 5% which is not excessive.

    Lets get the language right please !

  2. Philip Gorst

    Hello Simon.
    Let’s use an analogous illustration.

    I buy a plot of land to build my dream house.
    I can control the money, but I cannot dig trenches, lay bricks, fix plumbing or install electrics . So, through recommendation and web searching, I find people who can.
    I pay them each week for the work done. after checking that work for quality and appearance. I could employ these people full time at the start of the project, but, having done a cost:benefit analysis before the project began, I took into account down time due to bad weather, sickness of the workforce, National Insurance and Tax implications, failure to complete tasks in a promised timescale due to stock shortages, and decide that the sub-contracting way is the correct one.

    In a parallel universe known as ‘FE’ a large ‘training provider’ bids for a contract that they have no expertise in delivering, but they win it anyway.
    They advertise for sub-contractors and promise full compliance and support for a fee. The sub-contractor, through gritted teeth agrees, but then does all they can to conserve the pittance they are paid and do the minimum required to meet their contractual obligations.
    Behind the scenes, the government reduces the amount paid per learner for the qualifications that is being paid to the large ‘training provider’, who then cascades this to the sub-contractor, who now has a difficult decision to make: either walk off the job, or reduce the amount of staff and work who deliver the qualifications.
    Because of the reduction in trainer:learner time, the learner drops out, and completion rates fall.

    The house, is either finished to a poor standard, or it is not finished at all.

    It’s all about money!!

  3. Amy Ealing

    Spot on with this article – lets get the funding out to those providers who can both use it and need it, rather than unnecessarily channelling it through a prime who takes a cut – in some cases a significant cut for not very much!