Skills Funding Agency announces transition factors hitting provider funding rates by 25 per cent or more.

Colleges and training providers have been told their Skills Funding Agency earnings rate could fall by a quarter or more, with just two months before the new academic year.

The agency is introducing protection measures for colleges and training providers, to “smooth” the impact of its new funding system.

The measures are intended to stop providers’ earnings rocketing or nosediving.

Jerry White, director of planning and performance at City College Norwich, said: “It is going to be vexing curriculum planners up and down the country to be told, with only around 30 working days to go until the beginning of the new contract year, that funding values need adjustment resulting in the need to change delivery and resource plans.”

The agency said decisions on next year’s funding were still open to review.

Each provider has been given a number — a ‘transition factor’ — that indicates how much of the budget under the new system it can keep.

A provider transition factor of 0.9 would mean its national rates are reduced by 10 per cent, so it would need to do more work for the same money.

Allocations, finalised at the end of March, remain unaffected by the ‘transition factor’.

Worries about providers learning how they would be affected by the protection measures were aired in a Joint Information Systems Committee online forum for college finance directors, where one provider revealed its rates under the new system would be cut by 25 per cent.

“I can’t imagine that colleges are going to take this lying down,” said one forum member.

FE Week has also learned that at least one independent training provider has been given a transition factor below 0.7.

Meanwhile, a number of colleges have already approached the Association of Colleges with concerns about their situations.

Julian Gravatt, the association’s assistant chief executive, told FE Week: “In principle, it’s right for the agency to smooth the introduction of the new formula, but it’s unacceptable that some colleges have only just received this information at a time when they are setting their 2013-14 budgets.

“We are busy taking up college queries with agency staff.”

An agency spokesperson said: “We have worked with the sector over the past 18 months to develop and implement a more streamlined funding system.

“We are helping providers move to the more streamlined system including using a transition factor which will ensure that their total cash earnings remain within three per cent of the current system.

“The transition factor is derived from the latest full year data from 2011/12 to generate an adjustment which maybe positive or negative to earnings of a provider. It has not been designed to be applied at the level of each qualification for planning provision.

“In circumstances where provision has changed dramatically from 2011/12 to 2013/14 we will review each provider’s transition factor to ensure that high quality provision to learners and employers can continue.”


Editorial : The transition factor

The Skills Funding Agency has been helping providers understand its funding reforms since first publishing plans in October 2011.

It has also designed the reforms in partnership with an advisory group made up of provider representatives.

But, as with all funding reforms that have come before, there will be winners and losers.

At the end of March the agency said it would “smooth” out the winning and losing with transitional protection.

Now we learn the extent of smoothing required for some providers — and it’s huge.

Imagine signing off your curriculum plans and then learning a 0.7 transition factor will be applied.

Effectively, this means to earn a £10m allocation you would have to plan £13m-worth of provision, and at a rate of 70p in the pound.

It will also be interesting to see how subcontractors react.

Presumably they will be seeking out prime providers with a transition factors above one, as they will now be earning more than the national rate.

All avoidable of course, had the funding system reform been resisted.

Nick Linford, editor of FE Week

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  1. Jon Carr

    This is just one more element to the complete mess that has been the introduction of new ‘simple’ funding system. Many Colleges have not even received their transitional factors yet! In addition:
    – rates were going to be published to LARA in January, then it was April, then it was never, we have to make do with a spreadsheet
    – Awards funding changed, then changed again a few weeks later
    – LIS replacement apparently (at least) two months behind schedule
    At least there are no other changes happening at the same time, such as for 16-18 year olds and 24+, and no changes to ILR return dates …
    Nick’s last comment says it all.

  2. David Moir

    As you say in your article, there has been a lot of discussion about this on Jisc mail. Over 40 colleges have reported their transition factor and there is not one GFE college responding with a factor >1.

    The timing of the release of this information, together with a lack of consultation and transparency, inevitably leads to speculation and guesswork as to the reasons for it and its impact.

    Analysis conducted by some providers is indicating that it is some work place qualifications that are being funded at much higher rates next year. If this is the case then it could well be the same picture across the independent training provider network as well. Your article highlights one such provider with a factor of 0.7.

    All this inevitably raises a question over the affordability of implementing the new funding rates matrix and, if this is the issue, whether using a crude transition factor is the right fix.

    An alternative approach could be to apply different factors to individual qualifications to adjust their funding level and bring them somewhere closer to the current levels (i.e. +/- 3%).

    This would avoid some of the anomalies that are apparent with the transition factor in its current guise, which are:
    * Different rates of funding to providers delivering the same qualification
    * No reflection of change in mix of provision between 11/12 and 13/14
    * New providers (without a transition factor) could earn the full amount of funding next year
    * Subcontractors paid different rates for the same delivery depending on the lead provider’s transition factor
    * ‘Cherry picking’ by providers the delivery of those qualifications with much higher funding next year
    * Providers having to over-deliver against contract (in some cases by 30%) to earn the contract value

    Our college has been told this morning by the SFA that the calculations behind the transition factor are so complex it is not expected that a college would be able to replicate them. So much for simplification!

    We have also been told the transition factor for 13/14 might change at some point if there is a change in mix of provision between 11/12 and 12/13. This may be welcome at one level, but it also adds uncertainty and further complexity.

  3. Alex Galway

    We are a private prime contractor and this is going to decimate our provision. We have been allocated a transition factor of 0.6816. A large proportion of our provision is sub-contracted, so the result will be simple. Our partners will leave immediately to consortia that can offer a TF of 1 or above – and who can blame them? Why would they stay with us when they can receive over 30% more for exactly the same provision elsewhere.

    How can it be fair that exactly the same learner can draw down more funding with provider X than with provider Y?

    All that will happen is that sub-contractors will all be rushing to partner with Primes that have the most favourable Transition Factors, and they will ditch their current Primes that will have spend a huge amount of time, effort and money on building solid relationships.

    This has to be one of the most ill thought out policies so far.

  4. Slightly flaky maths in the editorial? To earn £10million with a transition factor of 0.7. You would have to plan £14.25 million not £13 surely?

  5. The thing that I find really sad about this is that providers who have sat around and done nothing and just rolled their provision over from year to year are the ones that benefit most from this (or rather disbenefit least?).
    Providers who have got to grips with the new matrix and planned their provision accordingly, re-jigging curriculum to fit the new boundaries and making sure they understood exactly what the intention of the reforms were are the ones who will be absolutely shafted, due to decisions they were making nearly 4 years ago based on the prevailing attitudes of the time.
    I’m happy for providers who deliver now unfashionable courses to be protected for a short period, but I don’t see why those who have done their homework and danced to the SFA’s tune should be penalised for doing so…

  6. lindsay mccurdy

    I have to agree with all of the comments above and nicks editorial comment

    It will also be interesting to see how subcontractors react.

    Presumably they will be seeking out prime providers with a transition factors above one, as they will now be earning more than the national rate.

    • John Littler

      When first consulted, John Bolt told us that few colleges would benefit or lose by over 3% and that it had been modeled to keep things stable. Where did it go wrong?

      SFA have been telling us that we don’t lose allocation if we have a low TF. True. The fact that we might spend 30% extra to achieve the same allocation does not seem to strike them as a problem. This does not instill confidence.

  7. John Littler

    To clarify my previous post,it should have read that one college might spend 30% more resource to reach the allocation compared to another college with a higher TF offering the same provision.
    Perhaps another way of looking at it is that if the new system pays fair rates,perhaps the old system unfairly underpaid some colleges and they are due compensation for previous years underpayment!