The former boss of the Skills Funding Agency took an “extraordinary interest” in the proposed sale of apprenticeship giant 3aaa – and wrongly claimed a power he did not have, the High Court heard today.
Sir Peter Lauener was accused of “making it as hard as possible” for the apprenticeship giant to advance an application for its business to be taken over by Trilantic Capital Partners (TLP).
It was put to Sir Peter, which he strongly denied, that he “just did not care about the correct legal process”.
Apprenticeships tycoon Peter Marples and his family are suing the Department for Education for “negligence and misfeasance in public office” over the refusal in December 2016, claiming the DfE’s Skills Funding Agency (SFA) “breached their duties” by “exercising a non-existent power to refuse a change of control”.
Witnesses for the claimants completed their evidence in the trial last week. This week, the court will hear from witnesses from the defence.
Sir Peter, who was SFA chief executive at the time, was giving evidence in the High Court today.
He said he felt the business plan proposed by TLP was “unachievable” in light of an imminent change in the apprenticeship levy, due to come into effect from April 2017.
“I thought the business plan that was set out was completely unfeasible, I thought there was more protection in calling that out at this point and saying this gave us grave concerns and we would have to consider terminating the contract”, Sir Peter explained.
Due to TLP’s expectations around growth in non-levy apprenticeship funding, the business plan “was a red flag, posing a credible threat to the future stability of the business, and hence to the performance by 3aaa of its contract, potentially leaving the SFA to pick up the pieces”.
The court previously heard that the idea of seeking “approval” in a training provider sale served as a “shorthand for the process by which notice was given in order to seek an assurance that the SFA did not intend to exercise its right of termination”.
Sir Peter reiterated how this “loose language” was used today.
‘Retrospective’ change of control highlighted
Adam Solomon KC, for the claimants, said Sir Peter had begun taking an “extraordinary interest” in the change of control and had begun “making demands of your colleagues which you had not made on any other change of control application”.
Solomon raised that the SFA has never denied a change of control for a training provider before or after the 3aaa refusal.
He told the court that the agency had even agreed to retrospective applications for change of ownership in two cases after the providers were sold – one for QA Ltd and another for GP Strategies.
Sir Peter said he was not personally involved in those retrospective changes of control and replied: “I would argue that [retrospective applications] was very bad form and something I would not expect to happen.”
Solomon showed the court an email from FE Week’s former editor, Nick Linford, to Lauener in September 2016, which informed the SFA of a potential sale of 3aaa. It said: “Just hearing these guys will buy 3aaa. Over £100 million. Guessing you’ll novate their £30 million contract…gutted.”
This was months after KPMG had investigated 3aaa. While KPMG did not find “any evidence of deliberate circumvention of funding rules”, they had raised “quite significant errors in the data, that left a shadow of doubt in my mind”, according to Lauener. The SFA clawed back £300,000 from 3aaa following KPMG’s report.
Solomon identified Linford as the person who also triggered the KPMG investigation, claiming he had “animus” for 3aaa.
Marples’ KC then showed the court an email from Lauener which followed a conversation with 3aaa chair Derek Mapp about the potential sale and said: “He [Mapp] absolutely understood that they would need our agreement to going ahead with anything.”
Solomon said: “The truth is that you personally, and the SFA, have repeatedly told 3aaa they require your agreement in advance of the TLP deal”.
He asked: “Am I right that there is no example in which SFA ever said they will not consider retrospective application for change of control?”
Sir Lauener said the answer is “no, as far as I’m aware”.
Solomon replied: “At this point the contract could permit retrospective applications, as had happened with others?”
Sir Peter said: “I wanted that to be put into the contracts.”
Solomon hit back: “Even though you knew full well that your current contract had no such point, to demand no retrospective application and that you wanted this changed for the future, you wanted to grab that power now, that you did not have and apply it to 3aaa. You just did not care about what the correct legal process was, and you were making it as hard as possible.”
Sir Peter said that was “absolutely not” what he was trying to do.
Sir Peter told the court: “I am confident that I was fully aware at the time that the question I needed to address, under the contract, was whether, in my absolute discretion, I considered that the change in ownership would prejudice the provider’s ability to deliver the services. And it was on that basis that I decided to exercise what I had understood the SFA’s rights to be.
“I acted, at my discretion, in order to avert the threat posed by the prospective takeover of a major training provider by an investor who appeared to have unreasonable expectations as to the future performance of the business in which he intended to invest”.
Solomon claimed the change of control from 3aaa to Trilantic was “far more straightforward” than others the SFA had to deal with, like Learndirect, a statement which Sir Peter disagreed with.
“The reason why the whole case was difficult and tricky is because of the change in the funding model”, Sir Peter explained. “I did feel at this time that the approach colleagues in the SFA had taken for some time needed to be significantly reviewed and changed because of the change in funding that was just around the corner.”
Sir Peter added: “The Trilantic case was complicated because of reasons that did not feature at all in the Learndirect change of control.
“With Learndirect, we were dealing with a very vulnerable provider that was seeking a change of control.”
Speaking generally, he said: “Sometimes, changing control there is a greater prospect of surety of delivery than if it were not done.
“In Trilantic we did not have those kinds of concerns. There were lots of other concerns.”
‘I did not resent the existence of private providers’
Solomon put to Sir Peter that he had been heard making “adverse comments about profit levels in the private training provider sector”.
Sir Peter denied having adverse views about profit being made, but added: “If I thought it was excessive, I would generally regard it as a failure of governance.”
Sir Peter told the court: “I have absolutely nothing against profits in the private training provider sector. I have worked for private training provider sector for 30 years.
“I have for many years been supportive of private training providers. I know great private training providers and I know great colleges. I was a big supporter of the diversity of the whole further education and skills sector, both in the way providers worked and also in the case of learners the whole sector was serving.
“I actually spent more of my career working with private training providers”, Sir Peter said and praised the “flexibility, adaptability and innovation” of those providers.
Sir Peter said he had been awarded a lifetime achievement award by the Association of Employment and Learning Providers, adding: “I don’t think they would have done that if they thought I resented the existence of private training providers”.
Sir Peter is due to continue his evidence tomorrow.
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