The National Audit Office has said it will “look into” the issue of lead providers skimming outrageous management fees from subcontractors, FE Week has been told.

The Public Accounts Committee chair, Meg Hillier (pictured) had vowed last December to raise the issue with the NAO following FE Week’s ongoing investigation into topslicing, which found evidence of providers keeping 40 per cent of government funding before dishing out contracts.

Ms Hillier told FE Week on Wednesday that she had received a letter from the NAO, which said: “We propose to look into this issue further to determine the facts.

“We intend firstly to review the Skills Funding Agency (SFA)’s recent compliance work, which aimed to make providers more transparent about their management fees.

“Once we have a fuller picture I will take a view on whether a full investigation would be justified.”


Topslicing has been the focus of an FE Week campaign since its launch in 2011 (see right), and was the subject of “recent compliance work” by the SFA.

The practice involves lead providers retaining government funding – usually called management fees – before finding a subcontractor to do the training for the remaining sum.

In one case, as reported by FE Week in November, Learndirect retained more than a third of its total government funding in management fees, pocketing nearly £50m.

And this week, FE Week uncovered evidence that one college was grading its potential subcontractors by the size of management fee they were willing to accept – the higher the fee, the higher the score.

Cambridge Regional College issued a tender document on December 16 inviting subcontractors to bid for four lots – 16-18 apprenticeships, 19+ apprenticeships, 24+ learning loans and adult skills budget.

The criteria on which all bids would be judged, included in the document, gave the proposed management fee offered by the subcontractor a massive 35 per cent weighting.

It then outlined the scoring methodology that the college would use to grade bids.

“Management fees retained by the college are a pass/fail criteria and the fee passed on must be a minimum of 20 per cent, which will be scored as a 3,” it said.

Anything lower than 20 per cent “will be marked as a fail”, it said, while bids of 22 per cent “score 4” and 24 per cent “score 5”.

When asked about its methodology, Paul Skitt, assistant principal employer engagement at Cambridge Regional College, said its higher management fees were the result of stringent contract management controls required by the SFA.

“The weighting we give to management fees reflects the increasing costs of administration associated with sub-contracting – the closer involvement and the increased demand on resources – required by all colleges with sub-contracted provision.

“Our sub-contracting processes and procurement have been approved by the SFA,” he added.

The SFA declined to comment on the college’s tendering process.

“As independent corporations they are responsible for their own business models, modes of operation and financial health,” it said.

A spokesperson for the NAO confirmed it had sent a letter to Ms Hillier, but declined to comment further.


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  1. Mike Farmer

    I think it amazing that no one has mentioned quality issues in subcontracting. What does Ofqual say about responsibility for assessing students on subcontracted courses? I think it remains with the lead contractor. How does the awarding body keep track of these students? Who does it deal with? How does Ofsted inspect subcontracted courses, which may be hundreds of miles from the lead contractor? If the lead contractor remains publicly accountable for qualty, 20% seems positively reasonable.

  2. Quality issues in subcontracting of course but what of the quality of the lead provider, is their costly administration process fit for purpose? I know of subcontractors having to abandon or parallel it’s LMS with paper documents, spreadsheets and emails to comply with the requirements of a lead contractor which still use methods designed in the ’80’s, rather than systems fit for 2016. little wonder that some learning providers need 20% to cover additional administration, in such cases it probably warrants more.
    Whereas hundreds of learning providers use learner management systems which track every element of the student assessment process so that all key stakeholders are able to monitor progression and quality in ‘real time’. Including Ofsted and awarding bodies some of which expect to be able to access learner information on line 24/7 and one of the reasons is that it is obviously much ‘cheaper’ for all concerned but also ‘transparent’. It’s using everyday technology and what all manner of business and the rest of us experience daily, not rocket science.
    So when the NAO ‘look into this issue further’ I would suggest they ask how the lead or subcontractor tracks progression, gathers and verifies data, particularly for apprenticeships etc. and if they are still primarily paper based, as more than 60% are believed to be, simply ask why?
    When it comes to managing subcontracted courses, geographic distance between parties should mean nothing at all in the 21st century, just that some organisations choose to travel 100 miles to manage a subcontractor. I am hardly unique in choosing to hold three face to face meetings this morning, two with colleagues some distance away, the other was abroad and I haven’t travelled anywhere. But perhaps with some lead contractors, ‘that’s’ the way they have always done it’.

  3. J.Green

    It will be interesting to see what the NAO can do about what has been going on. The case of Learndirect is one that the SFA have received detailed complaints about and have done ABSOLUTELY NOTHING about.
    I hope that the NAO call for evidence about LD’s behaviour one the past few years since LDC acquired them. It is clear that the need to suck cash out of LD has been a consideration that completely outweighs any thoughts about funding reaching the learners.
    Well done FE Week for keeping on top of this issue.

  4. Ofsted have a good handle on subcontracted learners and it’s easy for them to spot where an arrangement is poor. However, Mike’s point about assessing quality is a good one because subcontractors should not be selected by a Prime on the basis of how much management fee they will stomach. Cap management fees as soon as possible to stop this racket!