Lead providers who subcontract will need to provide a report next year that proves they are not taking too much in management fees, according to the Skills Funding Agency (SFA).

“(Each provider) must provide a report from its external auditors at the end of the contract year that provides assurance that the funding that it has retained is no more than is required to cover the actual costs directly incurred in managing its subcontractors,” the SFA website said.

The clause forms part of the main terms and conditions for provider agreements in 2012/13.

Geoff Russell, chief executive of the SFA, told FE Week: “I’m asking the prime contractor to do two things. Demonstrate to me you have the processes and the controls to be able to properly oversee a subcontract – which is going to discourage people from doing it quickly – and that the only fee you’re charging is what you incur by way of direct costs.”

Mr Russell said the SFA was still working on the details of the new clause, and would be considering small providers who either used reporting accountants or were not audited.

“There’s no sense going crazy over someone who’s subcontracting £10,000,” he said.

RSM Tenon, a leading audit firm, said they had a meeting with the SFA to discuss the changes two weeks ago.

Chris Mantel, director for audit and advisory services at RSM Tenon, told FE Week: “I believe there are more questions than answers at present.

“Clear guidance will be required by the SFA to ensure a consistent approach is adopted across the sector and, given the topic, I don’t believe that there is a simple solution, especially in an environment of freedom and flexibility.”

One subcontractor told FE Week in June that the management fees used by some lead providers were a “rip off”.

Sally Garbett, an independent consultant and trainer for Read On Publications said: “One of my local FE colleges has nearly £5 million for 16 to 18 apprentices.

“They hiked their management fees from 20 to 30 per cent this year and will now retain £1.9 million of the 16 to 18 apprenticeship funding for a management fee.

“I find it hard to think that any admin operation can cost £1.9 million and I know that the advice and support they provide amounts to little more than quarterly visits and administrative monitoring.”

Inspectors this week received praise from two of England’s largest colleges, despite new data confirming a sharp rise in the number of institutions receiving poor grades.

The principals of South Thames College, in south west London, and Leeds City College said they had been impressed with the fairness of recent inspection visits in which both received “good” overall verdicts.

Both colleges, which educate many disadvantaged students, said they had been concerned that inspectors would pre-judge them based on achievement data, as Ofsted under new chief inspector Sir Michael Wilshaw pushes a tough “no excuses” culture. Their fears had proved unfounded.

Sue Rimmer, principal of South Thames College, which was inspected in May, told FE Week: “Going into the inspection, we did have some concerns because of the things that we had heard, including particularly the rumours that the inspection result was more or less set before they walked through the door because of an overt reliance on raw data.

“But our experience was very positive. The inspectors were taking into account their personal judgment. They certainly talked to the students a lot – and one of the significant things for us was that there was a key focus on what they saw in the classroom.”

Peter Roberts, principal of Leeds City College, which was also inspected in May, agreed. He said: “The inspectors never lost the focus on teaching and learning and the impact on the students, which no one would argue with.”
The two colleges said they had both been fortunate to have had experienced inspection teams.

However, their “good” verdicts appear to have been achieved in the face of an inspection regime which, new evidence suggests, is getting tougher even before the advent of a new framework next term.
Data compiled by the Association of Colleges (AoC), shown to FE Week, reveals that the proportion of colleges judged outstanding halved between September 2011 to March 2012 compared with the previous year, while the percentage graded inadequate leapt seven-fold.

In the year to September 2011, five colleges, or 7 per cent of those inspected, were found outstanding, compared with only 3 per cent (one college) in the following six months. Some 4 per cent (three colleges) were inadequate in September 2011 to September 2012, compared with 29 per cent (nine colleges) in the period to March this year.

Lesley Davies, the AoC’s deputy chief executive, said: “Some of our member colleges have been disappointed in their inspection results over the past few months. Anecdotally, our members are reporting that the inspections have been inconsistent and there has been a lack of transparency about the process.”

Mr Roberts said the 20-inspector team had managed to get its head around the complexity of an organisation operating on seven sites with 1,200 staff. He added, however, that Leeds City College, which was found to be a “good college with good capacity for improvement” knew it was still on an improvement journey.

Ms Rimmer said there were still areas of concern around Ofsted, including the “punitive” language of “requires improvement” being introduced to replace the satisfactory grade for the new inspection framework starting in September.

She was also concerned that inspectors may now over-emphasise particular performance management arrangements in colleges, when their main focus should be the student experience, and that many experienced Her Majesty’s Inspectors may be nearing retirement.

She said: “For us, the experience in the core inspection team was very noticeable; that they had been HMIs and were drawing on a lot of experience, and they are getting to the stage where they are approaching retirement.
“If new inspectors are coming in who do not have that experience and understanding, we could be in trouble.”

A functional skills convention was held by the Association of Employment and Learning Providers (AELP) and the Learning and Skills Improvement Service (LSIS) last week.

A representative for the Skills Funding Agency (SFA) said at the convention they would be ‘looking again’ at the funding rates for functional skills.

The event was designed to support, prepare and equip providers for the delivery of functional skills in the 2012/13 academic year.

The government is ignoring concerns from colleges, parents and learners about plans to fund education providers on a “per student” basis.

The reforms will affect all provision for 16 to 19-year-olds and replace the current funding system, which pays for the enrolment and achievement of qualifications individually.

However, a Department for Education (DfE) public consultation found that almost 80 per cent of respondents were opposed to the idea of a single rate for all full-time learners.

“We said that it was too simplistic. In the same way that there are programme cost weightings, there should be bands according to programme size,” David Harbourne, director of policy and research at the Edge Foundation, said.

Respondents to the consultation, which included general FE colleges, sixth-form colleges and parents, warned that the single funding rate could encourage providers to deliver cheaper courses.

They also said additional costs and student requirements, as well as the variety in course lengths, meant the single rate wasn’t flexible enough.

The reforms, which will also affect students up to the age of 24 with a learning disability or education, health and care plan, will be introduced in the 2013/14 academic year.

The change is designed to stop providers from enrolling learners on a large number of small or easy qualifications.

A DfE spokesperson said: “At the moment, as Professor Alison Wolf [author of the 14-19 review] highlighted, some 350,000 16 to 19-year-olds are on courses that do not benefit them.  We could not let a system that allowed this to continue.”

The single funding rate will pay for about 600 guided learning hours, regardless of what institution or qualification a student is enrolled on.

The change could affect the international baccalaureate, which is currently funded at 675 guided learning hours, as well as the larger programmes offered by University Technical Colleges.

Sandra Morton, chair of the International Baccalaureate Schools and Colleges Association,  said: “To deliver this programme in 600 hours is at best unrealistic and at worst will be unworkable for some institutions.

“The international baccalaureate has already suffered from the reduction in Entitlement Funding from 114 to 30 guided learning hours.

“We have absorbed this reduction but further reductions will not only impact on the centres for international baccalaureate, but will hit hard schools and colleges”

The government promised to make “sufficient funding” available for at least three academic years to protect providers.

The Association of Colleges (AoC) welcomed the transitional protection, but said they were wary of “over-simplification” in the reforms.

“At a time when the 16-18 education budget is being cut, it is right to introduce these sorts of changes in stages,” Julian Gravatt, assistant chief executive of the AoC, said.