Implementation of a new streamlined and simplified funding system for adult skills that had already been delayed until 2013/14 has suffered a further setback, following a rethink on how apprenticeships might be funded.

A newly formed Skills Funding Agency advisory group has been meeting monthly since December, and has said plans to fund apprenticeship provision based on individual frameworks, rather than component learning aim level, requires further testing.

Chris McLean, vice principal of North Hertfordshire College and member of the Funding External Technical Advisory Group told FE Week: “Only two areas related to basic skills and apprenticeship rates have more work to be done and on both counts it’s the work and scrutiny of the group that is asking for extra detailed modelling to be undertaken to satisfy ourselves that the new system will work at the organisation level as well as for the sector as a whole.”

A document published this week by the SFA, entitled ‘A New Streamlined Funding System for Adult Skills’, says “following advice from the Funding External Technical Advisory Group we are reviewing this [apprenticeship funding]. We are continuing to consult and develop our approach to simplify apprenticeships funding and align it to the principles across the rest of the Adult Skills Budget.

“As a result we now expect to be able to publish the principals and rates for funding Apprenticeships no later than May 2012.”

The first version of the funding reform document was published in October 2011 and included a plan for ten apprenticeship framework funding rates within the ‘learning aim rates matrix’ of 30 rates.

This updated version now excludes apprenticeships, and the remaining provision has doubled to 40 rates.

Mick Fletcher, a visiting Research Fellow at the Institute of Education and consultant, says the document shows that the government is struggling to streamline or simplify the funding system for adults.

“Once again simplification proves not to be as easy as the Department thought,” Mr Fletcher said.

“They are still struggling to accommodate basic skills, and can’t yet work out how apprenticeships fit; and they didn’t even try to cover safeguarded learning.

“The reason for the difficulties just might be that it’s not really about simplification at all, but about imposing a centrally determined, price based funding system instead of one that carefully reflects colleges’ costs.”

David Hughes, chief executive of NIACE and until recently the Director of Provider Services at the Skills Funding Agency, said: “We want to work closely with the government and the SFA to try and get a system which has the right sort of incentives for people who it should support and help them not only get into learning, but to succeed as well.

“We want to make sure that any changes do not disadvantage certain types of learners and that those changes recognise the very diverse needs of different learners in different situations.”

The SFA proposals also appear to scrap well trailed plans for Outcome Incentive Payments, and replace them with the piloting of a payment to the provider of half the 20 per cent of achievement funding where eligible unemployed learners prematurely leave their course to get a job.

The document reads: “Job outcome funding will be piloted in 2012/13 using the existing funding models, with 10 per cent job outcome funding where a learner leaves and enters work without achievement of the learning aim.

“This is straightforward in workplace learning, however, in classroom learning the funding will be factored into the year-end reconciliation.”

Plans are also outlined for introducing a funding cap for apprenticeship learners. The report states: “An annual funding cap of £4,400 (applied to the unweighted rate) per learner will be piloted during 2012/13 shadow working.

“The level of an annual funding cap for Apprenticeships is still being considered as part of the work set out above.”

Colleges will be coming to terms with their new found freedoms after being released from government control.

The Office for National Statistics (ONS), reclassified general further education colleges as part of central government, and sixth form colleges as local government entities, for the purposes of national accounts in October 2010.

But that changed last week when the ONS revealed that colleges would be reclassified to the private sector from April 2012.

It follows the Education Act 2011, which was given Royal Assent in November, through which the Department for Business, Innovation and Skills (BIS), and Department for Education (DfE) removed a range of restrictions and controls on FE and sixth form college corporations.

While the move has been welcomed, some have warned caution. Financial consultant Bob Deed, who works in the FE sector, said: “The ruling is good news; insofar as it means colleges are likely to be spared the additional red tape, which would have been inevitable if they were classified as an arm of central government.”

However, he added: “The de-regulation agenda may have downsides. It is likely banks will ‘re-price’ the risk associated with lending to colleges – that will mean higher borrowing costs on new loans.

“Freedoms do raise the stakes. Colleges will have to think for themselves. When things go wrong, they will not be able to blame anyone else.”

Julian Gravatt, assistant chief executive for the Assocation of Colleges (AoC), said the reclassification could save colleges “tens of millions of pounds” in compliance costs in finance departments. He added: “So we’ve had a near miss at a time when college budgets are being cutback.”

Mr Gravatt also said colleges may not notice many differences, as some of the controls have “never been used” and because the effect of the changes would not be revealed until they are actually used.

One example, Mr Gravatt explains, is the Skills Funding Agency has used its legal power to appoint governors several times in the past decade, but has never formally used its power to ask a governing body to dismiss a principal.

Mr Gravatt said: “Allowing colleges to maintain their own affairs is not only beneficial to the institutions themselves, it also brings more clarity to the way public money is spent.”

Lynne Sedgmore CBE, executive director of the 157 Group, said: “Clearly the voice of colleges and our business communities have been listened to, and responded to, on this critical matter to good effect.”

When announcing the news, skills minister John Hayes said: “I am delighted at this very positive news which we have been working hard to achieve over the last year.”

Subcontractors with a total allocation of more than £1 million are being offered a direct contract by the Skills Funding Agency (SFA).

Businesses were sent a letter by the SFA in mid-January encouraging them to bid for a contract worth at least £500,000 as part of a one-off funding pilot by the agency.

The letter says successful bidders will receive funding for 16 months to deliver full apprenticeship frameworks aimed at learners of all ages, provided they can begin the delivery from April and enroll a quarter of predicted learners by August.

The SFA says the pilot is designed to “test the appetite” of large subcontractors which have the capacity to move to a direct contractual relationship with the agency.

A spokesperson for the SFA told FE Week: “This is intended as a pilot to inform the potential introduction of a structured long term process to introduce new entrants to the education and training market, providing the Agency with access to additional capacity to deliver high quality learning opportunities to communities and businesses across the country.”

The pilot, which the SFA says will help develop the funding requirements for 2012/13, will test how organisations can be funded directly when it is not possible to reallocate provision from under-performing providers.

The Association of Employment and Learning Providers (AELP) say they are supportive of the pilot and agree that large subcontractors should be offered a direct contract by the SFA.

An AELP spokesperson said: “It is right and welcome that that the SFA should look at ways of encouraging new entrants into direct contracts, providing quality remains the watchword for the process.

“In fact, AELP has pressed for a long time for the agency to offer direct contracts to those relatively large sub-contractors who want them, although we feel that it shouldn’t be a mandatory development.”

The letter says subcontractors were invited to take part in the funding pilot only if they featured on the list of organisations which passed the ACTOR pre-qualification questionnaire and expressed an interest in delivering apprenticeships through the Single Adult Skills Budget (SASB) invitation to tender (ITT) last July.

Deep Blue Sound Limited, which delivers courses in sound engineering, music production and music performance, among others, has a subcontracting allocation of £1.2 million with City College Plymouth, but did not receive the letter.

Nigel Burt, director of Deep Blue Sound, told FE Week: “Were I to receive such a letter I would have to think very carefully about how to react.

“We have a good relationship with partners and I would be cautious about doing anything that threatened that without there being a good deal of security in it for us.

“With the almost whimsical way the education landscape seems to be changed at the moment but policy makers, this obviously wouldn’t help to give me that security.”

He added: “There is little opportunity to plan anything long term as one just doesn’t know what ‘funders’ have in store for us year on year.”

The SFA say they are currently reviewing all of the bids submitted for the pilot.

“We are not able to comment on who has applied until the process is complete,” an SFA spokesperson added.

A new ‘enquiry panel’ has been set up to manage poor quality apprenticeship providers.

The panel will report directly to Skills Minister John Hayes, who revealed the news as part of plans to increase the government’s efforts to safeguard and improve the quality and standards of apprenticeships.

The membership of the panel is yet to be announced.