A cash-strapped college’s 2017/18 accounts have revealed a £5 million deficit, on the same day that the insolvency regime came into force.

The massive shortfall at North Hertfordshire College is 20 times higher than was budgeted at the beginning of the year, and twice what was predicted just two months before the end of the year.

As a result, the college received £2.5 million in bailout funding in just three months, and submitted a last-minute application for an unspecified sum from the restructuring facility.

A new approach has been taken to managing our cash position ahead of the implementation of the new insolvency regime

An FE commissioner report, triggered by the college’s request for exceptional financial support in September which also prompted a financial notice to improve from the Education and Skills Funding Agency, is understood to be expected imminently.

The college “generated a deficit in the year of £5.03 million” compared with a £713,000 surplus in 2016/17, while its income fell from a little over £30 million to nearly £24 million in 2017/18.

The deficit includes a £4.3 million overspend compared to income, and a £713,000 loss on the sale of a property.

The college “struggled to meet the budgeted revenue targets set, a situation caused by several factors but most notably the significant nationwide slowdown in apprenticeship starts following the introduction of the apprenticeship levy,” the accounts said.

Education and Skills Funding Agency figures show North Hertfordshire had 890 starts in 2017/18, down 29 per cent on the previous year’s total of 1,260, and down 66 per cent on the 2,590 starts in 2015/16.

The college received £1 million in exceptional financial support in September, and a further £500,000 in November, while “approval for a further £1 million has been granted and is due in December 2018”.

Meanwhile, an application to the restructuring facility in September has been endorsed by the FE commissioner, Richard Atkins, whose team visited the college in the same month.

The college also plans to “secure a significant cash injection” by selling “surplus land”, although it was unable to tell FE Week how much this was expected to raise, citing commercial confidentiality. 

“A new approach has been taken in 2018/19 to managing our cash position ahead of the implementation of the new insolvency regime for colleges,” the accounts said.

Nonetheless, the principal risk facing the college is that “we are not able to maintain our target level of cash reserves in light of the new (sector wide) insolvency regime”, which came into effect on January 31 and which will allow colleges to go bust for the first time.

“We are now looking forwards,” a college spokesperson told FE Week.

In addition to the apprenticeship slowdown, the college’s recent improvements – which saw its Ofsted grade increase to ‘good’ in November 2017 – “required considerable investment”, she said.

“We have robust recovery plan in place, we are making good progress towards implementing all the commissioner’s recommendations and we are confident about our future.”

Minutes from the college’s board meetings show how the deficit spiralled over the course of the year.

In June 2017 “the proposal was for a budget showing a small loss” for the coming year which the senior management team “was confident could be managed”.

We have robust recovery plan in place, we are making good progress

Four months later the minutes reveal there was a “risk that this forecast deficit would increase” as part of a “full reforecast” that was “in hand” after Hart Learning and Development – the college’s apprenticeship arm – “failed to hit the forecast surplus in 2016/17”.

By February 2018 the forecast deficit had increased to £1.5 million.

The original deficit had been £250,000 “but it had become clear towards the end of 2017 that this was optimistic”.

The June minutes show the forecast deficit had gone up yet again, to £2.5 million.

The college claims the final £5 million deficit is not comparable. The £2.5 million was “from the management accounts which covers the operational performance of the college only” while the £5 million includes “subsidiary accounts and several non-operational (and non-cash) balance sheet adjustments such as losses on disposal of assets”.

The fall in apprenticeship numbers and rising deficit are among a number of challenges the college had to deal with in 2017/18.

Its former principal, Matt Hamnett, resigned with immediate effect in November 2017, shortly after the departure of the James Sowray, the managing director of Hart Learning and Development.

Board minutes from the following month report on the outcome of a review into a whistleblowing incident involving Hart, in which they say “income had been forecast which would not now be received” and would lead to a “review of the management structure and culture in the business”.

Mr Hamnett, whose £294,000 salary made him the highest paid principal in 2016/17, received £74,000 payment in lieu of notice in 2017/18 according to the accounts.

Since leaving the college Mr Hamnett has worked as a consultant and authored a study “to understand and offer some reflections on the transformation of FE colleges which are not performing to the level that their students, business customers and communities should expect.”

Commissioned by the Further Education Trust for Leadership and published today, the study is called ‘Beating the odds, and the system’.

The Education and Skills Funding Agency has delayed issuing European Social Fund contracts after multiple providers who lost out in a recent procurement alleged that the government broke tender rules.

Winning bidders from the exercise, which was worth £282 million in total, were supposed to be awarded their contracts on Tuesday following a 10-day standstill period, but this has now been extended to 8 February.

The providers complained that the ESFA’s tender was botched mainly because the agency failed to score the “track record” section of bids, even though they were expecting to get marked for this.

We will take legal action if necessary

Their anger was amplified when they were told they lost out to Serco, which won at least £37 million of European Social Fund cash in the tender.

The training provider made losses of £29.5 million in 2017, according to its latest accounts, and is rated “requires improvement” by Ofsted – although this is just for its apprenticeships provision.

The aggrieved providers were also shocked to find out that Learndirect’s new owner secured more than £20 million worth of ESF contracts, in conjunction with his other company Dimensions Training Solutions, in the tender.

This was despite Learndirect being hit with a grade four Ofsted rating in 2017 and the ESFA terminating all of its skills contracts in July last year.

“We will take legal action if necessary as these contracts could only have been won through the successful organisation misrepresenting components of their business vehicle to the ESFA,” said one chief executive of a provider that lost out to Serco and asked to remain anonymous in fear of repercussions from the agency.

A Department for Education spokesperson confirmed that the ESFA has received “a number of queries from tenders regarding the procurement process” but “no more details can be made public at this time for legal reasons”.

She claimed that all European Social Fund contracts were “awarded in line with the ESFA procurement process”, but also confirmed that the results of the track record section were not included in the final selection.

The spokesperson said this was made clear to all bidders but refused to say when this communication was.

The aggrieved providers said the DfE “didn’t make it clear at all”.

“Everyone I know is totally shocked that it was omitted,” said the anonymous provider.

“The DfE has fundamentally and substantively changed the process between publishing tender documents and the marking stage, which renders the whole procurement process illegitimate.”

A chief executive of another provider that lost out to Serco and also wished to remain anonymous added: “After re-reading the guidance and the published question and answer’s we are unable to find any communication that states that track record is not scored.  

“All of our challenges are based on clear breaches in the process and not on decisions.

“For example, financial standing, Ofsted Grade, misrepresentation of business structure, showing that the ESFA have not carried out clear due diligence on information contained in the winning bidders tenders.”

Everyone I know is totally shocked that it was omitted

The ESF is funding that the UK received, as a member state of the EU, to increase job opportunities and help people to improve their skill levels, particularly those who find it difficult to get work.

The current funding round is worth about €3 billion (£2.3 billion) across England over the period from 2014 to 2020.

England’s fund is administered through the Education and Skills Funding Agency, the Department for Work and Pensions, and the Big Lottery Fund, which each provide match funding.

Documents about the ESF winners, seen by FE Week, shows that Serco won contracts in at least six different regions.

A DfE communication to one of the aggrieved providers stated: “I’m sure you appreciate that yours is not the only organisation to have submitted queries. Please be assured that we will not be issuing contracts in the lots where you have raised queries until we have responded to your queries.”

Serco, which won 15 European Social Fund contracts valued at £31.6 million in 2017, said it could not reveal the total contracts it has won through this recent tender because the standstill period is ongoing.

But Rob Matts, Serco’s head of skills training, defended the provider’s track record.

“Serco has a strong track record of delivering high-quality ESF training and over the last two years we have successfully trained more than 18,000 people from over 5,500 different businesses and organisations,” he said.

The Education and Skills Funding Agency has suspended starts at an apprenticeship firm with multimillion-pound subcontracting deals while it investigates the provider, following revelations in FE Week about its shady set-up.

SCL Security Ltd, a private provider based in Kent that is run by Andrew Merritt, has taken £16.5 million from Brooklands College in Surrey over the last three years to deliver hundreds of level three IT apprenticeships, for mostly 16- to 18-year-olds.

But, despite the substantial contracts, SCL Security Ltd only employed eight people in 2017, according to its most recent company accounts, and seven the year before.

I understand from speaking with the ESFA that the issue was with regards to apprenticeships and contracts of employment

It is also not known exactly where the provider trains its apprentices, as Mr Merritt has repeatedly refused to share his delivery addresses despite numerous requests from FE Week.

This newspaper reported in November that the government was looking into SCL Security Ltd and it has now been confirmed that a formal investigation has begun.

While the investigation is being carried out, the ESFA has suspended the provider from taking on new apprentices.

Mr Merritt did not provide a comment, despite numerous requests.

A Department for Education spokesperson said: “We do not comment on the details of any investigations, ongoing or otherwise.”

Brooklands College said it was “unable to comment on behalf of the ESFA” and did not respond to questions about whether it still has a working relationship with SCL Security Ltd.

SCL Security Ltd also subcontracted for Ealing, Hammersmith and West London College, with deal worth £1.7 million in 2018/19, which covered basic English, maths and IT skills for learners whose first language is usually not English.

However, the college has now terminated this relationship.

EHWLC’s principal, Karen Redhead, said: “I understand from speaking with the ESFA that the issue was with regards to apprenticeships and contracts of employment.  We do not subcontract to SCL Security Ltd on apprenticeships.

“We did robust due diligence and we have done some really robust quality checks and have found absolutely nothing that causes concern.

“We did have a contract with them for a value of £1.7 million but as a result of FE Week’s probes some while ago we terminated it in relation to new starts.”

SCL Security Ltd secured its first direct ESFA contract this year, which totals £1 million and includes apprenticeships and adult education budget cash, bringing it in scope for Ofsted inspection.

As previously reported by FE Week, one area of interest to the ESFA will be SCL Security’s relationship with a recruitment firm called Workforce Solutions Group Ltd, which is headed up by two brothers who were at the centre of an FE Week investigation in 2016.

Paul and Joe Alekna switched the ownership of a successful provider they ran from one parent company – eResponse – to another, before transferring out £6 million, liquidating it, and leaving learners and creditors on the hook for millions of pounds.

Meanwhile, the brothers continued to run another provider called Options 2 Workplace. But when FE Week exposed the situation, the ESFA cancelled its contract.

SCL Security claims on the government’s Find Apprenticeship Training website to “operate training centres nationwide”, but its own website makes no reference to any training venues – the only address is for a head office in Kent.

As a result of FE Week’s probes some while ago we terminated it in relation to new starts

However, a Google maps search locates one of their training sites as “9 Church Rd, Redditch” – the same building that Workforce Solutions Group operates out of.

Paul Alekna previously told FE Week that Workforce “specialises in temporary and permanent staffing, focusing in the manufacturing, logistics and transport, food manufacturing and office appointments sectors”, and insisted “that’s all we do”.

But he refused to deny that Workforce and SCL Security have a working relationship.

Mr Merritt offered a list of “delivery locations”, which includes Hounslow, Greenwich, Ashford and Nottingham.

He said all are “under short-term rental/lease arrangements responding to demand” and the Redditch location was “one such rented room”, but declined to comment on the relationship between SCL Security and Workforce.

He added that the “exact addresses” of the other locations “are known to all learners, staff, delivery partners and all official bodies” but refused to give them to FE Week.

Brooklands College also refused to release the addresses of where its apprentices were trained with SCL Security.

It’s been a promising week for new apprenticeship providers, with only one ‘insufficient progress’ finding from six monitoring visits.

One of the reports, for LDN Apprenticeships Ltd, even scored a clean sweep of ‘significant progress’ findings.

Inspectors found that the provider’s managers “use progress tracking systems and frequent discussions with the provider’s learning and development specialists to identify apprentices at risk of falling behind or leaving.

“However, data for the current year shows the proportion of apprentices who have completed on time is high, with a further 15 apprentices still in learning, who are on-track to finish on time”.

Apprentices have “had the chance to work with a well-known film company to edit advertisements on film trailers and business learners learn how to how to plan and coordinate events and ensure that the correct security measures are in place”.

The one poor report came in for JM Recruitment, Education & Training Limited, based in the Wirral.

It was found to have made ‘insufficient progress’ for ensuring it is meeting the requirements for successful apprenticeship provision and was criticised by inspectors for its record-keeping.

Its leaders and “managers have not implemented an effective quality monitoring process, so cannot check if apprentices are receiving high-quality training; they do not analyse management information rigorously; and both they and the tutors do not have sufficient oversight of off-the-job training”.

Information about the quality of subcontracted provision is “inaccurate” and leaders are “unaware if apprentices have left their course early”.

Inspectors did find that assessors challenge apprentices with potential scenarios that they may not naturally encounter in the workplace, such as what a teaching assistant should do if a teacher spoke inappropriately to a pupil.

Apprentices also receive good support to develop their skills and achieve qualifications in English, maths and ICT.

The four other reports all resulted in ‘reasonable progress’ findings across the board.

The West Midlands Creative Alliance Limited, based in Birmingham, was commended for building links to the creative industries.

Apprentices are on the right apprenticeships for the right job role and managers use monthly quality meetings to ensure apprentices get back on track if they fall behind.

Meanwhile staff at Absolute HR Solutions Ltd, based in Warwickshire, work “very closely with employers to recruit only those who will benefit from learning and will add value to the employer’s business”.

The apprentices develop new knowledge, skills and behaviours in management and customer services, which prepare them for management roles and provide more options for their next steps when they finish training.

Thanks to the training, a levy-paying employer has been able to open a new store and increase sales. Apprentices tend to stay with the employer and rise “quickly through the ranks”.

GLAS Business Solutions Limited is a Pontypridd-based independent learning provider which also came in for praise from Ofsted.

Its leaders make “effective use of their close involvement in a trailblazer group, which sets apprenticeship standards, to ensure apprenticeship programmes are matched closely to the needs of both apprentices and employers”.

Tutors are “role models” for apprentices and use their good occupational knowledge and experience to deepen their apprentices’ vocational knowledge.

Kreston Reeves LLP, a Kent-based employer provider, also made reasonable progress in all three areas.

On its apprenticeship provision, inspectors found the provider offers very intensive off-the-job training, including ethics training and tutorials in how to use spreadsheets to record and analyse financial data.

On the quality of training, inspectors reported: “Apprentices rapidly develop the substantial new knowledge, skills and behaviours that managers need them to have. For example, apprentices gain strong technical skills alongside much improved confidence in their own abilities to complete audit work and to professionally interact with clients.”

An independent training provider due to deliver the first T-levels from next year has warned it might have to pull out of the programme after being frozen out of infrastructure funding.

The “ridiculous” decision by the Department for Education to exclude all ITPs was revealed on Wednesday when it launched a £38 million capital fund that the 52 providers in wave one of the new post-16 technical qualifications can access.

The fund is split into two parts – a specialist equipment allocation (SEA) and a competitive buildings and facilities improvement grant (BFIG) – to help build new classrooms, refurbish buildings and upgrade equipment.

But the BFIG is only available to schools and colleges, not independent providers.

Mark Pike, the chief executive of Develop, one of only two ITPs set to deliver the first three T-levels from 2020, said the rule “puts a big question mark” over its ability to offer the qualifications.

“It’s just ridiculous,” he said of the DfE’s decision. “There has been no indication we would not be able to access the fund.”

Mr Pike was at a meeting on Monday with DfE officials where funding for T-levels was laid out, but he said no mention was made of ITPs being cut out of the BGIF.

Develop, which applied to become a T-level provider under the name Bedfordshire and Luton Education Business Partnership and is set to offer the digital route, had been looking at opening another centre and hiring more staff to provide T-levels, but is now faced with having to instead consider displacing other students to accommodate learners for the new qualifications.

“We knew it will be slightly different for independent training providers, but it was at least an opportunity for us to have more of the opportunities FE colleges get,” Mr Pike told FE Week.

“But it’s an unfair and unjust system now.”

The other ITP in line to deliver T-levels from 2020/21, Access to Music, has said it is “disappointing” ITPs had been excluded and it is “urgently” seeking clarification from the Education and Skills Funding Agency about capital funding for T-levels.

The chief executive of the Association of Employment and Learning Providers, Mark Dawe, hit out at the “bias towards colleges”, which has been “implicit for a long time and now the DfE has made it explicit”.

“It’s just more money being thrown to colleges when it’s the ITPs that are delivering what employers want,” he said.

“There have been multiple offers from ITPs to engage their business networks, especially to meet the major challenge of finding appropriate industry placements, but the DfE has been ignoring or rejecting the offers.

“We wish them luck with T-levels, because we think the DfE are taking the same old path ignoring those that can make a difference, and it will be added to the list of failed technical policies.”

Providers can receive up to £1.4 million from the BFIG if they are teaching the construction route, a maximum of £650,000 for the digital route and a maximum of half a million for the childcare route.

When asked why it decided to exclude ITPs from the buildings and facilities improvement grant, a DfE spokesperson: “Independent education and training providers have an important role to play in the FE sector, helping people of all ages and background to get on in life.

“However, we need to prioritise investment in buildings that will benefit state funded institutions in the longer term.”

On hearing the DfE’s rationale, Mr Dawe said: “What a ridiculous response. The Office for National Statistics should investigate because they class colleges as independent of government, meaning there is no reason for singling them out for special treatment.”

Skills minster Anne Milton said: “T-levels are a once-in-a-generation opportunity to transform technical education in this country.

“It will be vital that they have access to the latest, high-quality equipment and state-of the art facilities during their studies.

“The T-level capital fund will help those further education providers at the forefront of delivering these important reforms to be ready to teach T-levels from September 2020.”

The first T-level courses will cover in education, construction and digital.