It was mostly a week of celebration for FE providers, as five rose to ‘good’ Ofsted ratings.

Two of them achieved the feat in their first ever inspection.

However, one private provider fell to the ‘inadequate’, and another was brutally criticised in Ofsted’s first early-monitoring visit report on a newcomer to apprenticeships, prompting ministerial intervention.

Starting with the ‘good’ news: it was a great start to life as an employer provider for Specsavers Optical Superstores as it was given grade twos across the board in its first visit from the inspectorate.

The world’s largest privately owned optical group has a team who provide framework apprenticeships in optical retail, at intermediate level and standards-based apprenticeships in spectacle making at advanced level.

It trained over 500 learners last year.

Training leaders were praised for working “very closely” with Specsavers store directors to “ensure that apprenticeships meet their technical and customer service skills needs”.

Learners develop their work-related skills and improve their chances of gaining employment

Inspectors added that apprentices benefit from a “broad range” of very high-quality online learning materials, as well as high-quality off-the-job workshops, which “help apprentices quickly develop the knowledge, skills and behaviours that their employers seek”.

The other FE provider to achieve ‘good’ in its first ever inspection was Lionheart in the Community, based in London.

The not-for-profit organisation was rocked by the sudden collapses of First4Skills and Talent Training last year, but has since come out of the debacle on the other side.

At the time of inspection, LITC was training 450 adults through advanced learner loans.

Leaders were lauded for “successfully establishing a very welcoming environment” which meets the needs of the local community “very well”.

“Close links with employers and community groups support learners to develop their work-related skills and improve their chances of gaining employment,” Ofsted added.

“Learners are ambitious and the vast majority of them remain in employment, gain employment, or move into higher and further education after completing their course.”

The most glowing report came in for Leeds City College, which was given a grade two overall but ‘outstanding’ in three of the nine headline fields.

The chief executive and his team have “addressed successfully and swiftly” the main areas for improvement from the previous inspection on the 20,000-learner college.

“Staff have been highly effective in developing a curriculum that responds to the priorities of local employers for high-level skills and provides a route into employment for the most disadvantaged members of the community,” inspectors said.

‘Good’ news was also delivered to Cumbria County Council and Calderdale Metropolitan Borough Council this week as both adult and community learning providers rose from a grade three to a two.

“Senior leaders have been relentless in successfully eliminating the weaknesses identified at the previous inspection,” inspectors said about Cumbria, while at Calderdale, “managers rigorously monitor the performance of staff; this has resulted in improved quality and outcomes for learners”.

Senior leaders have been relentless in successfully eliminating weaknesses

On the flip side, Team Enterprises Ltd, based in Merseyside, went from a grade three to a four.

This small provider trained just shy of 300 apprentices and adult learners last year, but “too many” of them did not achieve their qualifications and complete their programmes.

Teaching, training, learning and assessment are “weak”, Ofsted said, adding: “Consequently, too few learners acquire new vocational knowledge, skills and understanding.”

Team Enterprises Ltd is currently on the government’s register of apprenticeship training providers but as a result of the grade four, which was given across the board including in apprenticeships, the ITP can now expect to be taken off of the list and be unable to deliver the provision in the future.

One of the most brutal Ofsted reports ever seen in FE was meanwhile published about Merseyside’s Key6 Group.

The monitoring visit report of the new apprenticeship provider said training was “not fit for purpose” and apprentices complained they were “not learning anything new”.

The report was so bad that skills minister Anne Milton had to immediately step in to stop the provider from taking on any new apprentices, which FE Week revealed yesterday.

It was also bad news for Thomas Rotherham College, a former sixth form college in south Yorkshire which converted to a 16 to 19 academy in November.

It went from a grade two to a three, and governors were slammed for being “distracted by their considerable work in securing the sustainability of the college through joining a multi-academy trust”.

As a result, “they do not provide sufficient challenge to leaders to ensure that the urgently needed improvements to A-level outcomes are made,” inspectors said.

Two other providers kept their grade two ratings this week following short inspections: The TTE Technical Training Group, a private provider based in Middlesbrough, and Wilberforce College, a sixth form college in Hull.

 

GFE Colleges	Inspected	Published	Grade	Previous grade
Leeds City College	06/02/2018	16/03/2018	2	3

 

16-19 academy	Inspected	Published	Grade	Previous grade
Thomas Rotherham College	17/01/2018	13/03/2018	3	2

 

Independent Learning Providers	Inspected	Published	Grade	Previous grade
Lionheart in the Community Limited	06/02/2018	15/03/2018	2	–
Key6 Group Limited	15/02/2018	15/03/2018	M	M
Team Enterprises Limited	30/01/2018	13/03/2018	4	3

 

Adult and Community Learning	Inspected	Published	Grade	Previous grade
Cumbria County Council	30/01/2018	12/03/2018	2	3
Calderdale Metropolitan Borough Council	20/02/2018	12/03/2018	2	3

 

Employer providers	Inspected	Published	Grade	Previous grade
Specsavers Optical Superstores Limited	06/02/2018	14/03/2018	2	–

 

Short inspections (remains grade 2)	Inspected	Published
The TTE Technical Training Group	13/02/2018	15/03/2018
Wilberforce College	06/02/2018	12/03/2018

The Department for Education is backing HMRC’s decision to collect VAT on subcontracting management fees.

The tax office has launched a major investigation into subcontracting to find out why primes have not been applying a mandatory 20-per-cent charge to their top-slices.

The crackdown, which involves a team of around 20 special investigators, has rocked a sector which may now face tens of millions in additional costs.

Many confused providers, who until recently had no idea about the rule, have engaged tax experts to calculate potential liabilities, though colleges are clinging to the belief that they may yet be exempt, and the Association of Colleges is backing them up.

The DfE, however, is one body with its mind made up.

“The rules are clear – VAT must be paid on management fees,” a spokesperson said.

The rules are clear – VAT must be paid on management fees

HMRC rules state that while vocational training is exempt from the tax, management services in subcontracting relationships are not.

Julian Gravatt, the deputy chief executive at the Association of Colleges, believes the department’s statement “oversimplifies a complex situation” and wants its members to tread with caution.

He recognised that management fees charged by colleges are “taxable in principle”.

But he also pointed out that paragraph 4.4 of VAT notice 701/30 muddies the water. It indicates that supplies of education and vocational training by “eligible bodies” including colleges can be “exempt” from VAT.

He stressed that eligibility for payment “depends on some fine distinctions”, and each case needs to be “judged on its circumstances”.

“Education and training are underfunded,” he added. “No-one will benefit if HMRC officials overstretch themselves in interpreting complex legislation.”

FE Week has sought clarification from HMRC, which was unequivocal in its response.

“The provision of education and services that are closely linked and essential to that education are exempt, if provided by an eligible body such as a college,” it said, adding that management services are not regarded as “closely related services” and are therefore subject to VAT.

FE Week understands that HMRC plans to investigate up to six years of unpaid VAT and will attempt to claim all of it back.

No-one will benefit if HMRC officials overstretch themselves in interpreting complex legislation

This could rise to 12 years if evidence is found that prime providers knew about the charge and failed to apply it anyway.

Substantial fines are also likely, according to one VAT expert.

Evidence seen by FE Week suggests the VAT rule is unknown to most providers, and has not been applied for years, meaning that hardly any of it has been paid.

West Nottinghamshire College, which subcontracted nearly £17 million in provision last year, has been liaising with its financial advisors and is “confident” its subcontracting arrangements “meet the requirements for VAT accounting”.

Eastleigh College, which subcontracted over £17 million worth of training in 2016/17, said it has always taken “external specialist advice” and its view on VAT and HMRC compliancy “has not changed”.

Neither would confirm if they have ever charged VAT on management fees.

Around a £1 billion of funding is subcontracted every year across the ESFA post-16 funding streams, which FE Week estimates would generate around £40 million per year in VAT for HMRC.

The largest college provider of apprenticeships in 2016/17 will have to cut more than 100 jobs in an effort to make £2.7 million in savings.

West Nottinghamshire College is blaming it on changes to subcontracting rules.

It had contracts to deliver apprenticeships and traineeships worth £19.8 million last year, but the overwhelming majority of this was subcontracted.

The college has now admitted it will be a “significantly smaller apprenticeship-provider going forward”, due to changes in the apprenticeship system brought in last May, including new subcontracting rules.

“Budget pressures caused by a reduction in the number of apprentices and on-campus students –which is consistent with the national trend – means we must take decisive and necessary action to ensure we remain on a stable financial footing moving forward,” said Dame Asha Khemka, the college’s principal (pictured above).

This would mean “reducing our staffing levels to balance income with expenditure”.

“We have already taken a range of measures to reduce our operating costs but, regrettably, job losses will be unavoidable,” she admitted.

The college said in a statement that it needed to save around £2.7 million, and was currently consulting on proposals to reduce staff numbers by 100 full-time equivalent posts.

According to the new rules for contracting and subcontracting, which came into force last May, lead contractors can no longer subcontract entire apprenticeship programmes.

Instead they must “directly deliver” at least some of each programme.

The rules state that “the volume of training and/or on-programme assessment that you directly deliver for each employer must have some substance and must not be a token amount to satisfy this rule”.

And all subcontracting arrangements must be agreed with the employer before the start of an apprenticeship programme.

In addition, many providers that were previously subcontractors are now able to contract directly with employers to deliver apprenticeships.

Much of the college’s apprenticeship provision to date has been “delivered on a subcontracting basis” through a “network of private training providers with sector-specific expertise”.

“This highly successful approach has formed a key part of its apprenticeship strategy and enabled the college to expand its offering,” it said in a statement.

It said it expected to see “this model of delivery disappearing altogether over the next two years” with “all provision coming directly from the college instead”.

As reported by FE Week last year, the college subcontracted 82.4 per cent of its apprenticeship provision in 2015/16, which earned it £3.2 million in top-slicing fees from provision worth £15.5 million.

At the time it appeared confident it could weather the funding changes: Andrew Martin, the college’s deputy principal said they were an “enormous opportunity to expand apprenticeship provision”.

A new best-practice threshold for a 20-per-cent limit on subcontracting management fees has already been undermined, after multiple colleges and their representative body refused to comply.

The guideline, agreed last week between the Association of Employment and Learning Providers, Holex and Collab, a provider group, was conspicuously missing sign-off from the Association of Colleges, which said it needed to consult its members.

The AoC has now confirmed it will not commit to any recommended limit because it is developing other guidance “properly” with the Education and Skills Funding Agency and the University Vocational Awards Council.

The guidance, which covers expectations for primes and subcontractors, states that the “core fee” charged by the prime provider for “legitimate management overheads” for quality and contractual compliance aspects should be “no greater” than 20 per cent and would “generally will be much less”.

FE Week has spoken to three colleges which have historically charged more than 20 per cent. They all indicated their intention to continue doing so – should the subcontracting relationship warrant it.

“Very occasionally the college may need to charge up to 30 per cent, so that providers who are new to delivery can be effectively supported in the development of the provision,” said Dr Alison Birkinshaw, the principal of York College and the president of the AoC.

New College Swindon, which is an AELP and AoC member, states in its 2017/18 subcontracting fees policy that providers who enter new subcontracting relations with it could face up to top-slices of 38 per cent.

A spokesperson explained it would be “conforming to the 20-per-cent guidelines in the main”, though there may be “exceptions depending on the nature of the partnership and the services we provide as the prime”. She added they would “never” charge over 30 per cent, and some charges were as low as 12.5 per cent.

These exceptions might be, for example, “free learning materials, quality-assurance and improvement, staff recruitment, and some training input on top of returns to ESFA”.

Barnet and Southgate College, a member of AELP, AoC and Collab – of which its principal David Byrne is the chair – charges up to 30 per cent in management fees.

A spokesperson said this is “proportional to the level of services provided” and didn’t say whether the college would drop fees as a result of the new guidance.

AoC boss David Hughes told FE Week that his organisation is working with the ESFA and UVAC to “bring our members together to develop guidance on subcontracting”.

“We want to do this properly, exploring the rules which already exist and find ways to make sure they are being implemented,” he said.

“We know that there is a lot of good practice in subcontracting to meet employer and specialist needs and we want to ensure that everyone can see that.”

The ESFA did not comment before FE Week went to press.

“The only questions we think should be answered at this stage are: do these organisations think anything over 20 per cent is justified and what is the justification,” said Mark Dawe, the chief executive of the AELP, in response to the AoC.

“Presumably it won’t be taking money away from learners when they are campaigning for more money to get to learners in FE.”

He added that his organisation would not “condone” any management fees above 20 per cent without an “acceptable rational”, and if his members do not like this stance, then it is “for them to decide whether they want to remain part of our membership”.

Lead providers often claim that pricey management fees are needed to cover administrative costs, but many in the sector, including education committee chair Robert Halfon, believe that too much money is being diverted from frontline learning.

Some management fees have reached up to 40 per cent, infamously in the case of Learndirect, the now-disgraced largest provider in the country.

Mr Halfon went as far as to say subcontracting had become a “money-maker” during an education select committee this week.

Anne Milton has stepped in to stop a provider from taking on any new apprentices, after it was criticised in Ofsted’s first early-monitoring visit report on a newcomer to apprenticeships.

The apprenticeships minister made it clear that the government had decided swift action was needed against Merseyside’s Key6 Group.

“All apprenticeship training must be fit for purpose,” she said. “We have stopped Key6 Group from taking on any new apprentices following Ofsted’s findings.

“The provider must now show us how they plan to improve, and we will monitor their progress. I also want to see them immediately address the safeguarding issues highlighted in the report.”

A spokesperson for the Department for Education added that it will “always take action to protect apprentices if a training provider is not fit for purpose”.

“Employers are free to move their apprentices if they are dissatisfied with the quality of apprenticeship provision or responsiveness of their existing providers.”

The inspectorate’s brutal criticism of Key6 was particularly striking because it has high-profile apprenticeship levy contracts with Liverpool Football Club and charity giant Mencap.

The charity said it had been “disappointed with the quality of training and other aspects of apprenticeship provision”, and it is now “in the process of assessing” contractual options”.

Liverpool FC confirmed it is aware of Ofsted’s report but declined to comment.

The troubled provider joined the government’s register of apprenticeship training providers last March.

Inspectors heard apprentices complain they were “not learning anything new on their apprenticeship”.

Instead, they “shoehorn existing work in a portfolio to get a free qualification”.

“The large majority of apprentices are not even aware that they are an apprentice, and identify themselves as studying a level five management course,” the report said, while safeguarding arrangements “are not effective”.

“Directors have failed to ensure that the designated safeguarding officer has received the appropriate training to allow her to execute fully the role,” Ofsted added.

Dr Jerry Grundy, the group’s director of education, refuted the safeguarding criticism in particular.

“Holding overall responsibility for Key6’s safeguarding, I have over a decade’s experience as a headmaster of two schools; my practical experience of dealing with complex safeguarding issues is extensive.

“In addition, another of Key6’s directors is currently the independent chair of three local safeguarding children boards, one local safeguarding adults board and a member of the National Association of Local Safeguarding Children Boards.

“This information was all provided to the inspectors at the time of the monitoring visit.”

Craig Pankhurst, the provider’s managing director, has complained to Ofsted about the report.

He said there had been “positive dialogue” with the ESFA, and welcomed “their advice and guidance”.

“We understood the Ofsted monitoring visit to be developmental and balanced. The lack of either forms part of the reason for Key6’s complaint,” Pankhurst said.

Chief inspector Amanda Spielman announced last November that Ofsted would conduct early monitoring visits at new apprenticeship providers to look out for “scandalous” attempts to waste public money.

Today’s report was the first example of the tougher new approach, and it will send out a warning to other new providers that they need to deliver on quality.