Exclusive: Public Accounts Committee chair says topslicing is ‘outrageous leeching’ of public cash

The issue of topslicing with lead providers skimming off around 40 per cent of government funding for delivery before dishing out contracts has been branded an “outrageous leeching of taxpayers’ money” by Public Accounts Committee (PAC) chair Meg Hillier (pictured).

The Labour MP (pictured) told FE Week the National Audit Office (NAO) was going to investigate instances such as the country’s biggest Skills Funding Agency (SFA) contractor, and former publicly-owned provider, Learndirect retaining 36 per cent of total funding (£68.1m) from 75 subcontractors in 2014/15.

“It is an outrageous leeching of taxpayers’ money by contractors that aren’t delivering any public service and are just acting as conduits,” she said.
Ms Hillier added: “I am going to ask the NAO to investigate this and we [members of the PAC] will consider what we will do about it as a committee once we have seen the evidence.”

It follows a long campaign against excessive topslicing by FE Week that was launched in the paper’s pilot edition in June 2011.

Lead contractors who retain government funding, through what they usually call management fees, before finding a subcontractor to do the training for the remaining sum, is also a subject currently being looked at by the SFA.

An SFA spokesperson said it was “undertaking compliance work” to determine whether any providers had ignored a ruling that detailed information about management fees they charge subcontractors be published online by November 23.

It is expected to be finished “by the end of the calendar year”.

The SFA warned in September that funding could be suspended where declarations were missing after the deadline.

It requested that information on management fees was available on websites, and included current supply chain fees and charges policy.

It also wanted the relevant weblinks provided on 2015 to 2016 subcontractor declaration forms.

However, FE Week checks on the websites of a number of leads with numerous subcontractors found that a number had missed the deadline.

And while Learndirect met the deadline, its management fees revealed topslicing of around 40 per cent in a number of instances.

It defended the charges saying suppliers delivered “Learndirect-branded services using our systems and products in line with the delivery standards laid down by Learndirect.”

“We provide marketing, the content, and the quality, audit and contract management framework within which they sit,” added a spokesperson.

The SFA has previously said that management fees should be no higher than 15 per cent of the value of the lead provider’s contract.

And Peter Lauener, Education Funding Agency and SFA chief executive, told FE Week last year that he would find a 40 per cent topslice “hard” to justify “because it’s kind of obvious that what is taken as a management fee is not going to frontline education or training”.

It’s a view of high management fees shared Ms Hillier.

“I am very interested in and worried about this issue,” she said.

“We are very worried as a committee about FE funding in general and this is a waste of a large amount of the precious little money available.”

The NAO declined to comment.

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  1. Finally, recognition of an absolute scandal. Having been a LD provider it was clear that the topslice was completely absurd. The sale of LD to LDC was the trigger for a huge increase in “management” fees. The SFA completely ignored providers complaints.
    I wonder how this will effect the proposed sale of LD by LDC now that the margin issue is being so publicly aired.
    Learndirect has been treated as a cash cow, that cash should have been going towards learners not an excessive overhead and shareholders pockets.

  2. Whilst not wanting to defend organisations that charge high management fees I think it’s unfair to state they are merely conduits for funding and add no value. As the SFA has reduced it staffing structure prime contractors have been used to manage smaller contracts. They have an obligation to manage the quality of these providers and take the risk in terms of success rates and under performance.

  3. Lynn Direct

    The underlying problem is that not enough money is getting to actual delivery. To me this is symptomatic of the continued downward pressure on funding and constant change in the sector.
    Unfortunately, since GLH was de-coupled from the learning aim and placed against a learner (as ‘planned’ GLH) the sector no longer has the option of looking at avg funding per learner GLH across years to see what proportion of funds reaches the coal face.
    After a subcontracting top slice less funding goes on teaching hours, but the same could be the case in non subcontracted provision (‘top slicing GLH’). Presumably the acid test has been to see if success rates suffered, but it probably means a greater inclination towards ‘teaching to the test’ at the expense of other value added learning.
    The ‘war on top slicing’ is the most obvious easy target, but it’s not the full picture.

  4. The money should be ploughed into teaching and learning; it should not be bled away by the processes discussed. Often admin and bureaucracy is given more credence that the grass roots of teaching and putting students at the centre of this. Education should not reduced to a mechanistic business model it is so much more …

  5. This was all highlighted 38 months ago in ‘Ensuring Quality in Apprenticeships’ but nothing has been done in that time by the SFA to ensure that lead contractors added value for their ‘management fee’. I know of some who basically charge their costs incurred and work in partnership (7%) and plenty who do charge 15% and provide additional support such as resources and training. I likened it in the report to basically children at school having their lunch money stolen from them, unfair and indefensible. Funding needs to be sorted out so that it goes to providing sufficient training and assessment of the right quality to the apprentices. The SFA needs leadership and reform, as does the inspection of apprenticeships. There is still a tendency for Ofsted to inspect apprenticeships differently in terms of resourcing, with one ‘specialist’ on a college inspection for large numbers of apprentices. Ofsted are also insisting that everyone of their additional Ofsted Inspectors has a degree which will rule out many of the outstanding provider staff who really understand what quality delivery is all about. Success rates have been in serious decline for three years despite simplistic frameworks being approved for the likes of large American coffee chains. Childcare success rates will fall through the floor next summer when the impact of GCSE maths and English are felt.

  6. Mark Masson

    If Government and its agencies (funding & quality)radically stripped back the amount of bureaucracy, uncertainty and general turmoil they regularly unleash on the sector lead providers – whether that’s “for profit” providers such as Learndirect or charities such as Colleges – wouldn’t have to retain so much funding to ensure compliance and mitigate the risk (eg. of funding clawback or a poor Ofsted inspection – the liability of which sits with the prime contractor, not the subcontractor…..lets not forget that!).

  7. Rachel Royce

    Before making knee jerk and over the top statements like this I suggest the PAC chair should find out a bit more about the FE sector and what is involved in delivering high quality teaching and learning in a way which is fully compliant with the onerous demands of government policy as played out via the various agencies of government. It might also be worth her distinguishing between “for profit” providers such as Learndirect and those, such as Colleges, which are charities and therefore must reinvest any surpluses in….wait for it…..education!!!

  8. Benn Carson

    I suppose the question is “What will actually be done about this”? I bet nothing! The SFA did state that primes not charge more than 15% but theres only a minority that actually charge that amount. It would be interesting to find out how much of the 68.1 million was spent on running the 75 subcontractors. I bet you it didn’t even cost more than 1 million! I still witness primes wanting to charge 30%+ management fee’s and they cannot justify, fully, the reasons for their extortionate rates.

  9. Outrageous it might be but wasn’t it all pretty predictable when the SFA moved to sub-contracting in the first place? No doubt the value of top slicing is greater than the “cost saving” to BIS of taking an axe to the SFA.

  10. We charge between 15 and 20% depending on the subcontractor. This is only just a little more than the cost of managing the data and the quality assurance. Any ‘surplus’ is spent subsidising the work we do in our local, rural community where costs are much higher per student than an equivalent inner city programme.

  11. I think you should also look into how much Local Authorises take back from providers of Adult Learning to prop up other budget areas. ours equates to almost 1/3 of our total spend often for central recharges that have no support offered.