Subcontracting: Incorporating the Guidance

You know your responsibilities to your funding body. But do your subcontractors know their responsibilities to you?

FE institutions are funded by the Young Persons’ Learning Agency and the Skills Funding Agency (together “the Agencies”). The Agencies distribute their funds in accordance with the Funding Memorandum and/or the Conditions of Funding which are signed by both the institution and the Agency.

So far, so straightforward. However, the Funding Memorandum and the Conditions of Funding are both also subject to the Funding Guidance issued by the Agencies from time to time. In addition, as the LSC Financial Memorandum for 2006 was never withdrawn when that funding council dissolved, it also remains in force. As a result, the funding of FE institutions is subject to hundreds of pages of rules and regulations, all of which are themselves subject to further change.

Finally, to complicate matters even further, most FE colleges and sixth-form colleges are charities which are subject to general charities legislation (although they are not subject to regulation by the Charity Commission in the same way as registered charities). This imposes further duties on the governors as trustees of the charitable organisation. Those duties include a duty to comply with the requirements of any regulators which govern the activities of the charity, such as the Agencies, regardless of whether the Agencies actually investigate whether the institution is complying with its obligations.

What does this have to do with sub-contractors? Most institutions have a good grip on their general obligations to the Agencies, such as the requirement that provision cannot be sub-contracted more than once. However, the terms of the funding provided by the Agencies, as set out in the myriad documentation referred to above, must be reflected in the contracts entered into with sub-contractors, otherwise the institution risks breaching the conditions of its funding.

Whilst the guidance and the funding memoranda are frequently referenced in the contracts with sub-contractors, institutions should ensure that the sub-contract mirrors the requirements imposed on the institution by the Agencies before the sub-contracts are finalised.  It may be difficult for an institution to argue that the sub-contractor was bound by the terms of the relevant agreement between the institution and the relevant Agency if the relevant documents have not been made available to the sub-contractor prior to execution of the relevant sub-contract.

Similarly, where there is a discrepancy between the institution’s contract with the sub-contractor and with the Agencies, it is likely that the express terms of the contract between the institution and the sub-contractor will be binding on those parties, notwithstanding that this may place the institution in breach of its obligations to the Agencies.

By way of a simple example, the Agencies generally impose an obligation on the institution to receive feedback and investigate complaints promptly and thoroughly, whether those complaints arise from learners, their employers or the wider community. This obligation should be expressly referred to in the contract with a sub-contractor, for example by requiring the sub-contractor to notify the institution of any complaint within 24 hours, and to provide any and all documentation necessary to the institution to enable it to fully investigate the complaint.

Failure to include such a clause may lead to an inadvertent breach of the Funding Memoranda, with all of the consequences that a breach entails. If the institution receives a complaint directly, it is not sufficient for the institution to direct the complainant to the sub-contractor for redress, and to only become involved if the sub-contractor is unable or unwilling to adequately deal with the complaint, regardless of what the sub-contract between the parties says.

As the funding memoranda and guidance can be subject to change over time, it is important that the sub-contracts are similarly reconsidered and updated as necessary. Eversheds can assist institutions with this process, and also provide guidance to any institutions where the current agreements do not reflect the requirements of the Agencies.

Dave Hughes, Solicitor, Eversheds LLP davehughes@eversheds.com

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