Subcontracting rules watered down just a day after being published

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A new rule that would force providers to gain permission before charging subcontracting management fees above 20 per cent was published in “error”, the Education and Skills Funding Agency has claimed.

The ESFA says the policy will now be corrected, just a day after sending it out to the sector.

In a new subcontracting “standard” published yesterday, the agency had said subcontracting top-slices “should only exceed 20 per cent in exceptional circumstances, which, in all cases will require ESFA approval”.

This would be the first time that providers have ever had to seek permission before charging management fees above a threshold.

It was welcomed by the Association of Employment and Learning Providers, which has been lobbying for top-slices to be capped at 20 per cent for five years.

But the ESFA quickly rowed back on the rule and told FE Week it was an “inadvertent drafting error that will be corrected today”.

AELP chief executive Jane Hickie did not buy the ESFA’s claim.

She said: “Does the department think we were born yesterday? The wording was too deliberately crafted for it to be an inadvertent error and someone has obviously kicked up about the requirement since the standard was published.

“If the new rule had stood before today’s U-turn, we would have finally arrived at the correct and sensible solution. Programme budgets should reach learners at the frontline and there has never been any justification for holding back more than 20 per cent of the funding other than in exceptional circumstances.”

The ESFA added that while prior approval will not be required for the charging of management fees above 20 per cent, the agency does “reserve the right” to challenge where fees retained are more than this threshold, as set out in current funding rules.

FE Week has exposed controversially high top-slices over the past decade, finding examples of management fees that reach 40 per cent to cover administrative costs.

Previous analysis by this publication for the 2016/17 academic year, for example, found that top-slices exceeded £100 million, and 28 per cent of prime providers were charging more than 20 per cent.

The ESFA’s refusal to clampdown on excessive fees comes despite mayoral combined authorities doing so after they took control of the adult education budget for their areas in 2018.

First to impose a strict cap was the Greater London Authority, which rules that no top-slice of a subcontracting deal can surpass 20 per cent.

The ESFA did launch a consultation on subcontracting reforms last year, and is taking other steps to crackdown on the practice. The new rules aim to force “significant” reductions to subcontracting e by 2022/23.

Hickie said: “Hopefully under the wider subcontracting reforms, we will also see the end of discredited practices such as year-end tactical subcontracting. However the FE and accountability system consultation raises more questions about where we go next and today’s shabby development hardly fills us with confidence that the right solutions will be adopted.”



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