What’s best practice for setting apprenticeship subcontracting fees?

20 Nov 2018, 5:00

Subcontractors can cost providers more than they would like, but the benefit to apprentices can make it worth it, says Rupert Crossland

Subcontracting in apprenticeships is a reasonably complex concept. So complex, that the Association of Colleges (AoC) recently published a 50-page guide to help stakeholders make sense of the rules and establish a fair approach.

But a sector-wide consensus on these fees remains a convoluted issue because of persistent reports of inflated, profit-oriented models and, since the apprenticeship funding reforms, the individual nature of main provider/subcontractor relationships.

As with most complicated matters, the devil is in the detail; all subcontractors need different levels of input, support and monitoring. This might depend on the starting point of the subcontractor, whether they are a known quantity to the primary provider or whether previous dealings have prompted tighter controls. Remember, the main provider is ultimately accountable for all aspects of quality and compliance regarding their subcontractors and carries all of the risks.

Within their guide, the AoC suggests that main providers should adopt a risk-based approach when agreeing on fees, but, where the main provider is not delivering anything towards the provision, “it would be highly unusual for any fee to exceed 20 per cent and generally it would be expected to be less”. The guide also states: “Best practice would suggest that the most effective fees and charges are negotiated with each subcontractor and regularly reviewed”. In other words, the subcontractor should be empowered to make sure they are getting value for money from the outset and receive clear information about how, when and why fees may be reassessed.

As an example of how this might work, a main provider we support initially charged a subcontractor, who was new to the apprenticeship market, fees of 20 per cent based on the increased amount of input and monitoring needed. Clear measures were put in place to manage and mitigate the risk exposure of the main provider, and the fees were significantly reduced after nine months once delivery was stable and monitoring decreased. Crucially, it was evident from the outset what support was available, and costing was transparent.

The subcontractor should be empowered to get value for money

It seems clear-cut that nobody is suggesting that subcontracting fees should be 20 per cent or more in normal circumstances; the AoC guide advises that main providers demanding unwarranted or ongoing high charges are reported to the Education and Skills Funding Agency. Some have voiced concern that, where supporting and monitoring a subcontractor requires fees of more than 20 per cent, the inherent risk to the main provider is too significant to warrant moving forward with the relationship.

It’s important to consider what apprentices stand to gain. There are many examples where potential subcontractors offered relatively high levels of risk regarding their track record and experience, but delivered specialist aspects of the apprenticeship to a higher standard than the main provider. The support and monitoring required to mitigate risk exposures were high, and the fees reflected this, but the benefit to the apprentices was worth the effort.

It’s also important to consider that initial higher fees might be part of a broader strategy for the subcontractor. Many employers have aspirations to become employer-providers in the long term, but their starting point is such that they need extensive support from a main provider to get to a stage where they are confident enough to deliver the entire programme and can adequately manage quality and compliance requirements. The extra “hand-holding” and the development they stand to gain from the main provider means that most employers understand the necessity for higher fees in the short term. Long term, the market gains a new provider that is more able to face the challenges of the sector and offer valuable opportunities to learners.

I agree with the advice in the AoC guide; a risk-based approach to subcontracting is sensible, and fees should be fair and take into account individual circumstances. I’m sure nobody would dispute that funding should ultimately benefit the apprentice, and that subcontracting should not be used as a source of additional profit for main providers.

Your thoughts

Leave a Reply

Your email address will not be published.