The impact of the (unnecessary) RoATP process and the resultant pausing of the ITT tender raised a “common sense prevails” cheer from the ‘establishment’ of colleges and large contract holders. A ‘get out of jail free’ for many organisations who had not recognised the extent of the impending changes or adapted their business models to suit.
However, the contract extensions given for 2017 are less than expected and will still have a negative impact on those expecting apprenticeship growth.
Especially hard hit is a whole group of “sub-contractors” – ones that have built good businesses, ready for change, with excellent employer relationships and good data/quality systems that they have invested in ready to become ‘primes’ in their own right. Deferment of this contract is a real blow to this group of providers and could leave their businesses exposed to a considerable risk – quite possibly many of these good companies may go to the wall as a result.
To exacerbate the problem, the lower levels of contract extensions for (Primes in) 2017 means there will be less available to be subbed to these companies and therefore the supply line will run dry.
Of course, the Apprenticeship Levy is a huge opportunity, but early signs are that large companies are taking their time to both understand it and make decisions, partly influenced by the 24-month rule.
In addition to the above a whole new breed of providers have emerged over the past 2 years utilising Advanced Learner Loans. Whilst this has had some bad press because of the actions of a few (and there are some horror stories), there are some really good businesses with modern methods who have utilised this funding stream very successfully for themselves, their primes and their learners. With no sub-contracting now permitted on this stream and no apparent direct route for gaining contracts they are now left high and dry and potentially out of business also.
If AEB contracts are also deferred for another year as rumoured then all change is off the table and those that have prepared for change are losers.
Altogether a very sorry state of affairs and certainly not encouraging entrepreneurs to take risks, hire staff and invest in their businesses.
So, what happens next? We believe that organisations need to consider these options – well in advance of getting into serious financial trouble and potentially going under:
- Partnerships:Typically, providers focus on and sell their (often narrow) range of training to employers and do not embrace partnerships where another (trusted and proven) provider could deliver their specialist services to reciprocal clients. Good partnerships built on an open honest relationship can benefit the client and each of the training providers involved – there is also less risk of losing the client by offering a wider, value added service.With the introduction of the Apprenticeship Levy, businesses will need to embrace this approach as large employers will clearly have much wider, varied requirements.
- Mergers and Consolidations: It is a brave step to consider losing your own identity and joining up with another company. M&A’s are risky and do not work in many cases. However, this could be a good route to survival for many businesses and could create a much stronger joint business if the providers have complimentary skills, abilities and clients. This will require strong leadership, ego’s put to one side and an acceptance that your business is not currently worth as much as you would have hoped.
- Acquisitions: There is a great opportunity for larger organisations to ‘acquire’ smaller providers with good people, systems and client connections – at a low price reflective of market conditions. Enabling the survival of the smaller partner could strengthen the larger organisation and inject some new dynamism into its apprenticeship or Learner Loan activities.
- Commercial Revenues: Often, we see commercial training providers believe that their clients are not interested in funding, and funded providers think that customers “will not pay for training”. We have seen cases where a commercial provider and a funded provider in the same sector have a 30% overlap in their client bank each selling their services to the same clients.
People will pay if they value the service they receive.
We believe that if a good training provider does the job properly with an employer – through an organisational needs analysis and training needs analysis – they will uncover many needs and can present a coherent solution (with other partners) which includes some funded options. The introduction of the Levy will encourage this approach much more as the Levy is commercial business – many have not come to terms with this point as yet.
We strongly advise our clients to ensure that their overheads are covered by commercial revenues and therefore when the inevitable shift in policy and funding comes you will be resilient enough to adapt to the next round of change.
David Kitchen, Managing Director, The Leadership Team