The manner by which the Skills Funding Agency (SFA) distributes government cash to training providers, has long been the subject of debate and criticism.
In brief, the agency operates a rigorous due diligence and approval system, The Register of Training Organisations, (ROTO). However, approval is no guarantee of funding. The SFA contracts directly with only a very limited number of these providers. The only way that other providers can gain access to government funding is via a sub-contracting arrangement with one of the 400 or so direct contract holders (or "Primes" as they are often referred to).
This process was no doubt meant to reduce the workload on the SFA and remove the necessity of entering into a direct contract with every provider on ROTO. However, it has resulted in a system which is both iniquitous and unfair and the forthcoming Apprenticeship Reforms provide an ideal opportunity to address the problem.
A recent article in FENews stated that Primes are now handling 4000 separate sub-contracting agreements with an average value of £225,000. That's a sum of £900m and means that nearly a quarter of total government funding is currently being distributed not by the approved government agency, but by a collection of over 400 colleges and private training providers.
Leaving aside the question as to the basis on which these providers should be deemed to be capable of wisely distributing taxpayers money, there is a huge issue around the "management fees" being charged by Prime contractors. The SFA recommends management fees around 10% of the total funding. However, these guidelines are being widely ignored and whilst the SFA insists that all Primes should publish their fee structure on their Web Site, many of them are still to comply and those that do, tend to hide them away in inaccessible areas. That's hardly surprising, as my research suggests that the average fees are at least 20% (double the SFA guidelines) and many providers are charging up to 30% or even higher.
So in a nutshell, around £180m of government funding is not being used to support learners but is going straight into the coffers of Prime contractors. That is a staggering figure and in my view at a time of such austerity in the vocational training sector, it is an absolute scandal.
Of course Primes will argue that there are costs involved in the administration of subcontracts and that they take on a degree of risk in that sub-contractors could fail to perform. That is undoubtedly true but it does not justify extortionate fees, way above those suggested by the SFA. Subcontracting has sadly become a license for a small number of large providers to print money at the expense of smaller organisations and learners who miss out on funding.
However, there may be some light at the end of the tunnel. Under the forthcoming Apprenticeship Reforms, funding will be handed directly to employers who should then (theoretically) be able to choose a provider of their choice. Obviously those providers will need to be approved in some way and as yet it is unclear as to how this approval process will take place. If an "Approved Supplier" is simply an existing Prime Contractor, then the whole subcontracting jamboree will continue unabated. However, I cannot see how such a system could work in practice. Surely no employer is going to negotiate a deal with a provider, only to be told that they are subcontracting the training to another company.
So I hope that "approval" will simply mean being on ROTO (or a similar system), and that it will be open to any provider, no matter what their size or previous relationship with the SFA, to negotiate a commercial arrangement directly with an employer. If so, then for the first time, we will be operating on a level playing field and providers will be judged solely on the quality of their provision.
Whilst some Primes may have to readjust their business models to handle a short-term loss of income, the long-term benefits of a system which is fair for everyone are significant. Overall levels of provision are certain to increase because in future only the best will flourish, not just those with the largest pot of government funding. Moreover, £180m in funding can now be used for what was always its primary purpose – to directly support learner training.
Roger Francis is a director at Creative Learning Partners, a specialist vocational training company focusing on the delivery of Functional Skills