Many colleges are under pressure to subcontract work, but they must remember the financial scandals of the 1990s, says Nick Linford
The 1990s was a decade of turmoil for further education colleges. Stories of fraud and scandal filled these pages and others. Funding was inadequate and many colleges, with the encouragement of their funding body, the then Further Education Funding Council (FEFC), entered into franchising arrangements.
Colleges subcontracted out the teaching, training and assessment of students, claimed the public funding and passed on a portion to the subcontractors. The arrangement filled colleges' coffers with much-needed funds and was justified as a means of widening participation.
It all ended in tears when the Serious Fraud Office was called in to investigate a number of colleges when allegations of misuse of millions of pounds of public money surfaced. The misuse consisted of phantom students, phantom training providers, courses that never ran or were never fundable, and more. It's quite a list. Simply web search "FEFC fraud" and the sorry tales will appear.
In some cases, colleges were subcontracting more than half of their entire budget, and, as a result, they were sued for millions. Some colleges rebranded, others merged and some collapsed.
It's a grim tale and I know it's history, but its recentness makes it all the more surprising that subcontracting in the learning and skills sector is de rigueur once again in 2011.
The Department for Business, Innovation and Skills (BIS) is positively encouraging colleges to subcontract. It believes that when colleges and training providers work collaboratively they can exploit efficiencies and deliver more innovative training, more cheaply.
Disguised through something of a rebrand, it's the same flawed process dressed up as a new initiative. The most shocking thing, to my mind, is that the government is not imposing a limit on the percentage of funding that could be subcontracted.
Given the proven risk to the public purse, you might expect there to be solid evidence that subcontracting was still a great idea. Yet, to the best of my knowledge, no such evidence exists. Relationships can, and do, go wrong.
In December, Sparsholt College terminated a £4m contract with Luis Michael Training to provide sports apprenticeships because of "perceived irregularities". Luis Michael Training has since threatened legal action, saying the termination was unjustified.
In truth, the resurgence of subcontracting is a direct result of the SFA being told by the government that it needs to cut its own administrative costs by 33% over the next few years.
With fewer staff to manage individual funding contracts, the agency is introducing a new minimum contract level policy of £500,000 next year.
Several hundred training providers are being forced to quickly become subcontractors in order to carry on delivering apprenticeships and courses to learners.
I have a degree of sympathy with the SFA, given that at present nearly half of the contracts it manages are below £500,000 (about 600), which represents just 4% of the funding it distributes.
It's also clear to me that the SFA is (unsurprisingly) jealous of its colleagues in the Department for Work and Pensions (DWP), who will often only manage contracts of £20m and upwards. However, passing on the contract management costs to others will not support efficiencies, and at a 100-strong conference on subcontracting held last week, more than half of those colleges and training providers managing contracts said they were concerned about the quality and financial stability of their subcontractors.
In the rush to respond to new government directives associated with ambitious pre-employment and apprenticeship targets, many colleges are naturally looking for help from new partners to whom they can subcontract the work. Will some colleges respond to the time and cost pressures by cutting corners when undertaking due diligence and contracting processes?
No one in the learning and skills sector wants another round of massive contract management fees, whistle-blowing and scandals associated with subcontracted courses, but without learning the lessons from the past, it seems to me depressingly inevitable.
• Nick Linford is managing director at Lsect, a company specialising in post-16 funding and performance, and author of The Hands-on Guide to Post 16 Funding