This week in FE Funding: ESFA cracks down hard on subcontracting

There have been some big developments in FE funding in the past couple of weeks. Last week, I covered the main points of Rishi Sunak’s Summer Statement. Since then, Gavin Williamson has announced plans for a shift toward a “German style”, employer-led Further Education system, while yesterday the ESFA dropped a subcontracting bombshell that could have massive knock-on effects in the industry.

“German Style” FE-system

Hot on the heels of the summer statement, Gavin Williamson announced last week the government’s plans for a “German style” FE system. The minister wants to emphasise FE and apprenticeships rather than sending “ever more” students to university, while reducing the number of qualifications from the current 12,000 at Level 3 and below.

A white paper to be released in the autumn will outline the government’s long-term plans for FE. Details are scarce but, according to FE Week, one change on the table is a plan to re-nationalise English colleges.

It’s great to hear that the government plans to focus on further education in the coming years. The minister is certainly making all the right noises, and this could prove to be an exciting time for the industry. 

On the other hand… we’ve seen dozens of initiatives to reform FE. If we don’t see a very broad view with a clear and honest assessment of the industry’s problems and a holistic approach to solutions, this could turn out to be just more of the same. 

In particular, I’d like to see a very clear progression from Level 2 upwards in the new system; the government must use this opportunity to eliminate the pipeline issue from low-level to advanced qualifications. 

The current skills gap and difficulties which prevent people with low-level qualifications, and especially those from the most disadvantaged communities, from getting a leg up is a disaster for everyone, and especially the young people relying on our skills system to help them build a decent career.

Subcontracting rules

New funding guidance released yesterday marks ESFA’s latest attack in its war on subcontracting in FE. Beyond the previously-announced cap on subcontracting, ESFA have gone one step further, making it clear that brokered subcontracting activity will be considered a “serious breach” of funding rules in 2020/21. Meanwhile, providers will be required to publish on their website the “education rationale” for any subcontracts. 

I’ve said before there are a lot of cowboys in the brokerage game, and I’ve heard some outrageous stories over the years about wildly excessive fees that amount to exploiting the taxpayer. But here’s the issue: subcontracting flourished because it’s a plaster the industry was sticking over some serious structural issues with the way FE funding has worked.

I’m not convinced that placing barriers in the way of providers who, on the whole, have used subcontracting responsibly is the way to solve any issues the industry has with subcontracting.

Those issues haven’t gone away and the full details of the government’s new “German style” FE system have yet to surface. Without more reforms, the demand for brokerage isn’t going away, and the cowboys I talked about? Neither are they. People will always find ways to get around this type of regulation.

What is the end game here? I understand the drive to kick swindlers and fly by night providers out of the industry. However, this won’t just hurt the cowboys’ wallets, but countless smaller FE providers who rely on subcontracting as one of their primary sources of income.

Consolidation on the horizon?

Consider the long-term trend to award contracts to very large providers, colleges, and management companies. Throw in this week’s news about subcontracting and the plans for a wholesale reform of FE alongside discussions around bringing colleges back under public ownership.

These moves may, or may not, be part of a coordinated strategy to put the squeeze on certain facets of the FE industry. Either way, providers should look to the possibility of a significant consolidation in the near to medium term future of our industry. 

Don’t get caught with your pants down! Now is the time to review your strategic direction ahead of the autumn white paper, especially if you’re relying on subcontracts to balance the books.

If you need any advice around the themes I discussed in this week’s post, I recently launched a new Provider Support Package which could help.

For a fixed monthly fee, I provide a full package of funding and business development support, as well as personalized guidance on acquisitions, recruitment, strategy, and subcontracting arrangements. See our Provider Support Package page for more information.