Subcontracting – strategy or opportunism or a bit of both

I have a few hours to pass so like a good accountant decide to hone my skills on pivot tables – oh what an exciting life i do lead.

I need some data so what is better than the latest SFA and EFA allocations and the subcontracting declarations. It makes for some fascinating reading and causes me to pick up a glass of red to analyse and pose some questions, many of which are disturbing.

Now, i am not against subcontracting, let’s make that clear, indeed, our own business started this way and good subcontracting enables new entrants to the market to develop and build their capacity, and getting the support of a prime who charge a fee for the services.

But they are not doing it as a charity, indeed, only yesterday i was talking to a subcontractor who was being charged 60% management fee by the prime.

Back to my pivot tables and just to pose some questions. There is currently more than £3/4bn subcontracted by primes and if we look at this as a percentage of their total allocation the ranges are from 100% down to zero, with it levelling out at on average of about 30% of total allocation. But there are some massive variances.

One college appears to subcontract over 78% of its total SFA allocation and if we add in EFA funding, still subcontracts over 57% of its total income. So we look at its website and we see it is focused on its local community but most of its subcontracting is not within 100 miles of its ‘community’. I am also given to understand it charges an average 30% management fee. Said College has significant debt and any cursory look at its accounts shows it may be reliant on subcontracting for its solvency. Now, i’m not saying it is wrong and it may have a clear strategy but certain questions do arise:

– have the governors really approved such a strategy as part of its long term mission?
– is the margin on sub contracting propping up the institution and what is being done about it?
– can risks really be appropriately managed with such large scale activity?
– do these subcontractors have appropriate Ofsted validation or at least a proportion of them or are they all new entrants to the market?

College bashing again i hear someone say – forgot his name – but the situation is the same with some independent providers. My pivot table shows one major provider subcontracting well in excess of 40% of their total allocation, not extreme you might say but in the context of the total amount they receive, it’s mind blowing.

You cannot also fail to notice we are at that time of the year again, the phone never stops ringing with people having spare allocation and the plea ‘can you help us spend it’ when only a few months previous the subcontracting pot was dry. It reminds me of football, when in January most clubs start to run out of money and are desperate to sell a player to raise vital funds.

So what should be done i hear you ask? We have subcontracting rules coming out of our ears but do they really address the fundamental question – why are we doing it in the first place – and really it is time for all primes to be required to consider and publish their rationale for subcontracting – and in my opinion this should be a key issue for Ofsted when looking at leadership and management.

I remember writing a guide on subcontracting in 1996 when i was with Kpmg that posed exactly these questions. It doesn’t seem much has changed.

Secondly, there should be a clear route for subcontractors to become primes, to provide control and value for money and I welcome the recent SFA’s announcement which indicates there may be a route opening.

And finally risk, governing bodies and independent boards need to look at risk and i predict there are many institutions and providers who are maintaining solvency on the back of the margins generated by subcontracting – is that a sustainable strategy? I suspect not.

And finally, i read with interest the new CEO of the SFA letter to the sector recently, following the announcement of further spending reductions to the asb budget and his commitment to fund all high quality apprenticeships. Did you catch his message which i interpreted as ‘if you aren’t delivering what we want to buy then your cuts are going to be larger?’ – well this has massive implications for subcontracting and the strategies of primes, with a large percentage of all ASB being sub contracted

So as i empty my glass, i humbly suggest that, just may be, the SFA and Ofsted might want to look at this a little more closely, auditors ask some searching questions on financial health of primes and look to regulate a little more closely before we in footballing terms hit relegation from the premier league and the financial perils of that. There are no balloon payments in this sector.

Oh and did you know, my pivot table tells me that the top three Ofsted rated independents don’t do any subcontracting? Is their strategy to ‘stick to the knitting’ right or have they got it wrong and should they subcontract?

Peter Marples and Di McEvoy-Robinson are co-owners of Aspire Achieve Advance, a grade 1 OFSTED provider