The SFA’s subcontracting money pit

The subcontracting of learner volumes is becoming increasingly commonplace as colleges seek to grow their funding allocations. According to the most recent SFA list of Declared Subcontractors (May 15), just shy of £1bn in skills funding per year in England is now subcontracted.

For some colleges this is an integral element of their business model. Calderdale College, for example, subcontracted over £19m in SFA funding across a supply chain of over 100 providers. More than 50 more colleges subcontract SFA delivery to at least 10 or more different subcontractors. Over 400 SFA lead providers (including colleges) engage in some level of subcontracting, collectively managing over 4,000 individual subcontracting agreements, with an average value of £225,000 each. There are over 1,500 individual subcontractors, each holding subcontracts with an average of just under 3 different lead providers each.

In setting out these figures I am not seeking to make a case for or against subcontracting in the skills system (that would be a blog topic in its own right). I would however argue that, in these times of ongoing austerity and FE funding challenges, these figures represent a chronic and needless waste in commissioning expense.

A report by the Centre for Economics and Business Research (CEBR) in 2013 found that the average cost of an UK competitive procurement process was £45,200. On this basis, if 400 SFA lead providers were to therefore undertake a subcontracting procurement exercise, the combined cost of this would be over £18 million. That would be an average cost of £4,500 to procure and commission every SFA subcontract, around 2% of the value of the average subcontract. When put in these terms, the numbers appear to have a level of plausibility.

Whilst I accept that this is not a wholly scientific calculation, even if the figures are part way right the cost to the taxpayer is still staggering. With £450m in year savings being sought by BIS from the SFA, every million surely counts. For example, £18m equates to around half of the SFA’s current internal wage bill. There is a nettle here waiting for somebody to grasp it. Possibly the AoC, 157 Group, Gazelle, AELP, or even the SFA itself?

Cost savings could readily be achieved in a number of ways. For example, why not adopt a standardised supply chain sourcing model, including a common application process and industry standard contract agreement (similar to that adopted by the Ministry of Justice)? Instead, each of the 400+ lead providers are likely to have their own model and agreement, each developed and administered at the expense of their individual institutions.

What too if a provider is assessed as being “fit-for-purpose” to serve as a subcontractor for one college? Should they then be expected to fully restate their credentials, and be subject to replicated due diligence for the next, or should one jump through the hoop be enough? Better still, how about a common framework for all pre-approved subcontractors, through which colleges and lead providers could apply light-touch mini-competitions to refresh their supply chains?

Such changes would require a collective will, but the challenges are not insurmountable. The SFA’s existing RoTO system already provides a foundation for a framework model. Equally, access to the SFAs bravo system could be opened up, whereby any subcontracting by colleges and lead providers would have to be commissioned using this as a common system. Not only would this reduce cost, but it would also give every lead provider access to the full collective of subcontractors to select from, which would surely drive competition and performance.

I will confess that I don’t have all the answers, but if nothing else then I hope that this article helps contribute to, and open up, the debate. Let’s start a real conversation.

Jim Carley is managing director of Carley Consult, a specialist business development agency supporting the skills and employability sectors