Non-Levy Bidding: What did we Learn?

As Hurricane Irma has finally begun to subside, the storm of ESFA non-levy bidding has also dissipated, at least for now. Like the previous non-levy procurement, abandoned earlier in the year, this latest exercise has courted plenty of controversy. There has been widespread concern at the complexity of the process, the determination of contract caps, and the mountain of clarification queries. But is any of this really any surprise? The challenges in commissioning apprenticeships are arguably so inherent that it is probably impossible to design a competition which does justice to the job.

A key challenge comes from pitting FE Colleges against private providers. I struggle to think of any initiative, other than apprenticeships, which is delivered as a core service by the public sector (i.e. by colleges), as well as being openly outsourced to the private sector in equal measure. The legitimacy of any outsourced market comes from the contestability of how contracts are awarded. If we accept that, then we accept that FE Colleges can, and in some cases inevitably must, miss out on winning new funding. The prospect of closing an FE College because it has had a bad tender round is, however, just about as politically toxic as it comes. Therein lies the rub.

A further challenge is that apprenticeships are not a homogenous product. There are over 500 different Standards published or in development, at Levels 2 to 7, for which the ESFA must facilitate market supply across the totality of England. There is no uniform contract size, either in terms of learner volumes, vocational areas, or geographical coverage, which bidders were competing for. The lowest apprenticeship funding allocation to a single supplier in 2016/17 was just £1,524 whilst the highest was over £50 million. More than 800 providers currently have an apprenticeship funding allocation, whilst RoATP has more than doubled the number of potential, pre-qualified bidders. This all makes for a very complicated cake to attempt to slice.

Almost 150 current ESFA apprenticeship providers had allocations of less than £200,000 in 2016/17, meaning that they would likely fall below the threshold for a new direct non-levy contract. With subcontracting increasingly frowned upon, the future of these providers in the market looks far from certain. In contrast, a RoATP registered market entrant, turning over at least £200,000 in non-apprenticeship business, and having never come directly face to face with an Ofsted Inspector, could be a potential winner. Don’t get me wrong, I am strong advocate of contestability, and a level playing field for market entrants, but something here clearly doesn’t add up.

The most probable outcome of the ESFA’s procurement model is that the number of directly contracted non-levy providers may increase, but the average funding allocation per provider will decrease. Our anecdotal analysis of the preceding ESFA Adult Education Budget tender round suggested that successful bidders typically received 25% to 30% of the overall funding they had bid for through the ESFA’s pro-rata funding allocation model. The non-levy competition may well deliver a similar result.

So, are the ESFA damned in whatever they try to do? Well, not necessarily. The key is surely to stop thinking about apprenticeships in a traditional contracting sense. For levy paying employers funding will be allocated based on the choice and selection of the employer, not on a seemingly arbitrary procurement decision. The market share of each provider will be determined by their own ability to offer a relevant service, in the sectors and localities of their own choice, with market growth being determined by their own success. In this respect, RoATP provides them with a licence to operate, a light touch pre-qualifying mechanism. No extra bid is required.

This model may not work for every work based learning commission, but it shows that alternate ways of thinking about procurement, especially for complex services like apprenticeships, have merit. Let’s hope that there is a pause for reflection, and that lessons are learned. 

Jim Carley, Managing Director, Carley Consult Ltd