Friday 9th March 2018

New Guidance on Sub-contracting Management Fees – Does it really move us forward?

I have been waiting with interest this week to read the good practice guidance on fees. It’s something of real interest to me as back in 1996, I was heavily involved in the first set of guidance through circular 96/06 – yes I’m that old.

So I sat on my journey to London this morning in eager anticipation of a good read. Well, four pages of what I can only describe as mother hood and apple pie.

As someone who has never sub-contracted our provision as a prime but with significant experience of being a sub-contractor to many primes over the years and enjoying fantastic relationships, I cannot help but feel there isn’t much good practice guidance in the 4 pages and the determination that 20% is the maximum that should be held with absolutely no empirical evidence to support the calculations feels like a pretty poor show to me.

Sub-contracting is much more complex for both primes and sub contractors that the ‘good practice’ guidance describes and it totally ignores the most important issue which is the reputational risk that sub-contracting provides in the case of OFSTED for a prime. Put simply, that alone is the reason why we have never entered into sub-contracting. To suggest to a sub-contractor that if the management from the prime is too onerous then they should walk away to me is simply ridiculous.

Some of the best primes today started as sub-contractors. I have always argued that there is a role for sub contracting to build capacity in the market- never have we needed more capacity to deal with the demands of employers, whether this be in the levy market or non levy market.

But let’s also be clear. There is too much sub-contracting that takes place simply to burn funding with absolutely no strategic rationale behind it. That cannot be right !. I almost spilt my glass of red in anger in December when the day after the non levy tender was announced, primes were advertising for new – subcontractors – win a bid but no idea how they are going to deliver it. And we still have an industry of brokerage of ‘we have learners, who’s got the funding – where is the strategy in that’.

The sector needs good practice guidance, not some mother hood and apple pie statements from organisations who really should be able to come up with something better and certainly based upon some data to support their conclusion.

I’m no supporter of Learndirect and the damage they have brought but I do know their management charge covers far more than ‘management’ of sub contracting as do a number of other primes. I wouldn’t manage a sub contractor for 15% given the time and effort and risks associated with it, that’s for sure.

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