A common accord for subcontracting


A common accord for subcontracting

Wednesday, 01 April 2015 08:56

With the Adult Skills Budget for 2015-16 now announced and reductions in some budgets of up to 30%, the focus on delivering value for money (VFM) is more important than ever. It is inevitable that questions about the level and some of the quality of subcontracting within the sector will come under scrutiny as part of this.

It’s important to recognise that subcontracting is a legitimate business arrangement that can be found across all areas of public service delivery and its practice does not automatically imply a negative impact on VFM. In fact when done well, the taxpayer can benefit in terms of less bureaucracy required to directly manage supplier contracts which should mean that more funding goes to the front line. Subcontracting can be a very effective way for specialist providers to remain involved in the sector without the high cost of direct contract management.

However where subcontracting is not managed well, it can create uncertainty and barriers to effective delivery. Ministers express concern about some of the subcontracting in FE and skills with some providers charging high levels of fees without adding value. We have seen lead providers creating short term arrangements with subcontractors just to support their contract volumes. Recently the SFA allocated funds to FE colleges only and within a few days, much of it was subcontracted out to independent training providers (ITPs) whose growth requests had just been turned down.

However, one implication of significant government intervention to reduce the overall level of subcontracting would be a need for the Skills Funding Agency to increase the number of direct contracts that it currently manages with providers, hardly a desirable outcome for a government agency looking for further efficiency savings. So we need a more effective supply chain management process.

The responsibility for the quality of subcontracting arrangements lies with the lead provider. The SFA holds the lead responsible for the complete supply chain and this has been reinforced through changes to the funding rules for 2015-16. We believe that this is the right approach. The agency requires transparent information on the lead provider’s website about its supply chain fees and charges, including how management fees are calculated and what support the subcontractor can expect in return. The policies posted on websites typically have a statement saying that fees can vary between 15 and 30%, but AELP members often complain that 30% is the norm rather than the maximum and they even report cases where the percentage is higher.

This is why over two years ago AELP and AoC decided that the SFA rules would be strengthened by the existence of a self-regulatory Common Accord whereby a lead contractor and a subcontractor could show that they were following a guiding set of principles which characterised their relationship. Published at the same time as the Accord was a document called ‘Supply Chain Management – Good Practice Guide’ and both of these are available for download on the AELP website.

The Common Accord requires that the fees retained by the lead contractor must be related to the costs of the services provided and the fees and services must be clearly documented by all parties. Where disputes between supply chain partners cannot be resolved through mutually agreed internal resolution procedures, signatories commit to submission of the dispute to independent outside arbitration or mediation and to abide by its findings.

We know that on an informal basis the Common Accord has been used not only to resolve disputes well before they arise into any formal situations, but also to demonstrate goodwill and good practice at the start of a subcontracting arrangement, thus eliminating many potential disputes from arising in the first place. In fact, although the Common Accord details a process for independent arbitration or mediation, we are not aware of any case where this has needed to happen, but of several where the Common Accord itself has been at the basis of a satisfactory agreement all round. More typically it has been used to help settle supply chain disputes.

AELP is also involved in the subcontracting arrangements in DWP contracts where there is a different set of principles governing the arrangements called Merlin. It is our view that we need to look at common principles for subcontracting across all government departments involved in the employment and skills sector.

The recent announcements on allocations will mean that many providers will have to review the subcontracting arrangements for 2015-16. This re-contracting process needs to be managed effectively and transparently. The Common Accord and its principles must play a vital role in upholding mutually beneficial partnerships and resolving any potential tensions that may arise. If providers aren’t referring to the Accord already, as the SFA rules recommend, then I would urge them to make it a fundamental part of their contracting arrangement s for 2015-16 and beyond.

Stewart Segal is chief executive of the Association of Employment and Learning Providers

This entry was posted in FE News by Paul Champion. Bookmark the permalink.

About Paul Champion

Some have called me a leader, and a entrepreneur, they say I have integrity, presence and skills to ensure continuous improvement and success in whatever challenges I face. They also tell me that I am positive, resilient and motivating. I say, I'm just a normaI guy from Gateshead in the North of England, who started as an apprentice engineer. I have been in the right place at the right time and in the wrong place at the wrong time! I have successfully initiated and led complex organizations and situations to completion and success, and I have been in some jobs where success seemed untouchable. Mainly though, I have tried to learn everyday, help people to progress and learn the skills they need to be successful. I have had the privilege of working with some great people locally across the UK and more recently internationally in Asia, Europe and now USA, where I am lucky enough to work for www.3aaa.co.uk where I am head of 3aaa USA. This website is just me having an outlet to talk about all those thoughts, ideas and things I learn that pass through my head every day when I face the challenge of doing business. I will also rant on about how great apprenticeships are, and how you can help change peoples lives through them. After all thats how I got to do the great things that I have done, and also I am still an apprentice everyday! All I ask is that if you find it interesting then leave a comment and share what you read. THANK YOU.

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