Policy paper

Funding higher risk organisations and subcontractors policy

Updated 9 January 2025

Applies to England

1. Background and introduction

1.1: The Secretary of State for Education may act through the Department for Education (DfE) or its executive agency, the Education and Skills Funding Agency (together ‘the department’). As such, where this policy refers to ’the department’ it means the Secretary of State for Education acting through the Department for Education or the Education and Skills Funding Agency.

1.2: Part of the department’s responsibilities include the financing of training and education services. These services are delivered by a wide range of providers, including:

• independent training providers
• further education colleges
• higher education providers
• other provider types

These providers (or prospective providers) can comprise any organisation, public or private, which seeks to access or is accessing department post-16 funding streams, as described more fully in scope of the policy. This policy refers to these organisations as ‘providers’.

1.3: In addition to being responsible for funding the delivery of training and education, the department must also be satisfied as to the:

• appropriate delivery of services by providers, in accordance with the funding agreements or contracts through which funding is provided
• provision of accurate data and the management of the services, in accordance with the funding agreements or contracts through which funding is provided

This policy refers to the range of agreements or contracts through which funding is provided by the department to providers as ‘funding agreements’.

2. Purpose of this policy

2.1: This policy sets out and defines:

• what the department means by a ‘high risk provider’
• the possible actions that the department may or may not take as a result of identifying a provider as a high risk provider
• the department’s decision making process for this policy

2.2: A ‘high risk provider’ means a provider that presents a high risk to the proper and agreed use of public funds, as a consequence of falling within one or more of the grounds set out in the circumstances in which you’ll be considered a high risk provider. More information on the application of the grounds is set out in high risk providers: applicable grounds, connected persons and subcontractors.

2.3: In considering the impact and consequences of a provider being a high risk provider, the department will consider the information and evidence available to it. There are more details about what the information is and how the department will consider it in the decision making process.

2.4: Where a provider is a high risk provider, the department, having considered the information and evidence available to it, will then consider what (if any) action to take. The range of options available to the department in these circumstances is summarised in application of the grounds.

 

3. Scope of this policy

3.1: Subject to paragraph 3.2, this policy applies to public and private sector providers accessing all post-16 funding streams, including:

• employer-providers
• providers operating as supporting providers or subcontractors

3.2: This policy does not apply to:

• schools and academies unless they hold a funding agreement for post-16 apprenticeship training and education services
• training providers which only contract with the department to deliver Skills Bootcamps (flexible training courses for adults aged 19 and over, which last up to 16 weeks and which offer participants a job interview on completion of the Skills Bootcamp)
• budgets associated with functions transferred from the Secretary of State for Education to local government institutions (known as devolution)
• such other exceptions as may be reasonably determined and communicated by the department to providers from time to time

3.3: This policy sits alongside and supplements the funding regulations, processes (including determining access to all registers operated by the department), agreements, rules, relevant conditions of grant and contracts for services which are used in the delivery and management of funding streams for post-16 training and education services.

4. High risk providers: applicable grounds, connected persons and subcontractors

4.1: A provider shall be considered a ‘high risk provider’ if any of the grounds set out in the circumstances in which you’ll be considered a high risk provider apply to that provider or to a connected person. The department may, from time to time, add to or amend the list of grounds and, if so, shall communicate such additions or amendments to providers.

4.2: Having identified the application of one of the grounds, the department will consider the information and evidence available to it and decide what (if any) action to take. The range of options available to the department in these circumstances, which may include taking no action, is summarised in application of the grounds.

Connected Person

4.3: For the purposes of this policy, a ’connected person’ in relation to a provider means either:

(a) a person (or that person together with other persons connected with them) with ‘significant control’ over the provider (within the meaning given by section 790C(2) of the Companies Act 2006)

(b) a director, shadow director, governor or trustee of the provider

(c) a parent undertaking or a subsidiary undertaking of the provider (within the meanings given in section 1162 of the Companies Act 2006) or any subsidiary undertaking of the parent undertaking

(d) a predecessor company

(e) any other person who it can reasonably be considered stands in an equivalent position in relation to the provider as a person within points 4.3a to 4.3d

(f) any person with the right to exercise, or who actually exercises, significant influence or control over the provider or who has powers of representation, decision, influence, management or control including through a blind trust, partner organisation or parent organisation

(g) any person over which the provider has the right to exercise, or actually exercises, significant influence or control or over which the provider has powers of representation, decision, influence, management or control including through a blind trust, partner organisation or parent organisation

4.4: For the purposes of this policy a ‘predecessor company’ means a company to which any of these apply:

• became insolvent or ceased to trade
• before it ceased to trade, carried on the same or substantially the same business as the provider
• has transferred all or substantially all its assets to the provider
• had at least one director or shadow director who is or has been a director or shadow director of the provider

A ‘shadow director’ has the meaning given in section 251 of the Companies Act 2006.

Subcontractors

4.5: In some cases, a provider (a ‘lead provider’) relies upon another provider (a ‘sub-contracted provider’) for support in providing the relevant training and education services. The department will not have a direct contractual relationship with a sub-contracted provider (since its contract is with the lead provider). Where the department considers a sub-contracted provider to be a high risk provider, the department may take any of the following actions:

• require the lead provider to take appropriate action in relation to the sub-contracted provider
• take action directly against the lead provider
• may remove the sub-contracted provider from any of the provider registers used by the department

5. The decision making process

5.1: The department as part of its decision making process will consider the following:

(a) whether the circumstances giving rise to the application of one or more grounds in the circumstances in which you’ll be considered a high risk provider is continuing or is likely to occur again – this may include consideration of:

• evidence that the provider or connected person has taken the circumstances seriously, for example by repaying monies or funding
• steps that the provider or connected person has taken to prevent the circumstances continuing or occurring again (for example, putting in place new procedures or training, changing staff or management)
• commitments that such steps will be taken or to provide information or access to allow for verification and monitoring of such steps
• the time that has elapsed since the circumstances last occurred
• any other evidence that the department considers appropriate

(b) the level of risk associated with the provision of funding to the provider

(c) the nature and complexity of the matters being assessed

(d) any legal restrictions which impact on the options being considered

(e) information that the department has from its own knowledge or intelligence from records it maintains

(f) information already in the public domain

(g) accessible records held by other organisations

Excluded matters

5.2: In deciding whether any of the grounds in the circumstances in which you’ll be considered a high risk provide applies to a provider, the department shall take no account of any:

• event that occurred before the 5 year period ending on the date on which the decision is made
• conviction which is regarded as spent within the meaning of the Rehabilitation of Offenders Act 1974 (and subsequent amendments)

Representations and final decision

5.3: The provider concerned will be notified of the intention to take action under the policy and any relevant funding agreement. Before any final decision is made, the provider will be given the opportunity to make representations (including the opportunity to provide evidence referred to in paragraph 5.1), unless the department has a right to immediate termination as set out in the relevant funding agreement. Decisions will be made on a case-by-case basis. In all cases, the decision and rationale will be recorded to ensure transparency and fairness.

5.4: If a provider falls within one or more of the grounds set out in the circumstances in which you’ll be considered a high risk provider the department may exercise its right to take action as set out in application of the grounds for a period of time to be determined by the department acting reasonably and proportionately (with such period not to exceed 5 years).

5.5: The department will inform the provider of its decision and the reasons for it, except in limited circumstances where the department:

• believes fraud has occurred
• reasonably concludes that to do so could prejudice or undermine an investigation

5.6: The department’s decision is final and there is no appeal process. If a provider feels that due process has not been followed there is a complaints procedure. Any complaint arising shall be resolved in accordance with the department’s official complaints procedure.

6. Application of the grounds

6.1: Where one or more of the grounds set out in the circumstances in which you’ll be considered a high risk provider apply to a provider, the department, operating within the processes for the relevant funding stream, may exercise its right, acting reasonably and proportionately, and in accordance with the law, to take whatever action it deems necessary. In reaching its decision the department shall follow the decision making process. Having established that a provider is a high risk provider, the department’s options include but are not limited to one or more of the following:

• refuse to register the provider on any register used by the department
• remove a provider from any register used by the department
• refuse to accept a provider’s application or bids for funding or exclude a provider from otherwise receiving funding either directly from the department, through a subcontract (through removal from one or more of the department registers), or through any type of funding agreement with the department for apprenticeships funding
• terminate one or more or all of the funding agreements held by the provider with the department where such funding agreements allow
• restrict or withdraw funding or stop payments on either a temporary or permanent basis
• obtain reassurances and commitments from the provider or the connected person that the circumstances which gave rise to the ground in the circumstances in which you’ll be considered a high risk provider have ceased and will not occur again
• take no formal action

7. The circumstance in which you’ll be considered a high risk provider

7.1: This section sets out the circumstances in which a provider or a connected person shall be considered to be a high risk provider.

Misleading information

7.2: A provider is a high risk provider where it or a connected person has, in the reasonable opinion of the department, negligently or deliberately provided misleading information to the department which would influence decisions regarding any department funding or inclusion on any department register to the benefit of the provider.

Funding agreements and breach of contract

7.3: A provider is a high risk provider where:

(a) it is in material or significant breach (as determined by the relevant funding agreement) of one or more terms of any funding agreement and has failed or is unable to comply with the department’s requirements or additional conditions in order to improve or rectify the breach to the satisfaction of the department

(b) it has not performed a funding agreement to the department’s satisfaction, was given proper opportunity to improve performance and has failed to do so

(c) it has previously had, in relation to any department monies, a contract for services, a grant funding agreement or an apprenticeship agreement with the department terminated early and has not been able to present sufficient evidence such that the department can be satisfied that there would be no risk to public funds, were funding to be provided

(d) it has a connected person which has held or holds an equivalent or reasonably comparable position with another provider or organisation which has had (in relation to any department funding) a contract for services, a grant funding agreement or an apprenticeship agreement with the department terminated early

Department registers 

7.4: A provider is a high risk provider where it or a connected person is any of the following:

(a) they no longer meet the entry criteria or conditions of acceptance for registers operated by the department in order to allow access to funds

(b) they have been removed from one or more of the department registers

(c) they have failed to have appropriate systems in place to ensure that any changes to the statements and declarations made as part of a register entry process can be identified and reported as required to the department

Change of ownership or control

7.5: A provider is a high risk provider where, without informing the department within the period of time specified within its funding agreement or gaining the prior written consent of the department (where applicable and necessary), it:

(a) undergoes a change in ownership or control

(b) appoints a connected person who meets one of the grounds in the circumstances in which you’ll be considered a high risk provider

Appointment of connected persons and subcontracting

7.6: A provider is a high risk provider where, without informing the department within the period of time specified within its funding agreement or gaining the prior written consent of the department where applicable and necessary), it appoints a subcontractor under a funding agreement.

Investigations

7.7: A provider is a high risk provider where either it:

(a) or a connected person has been subject to prior investigations where the department has found grounds to take action or is subject to an ongoing investigation

(b) transpires the provider is not eligible for funding under the funding rules applicable to the funding stream as a consequence of an investigation by the department

Non-payment of monies owed

7.8: A provider is a high risk provider where it or a connected person has failed to pay or repay any sum of money or funding owed or due to the department or any other public body.

Insolvency or directors disqualification

7.9: A provider is a high risk provider where it or a connected person is any of the following:

(a) bankrupt or is the subject of insolvency or winding-up proceedings, where its assets are being administered by a liquidator or by the court or where it is in an arrangement with creditors

(b) has been served with a Public Interest Winding Up petition under section 124A of the Insolvency Act 1986

(c) subject to a director disqualification order under the Company Directors Disqualification Act 1986 or are subject to a Bankruptcy Restriction Order

(d) subject to a director disqualification order under the Company Directors Disqualification Act 1986 and the department has reasonable cause to suspect they have applied for department funding under a different provider name

Ofsted assessments and safeguarding

7.10: A provider is a high risk provider where it or a connected person:

(a) has been assessed by Ofsted as delivering education or training as ‘inadequate in part’ or ‘inadequate overall’ or has been assessed as having made ‘insufficient progress’ or as ‘ineffective for safeguarding’ after a monitoring visit (in the event that Ofsted assessments change, then this paragraph shall be interpreted as referring to the gradings which replace or are reasonably considered to replace ‘inadequate in part’, ‘inadequate overall’, ‘insufficient progress’ or ‘ineffective for safeguarding’)

(b) has been considered by Ofsted as having ineffective safeguarding

(c) has made insufficient progress in safeguarding and identified significant risks to learners

(d) does not have regard to any guidance published, from time to time, by the Secretary of State for Education which sets out the expectations in relation to safeguarding practice

Poor performance

7.11: A provider is a high risk provider where either:

(a) departmental records indicate a demonstrable and consistent track record of previous underperformance on the part of the provider or a connected person and the department has not received sufficient assurance of an acceptable level of improvement

(b) the provider or a connected person has shown significant or persistent deficiencies in the delivery of agreed activity and the department has not received sufficient assurance of an acceptable level of improvement - the department reserves the right to require the provider, at its own cost, to seek this assurance through an independent third party to be agreed by the department

7.12: The underperformance or deficiencies could include but are not limited to:

• recurrent irregular spend or mismanagement of funds where the department has raised concerns, and the provider has not responded to the satisfaction of the department
• delivery of poor quality services or activity, management or data provision which does not meet the standards expected by the department as determined by the department or another external quality assurance body
• the provider or connected person has been or is subject to the application of other sanctions and action has not resulted in the desired effect or there is insufficient assurance of any meaningful improvement, and the department considers the evidence available significantly undermines the contractual relationship between the department and the provider
• the provider or connected person does not engage with department processes or provides misleading, inaccurate, incomplete or inadequate data or information indicating systemic inadequacies in capacity or capability to deliver
• the provider or connected person is guilty of serious misrepresentation in providing any information to the department
• the provider or connected person is unable to meet or maintain the financial health requirements of one or more of the relevant funding streams to the satisfaction of the department
• the provider or connected person fails to reasonably pass payments onto other organisations as required by the relevant funding stream (this could include but is not limited to employers, subcontractors or end point assessment organisations)

Professional standards

7.13: A provider is a high risk provider where it or a connected person has been or is subject to any of the following and this constitutes a breach of the terms of the relevant funding agreement, or the circumstances leading to it, that falls within one or more of the grounds including:

(a) involuntary withdrawal of initial teacher training accreditation

(b) has a connected person who is subject to a prohibition order from the Teaching Regulation Agency on behalf of the Secretary of State for Education unless the provider has submitted to the department sufficient and compelling evidence such that the department is satisfied that this would not put public funds at risk

Professional misconduct

7.14: A provider is a high risk provider where:

(a) the department considers that the provider or a connected person has engaged in professional misconduct which brings into question the provider’s or the connected person’s integrity (as applicable)

(b) a court, regulator or other authority has ruled that the provider or connected person has engaged in such professional misconduct

7.15: ‘Professional misconduct’ for these purposes includes dishonesty, impropriety or a serious breach of ethical or professional standards applicable to the provider or connected person (whether those standards are mandatory or not).

Prohibition on participation in management

7.16: A provider is a high risk provider where it has a connected person who:

(a) is subject to a ban under section 128 of the Education and Skills Act 2008

(b) has been removed from office by a charity commission, charity regulator or who appears on the Register of Removed Trustees

Acting improperly in a procurement

7.17: A provider is a high risk provider where the department considers that the provider or a connected person has acted improperly in relation to any procurement and, in so doing, the provider or connected person put itself at an unfair advantage in relation to the award of a public contract.

Disclosure and Barring Service

7.18: A provider is a high risk provider where there is evidence that the provider has not carried out the appropriate Disclosure and Barring Service (DBS) checks required as part of its funding agreement or under the applicable funding rules.

Competition law infringements

7.19: A provider is a high risk provider where the Competition and Markets Authority has made a decision under the Competition Act 1998 that the Chapter I prohibition (within the meaning given by section 2 of that Act) has been infringed by an agreement or concerted practice:

(a) to which the provider or a connected person was party, and

(b) which was a cartel (within the meaning given by paragraph 4(1) of Schedule 8A to that Act)

Misconduct in relation to tax

7.20: A provider is a high risk provider where:

(a) the provider or a connected person has been liable to a penalty under either the:

• (i.) section 69C of the Value Added Tax Act 1994 (transactions connected with VAT fraud) except where the penalty is reduced under section 70 of that Act
• (ii.) section 25 of the Finance Act 2003 (evasion of tax or duty)

(b) a penalty has been payable by the provider or a connected person under either:

• (i.) Schedule 24 to the Finance Act 2007 (errors in tax documentation) but only where the conduct giving rise to that penalty was deliberate
• (ii.) Schedule 41 to the Finance Act 2008 (failure to notify and certain VAT and excise wrongdoing), but only where the conduct giving rise to that penalty was deliberate

(c) the provider or a connected person has both:

• (i.) entered into or carried out tax arrangements that are abusive (within the meaning given in section 207 of the Finance Act 2013)
• (ii.) made adjustments accordingly under section 209 of that Act (countering tax advantages), including as it applies under section 10 of the National Insurance Contributions Act 2014

(d) the provider or a connected person has been found by HMRC, in exercise of its powers in respect of VAT, to have engaged in an abusive practice

(e) the provider or a connected person has incurred a defeat in respect of notifiable tax arrangements they have entered into (with ‘defeat’ and ‘notifiable tax arrangements’ having the meanings given in paragraph 40 of Schedule 6 to the Procurement Act 2023)

Labour market misconduct

7.21: A provider is a high risk provider where any of the following orders has been made against the provider or a connected person:

(a) a slavery and trafficking prevention order, an interim slavery and trafficking prevention order, a slavery and trafficking risk order or an interim slavery and trafficking risk order under Part 2 of the Modern Slavery Act 2015

(b) a trafficking and exploitation prevention order, an interim trafficking and exploitation prevention order, a trafficking and exploitation risk order or an interim trafficking and exploitation risk order under Part 4 of the Human Trafficking and Exploitation (Scotland) Act 2015

(c) a slavery and trafficking prevention order or an interim slavery and trafficking prevention order under Schedule 3 to the Human Trafficking and Exploitation (Criminal Justice and Support for Victims) Act (Northern Ireland) 2015)

(d) a labour market enforcement order under section 18 of the Immigration Act 2016

7.22: A provider is a high risk provider where the department considers that there is sufficient evidence that the provider or a connected person has engaged in conduct (whether in or outside the United Kingdom) constituting an offence referred to in:

(a) section 1, 2, 4 or 30 of the Modern Slavery Act 2015

(b) section 1, 4 or 32 of the Human Trafficking and Exploitation (Scotland) Act 2015

(c) section 1, 2 or 4 of the Human Trafficking and Exploitation (Criminal Justice and Support for Victims) Act (Northern Ireland) 2015, or paragraph 16 of Schedule 3 to that Act

Offences

7.23: A provider is a high risk provider where it or a connected person has been convicted of any of the following offences.

Corporate manslaughter or corporate homicide

(a) An offence under section 1 of the Corporate Manslaughter and Corporate Homicide Act 2007 (corporate manslaughter or corporate homicide).

Terrorism

(b) An offence listed in section 41 or 42 of the Counter-Terrorism Act 2008 (terrorism offences, and offences having a terrorist connection, in respect of which the notification requirements under Part 4 of that Act apply), other than an offence under section 54 of that Act.

Theft, fraud, bribery etc.

(c) An offence at common law in Scotland of theft, fraud, extortion, robbery, theft by housebreaking, housebreaking with intent to steal, uttering, embezzlement, or reset.

(d) An offence at common law of conspiracy to defraud.

(e) An offence under any of the following sections of the Theft Act 1968:

• sections 1 to 13 (theft, robbery, burglary, etc.)
• sections 17 to 21 (fraud and blackmail)
• sections 22 and 23 (offences relating to stolen goods)
• section 24A (dishonestly retaining a wrongful credit)
• section 25 (going equipped for stealing etc.)

(f) An offence under any of the following sections of the Theft Act (Northern Ireland) 1969:

• sections 1 to 13 (theft, robbery, burglary, etc.)
• sections 17 to 20 (fraud and blackmail)
• sections 21 and 22 (offences relating to stolen goods)
• section 23A (dishonestly retaining a wrongful credit)
• section 24 (going equipped for stealing etc.)

(g) An offence under section 3 of the Theft Act 1978 (making off without payment).

(h) An offence under section 5 of the Theft (Northern Ireland) Order 1978 (making off without payment).

(i) An offence under Article 172 or 172A of the Road Traffic (Northern Ireland) Order 1981 (taking vehicle without authority etc.).

(j) An offence under section 58 of the Civic Government (Scotland) Act 1982 (convicted thief in possession).

(k) An offence under section 113 of the Representation of the People Act 1983 (bribery of electors).

(l) An offence under section 178 of the Road Traffic Act 1988 (taking motor vehicle without authority etc.).

(m) An offence under section 327, 328 or 329 of the Proceeds of Crime Act 2002 (money laundering offences).

(n) An offence under section 2, 3, 4, 6 or 7 of the Fraud Act 2006 (fraud offences).

(o) An offence under section 993 of the Companies Act 2006 (fraudulent trading).

(p) An offence under section 1, 2 or 6 of the Bribery Act 2010 (bribery offences).

(q) An offence under section 49 of the Criminal Justice and Licensing (Scotland) Act (offences relating to articles for use in fraud).

Labour market, slavery and human trafficking offences

(r) An offence under the Employment Agencies Act 1973 (offences relating to employment agencies) other than an offence under section 9(4)(b) of that Act.

(s) An offence under the Employment (Miscellaneous Provisions) (Northern Ireland) Order 1981 (offences relating to employment agencies) other than an offence under Article 7B(11) of that Order.

(t) An offence under section 31(1) of the National Minimum Wage Act 1998 (refusal or wilful neglect to pay the national minimum wage).

(u) An offence under the Gangmasters (Licensing) Act 2004 (offences relating to gangmasters).

(v) An offence under section 1, 2, 4 or 30 of the Modern Slavery Act 2015 (slavery and human trafficking offences).

(w) An offence under section 1, 4 or 32 of the Human Trafficking and Exploitation (Scotland) Act 2015 (slavery and human trafficking offences).

(x) An offence under section 1, 2 or 4 of the Human Trafficking and Exploitation (Criminal Justice and Support for Victims) Act (Northern Ireland) 2015, or paragraph 16 of Schedule 3 to that Act (slavery and human trafficking offences).

(y) An offence under section 27 of the Immigration Act 2016 (failure to comply with labour market enforcement order).

Organised crime

(z) An offence under section 28 of the Criminal Justice and Licensing (Scotland) Act 2010 (agreeing to become involved in serious organised crime).

(aa) An offence under section 45 of the Serious Crime Act 2015 (participating in activities of organised crime group).

Tax offences

(bb) An offence at common law of cheating the public revenue.

(cc) An offence under the law of any part of the United Kingdom consisting of being knowingly concerned in, or in taking steps with a view to, the fraudulent evasion of a tax (‘tax’ meaning any tax imposed under the law of any part of the United Kingdom including national insurance contributions).

(dd) An offence under section 45 or 46 of the Criminal Finances Act 2017 (failure to prevent facilitation of tax evasion).

Cartel offence

(ee) An offence under section 188 of the Enterprise Act 2002 (cartel offence).

Other Offences

(ff) An offence under sections 6A (false representations), 206 to 211 (fraud, deception), 251 and 353 to 360 (wrongdoing) of the Insolvency Act 1986.

(gg) An offence under sections 386 to 389 (duty to keep accounting records) of the Companies Act 2006.

(hh) An offence under sections 15, 21 and 22 of the Immigration and Asylum Act 2006.

(ii) An offence under sections 34 to 38 if the Immigration Act 2016.

(jj) A criminal offence under the Health and Safety at Work etc. Act 1974.

(kk) Any offence that relates to intolerance and/or hatred on the grounds of race, religion or sexual orientation.

(ll) Any offence relating to the viewing, taking, making, possessing or publishing any indecent photograph or image of a child.

(mm) Any offence under sections 327 to 333 of the Proceeds of Crime Act 2002.

Ancillary offences

(nn) In relation to an offence otherwise referred to in Offences, any of the following offences:

• (i.) aiding, abetting, counselling or procuring the commission of the offence
• (ii.) in Scotland, being art and part in the commission of the offence
• (iii.) an offence under Part 2 of the Serious Crime Act 2007 (encouraging or assisting crime) in relation to the offence
• (iv.) inciting a person to commit the offence
• (v.) attempting or conspiring to commit the offence

Offences committed outside the United Kingdom

(oo) An offence under the law of a country or territory outside the United Kingdom which would be an offence otherwise referred to in Offences if the conduct constituting that offence was carried out in any part of the United Kingdom.

National security

7.24: A provider is a high risk provider where the department determines that the provider or a connected person poses a threat to the national security of the United Kingdom.