Guidance

Funding higher risk organisations and subcontractors policy

Updated 20 June 2022

Applies to England

1. Background and introduction

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

1.2: Part of the Department’s remit includes financing apprenticeship training and education services provided in respect of people in employment. These services are delivered by a wide range of Providers, including independent training providers, further education colleges, higher education providers and other provider types.

1.3: In addition to being responsible for funding the delivery of education and training the Department must also be satisfied as to the appropriate delivery of services, provision of accurate data and management of the services, in accordance with the agreements and or contracts through which funding is provided, in order to be confident that the requirements at 1.2 are being met.

1.4: The provision of public funding is contingent upon the Department being satisfied that a proposed Provider is not “high risk”, as set out in this policy and its proper use as set out in the agreements and/or contracts that a Provider holds with the Department.

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 the Department may take as a result and the Department’s decision making process.

2.2: 1. For the purposes of this policy a Provider or prospective Provider means any organisation, public or private, which seeks to access or is accessing Department funding through any of the funding streams listed in paragraph 3.1. A “High Risk Provider” means a Provider that the Department considers presents a high risk to the proper and agreed use of public funds as a consequence of falling within one or more of the criteria set out in paragraphs 4 and 5 of this policy.

2.3: Where a provider is deemed to be a High Risk Provider, the Department will also use this policy when deciding whether to:

• refuse to register the Provider on any register used by the Department including but not limited to the register of training organisations, the register of apprenticeship training Providers and the register of end point assessment organisations;
• remove a Provider from any register used by the Department including but not limited to the register of training organisations, the register of apprenticeship training Providers and the register of end point assessment organisations;
• refuse to accept a Provider’s bid(s) for funds - and/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 contract or agreement with the Department for apprenticeships funding;
• terminate one or more or all of the contracts or agreements held by the Provider with the Department where contracts/agreements allow;
• restrict or withdraw funding and/or stop payments on either a temporary or permanent basis.

3. Scope of the policy

3.1: The policy applies to public and private sector Providers (including employer-providers and Providers operating as supporting Providers or subcontractors), with the exception of schools and academies, accessing the funding streams specified below:

• adult education budget
• loans facility
• loans bursary
• National Careers Service
• European Social Fund
• apprenticeships (including carry-in, procured, non-levy and levy funded)
• 16 to 19 study programme
• 16 to 18 traineeships
• Dance and Drama

It does not apply to budgets associated with the functions transferred from the Secretary of State for Education to Combined Authorities by way of orders under the Local Democracy, Economic Development and Construction Act 2009.

3.2: Where the Department does not have a direct relationship with a Provider because they are a subcontractor but the Department considers the Provider to be a High Risk Provider, the Department may require the lead Provider to take appropriate action and/or the Department may take action directly against the lead Provider and/or the Department may remove the subcontractor from any of the registers listed in paragraph 2.3.

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 the funding streams specified.

4. Circumstances under which the Department determines a Provider to be a high risk provider and access to funding will be refused or an existing funding stream will be withdrawn

4.1: The following paragraphs set out the circumstances where the Department will consider a Provider to be a High Risk Provider and as a result will not consider funding or accept applications and/or bids for funding, taking action as set out in paragraph 6.1. Paragraph 4.2 sets out the Department’s legal obligations under the Public Contracts Regulations 2015 as regards contracts procured under those regulations, paragraph 4.3 sets out the circumstances and criteria which apply to applications to the registers and non-procured contracts/agreements and paragraph 4.4 sets out the circumstances which apply to applications to the registers and to procured and non-procured contracts/agreements.

4.2: Contracts procured by the Department under the Public Contract Regulations 2015

Regulation 57 of the Public Contracts Regulations 2015 (re-produced at Annex 1 to this Policy) sets out specified circumstances in which a contracting authority (in this case the Secretary of State acting through the Department) is obligated to exclude an economic operator (in this case a potential Provider) from participation in a procurement procedure. If one of the circumstances in Regulation 57 applies, we will consider the Provider to be a High Risk Provider. The Department is bound by these regulations and must operate accordingly within the parameters of the law; observing the mandatory exclusions specified without exception and exercising discretion where it is permitted to do so.

4.3: Non Procured Contracts/Agreements

For all applications to the registers, and agreements/contracts that have not been/are not subject to the Public Contract Regulations 2015 the Department will utilise the same exclusions as set out in regulation 57 of the Public Contracts Regulations 2015 (reproduced in Annex 1 to this policy) to determine whether a provider is a High Risk Provider. If one of the circumstances applies the Department will take the action as detailed in paragraph 6.1 against a Provider and will refuse access to funding or withdraw existing funding.

This applies if any of the directors, shadow directors^{[footnote 1]}, trustees or any person convicted is a member of the administrative, management or supervisory body of the Provider or who has powers of representation, decision, influence, management or control of the Provider organisation including through a blind trust^{[footnote 2]}, a partner organisation or a parent organisation, have been convicted of one or more of the offences specified within the mandatory exclusions unless the conviction is regarded as spent within the meaning of the Rehabilitation of Offenders Act 1974 (and subsequent amendments).

4.4 All contracts/agreements (including procured and non-procured)

The Department will consider a Provider to be a High Risk Provider and will take the action as detailed in paragraph 6.1 (Application of the Criteria) against a Provider if any of the directors, shadow directors, trustees or any person convicted is a member of the administrative, management or supervisory body of the Provider or who has powers of representation, decision, influence, management or control of the Provider organisation including through a blind trust, a partner organisation or a parent organisation have been convicted of one or more of the offences specified below unless the conviction is regarded as spent within the meaning of the Rehabilitation of Offenders Act 1974 (and subsequent amendments):

I. An offence under sections 6A, 206 to 211,251 and 353 to 360 of the Insolvency Act 1986.

II. An offence under sections 386 – 389 and 993 of the Companies Act 2006.

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

IV. An offence under sections 34-38 if the Immigration Act 2016.

V. A criminal offence under the Health and Safety at Work etc Act 1974.

4.4.1: In addition a Provider will be considered to be a High Risk Provider and the Department will take action as detailed in paragraph 6.1 where it, any of the directors, shadow directors, trustees or any person who is a member of the administrative, management or supervisory body of the Provider or who has powers of representation, decision, influence, management or control of the Provider organisation including through a blind trust, a partner organisation or a parent organisation:

I. Is 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;

II. Have been served with a Public Interest Winding Up petition under section 124A of the Insolvency Act 1986;

III. Are subject to a director disqualification order under the Company Directors Disqualification Act 1986 or are subject to a Bankruptcy Restriction Order;

IV. Are subject to a director disqualification order under the Company Directors Disqualification Act 1986 and the ESFA has reasonable cause to suspect they have applied under a different Provider name;

V. Have in the opinion of the Department, acting reasonably, negligently or deliberately provided misleading information to the Department which would influence decisions regarding funding or inclusion on any Department register.

4.4.2: The Department will consider a Provider to be a High Risk Provider and not fund or permit access to funding where a partner organisation, parent organisation or connected party^{[footnote 3]} has negligently or deliberately provided misleading information to the Department which could influence decisions regarding any Department funding or inclusion on any Department register to the benefit of the Provider.

4.4.3: The Department will consider a Provider to be a High Risk Provider if it 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. As a result the Department will not fund or permit access to funding as set in this policy and the terms of the relevant contract/agreement.

4.4.4: The Department will consider a provider to be a High Risk Provider where a director, shadow director, person in control or with powers of representation, influence or management where the Department reasonably considers there is evidence of fraud, irregularity, negligence or dishonesty, or where any offences lead to imprisonment that relate to intolerance and/or hatred on the grounds of race/religion or sexual orientation, any activity involving viewing, taking, making possessing or publishing any indecent photograph or image of a child. As a result the Department will not fund or permit access to funding to the Provider.

4.4.5: The Department will consider a provider to be a High Risk Provider and not fund or permit access to funding to the Provider where the Department reasonably considers that there is evidence that the Provider has not carried out the appropriate Disclosure and Barring Service (DBS) checks.

5. Circumstances under which the Department determines a provider to be a high risk provider and funding may be refused or withdrawn

5.1: A Provider may be/will be a High Risk Provider where one or more of the following criteria are met. In these circumstances the Department will determine what action may be taken in accordance with this policy and the terms and conditions of the relevant agreement/contract. This may result in one or more of the actions in paragraph 6.1 being taken.

5.1.1: The Provider:

I. Is in material or significant breach (as determined by the relevant agreement/contract) of one or more terms of any funding agreement or contract with the Department and has failed or is unable to comply with Department requirements or additional conditions in order to improve or rectify the breach to the satisfaction of the Department;

II. Has previously had, in relation to any Department (and/or EFA or SFA) monies, a contract for services, a grant funding agreement or an apprenticeship agreement with the Department terminated as a consequence of falling within one or more of the criteria specified in this policy 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 provided;

III. Has a director, shadow director, person in control or with powers of representation, influence or management which has held or holds an equivalent or reasonably comparable position in another Provider/organisation which has had (in relation to any Department monies) a contract for services, a grant funding agreement or an apprenticeship agreement with the Department terminated early for one or more of the criteria specified in this policy;

IV. Has changed ownership or control, or appoints a director, shadow director, person in control or with powers of representation, influence or management where the individual falls within one or more of the criteria specified in paragraphs 4 or 5, without informing the Department within the period of time stipulated within its agreement(s) or contracts and/or gaining the prior written consent of the Department where agreements/rules/contracts for services require this;

V. Has a director, shadow director, person in control or with powers of representation, influence or management who is subject to a ban under s.128 of the Education and Skills Act 2008 unless the Provider has submitted to the Department sufficient and compelling evidence that this will not be to the detriment of the education or skills to be delivered.

VI. Has a director, shadow director, person in control or with powers of representation, influence or management who has been removed from a charity commission, charity regulator or appear on the Register of Removed Trustees;

VII. Has been subject to prior investigations where the Department has found grounds to take action or is subject to an ongoing investigation;

VIII. No longer meets the entry criteria or conditions of acceptance for registers operated by the Department in order to allow access to funds or is removed from one or more of the Department registers. Providers must ensure they 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. Failure to do so determines the Provider as high risk;

IX. Has been assessed by OFSTED as delivering training/learning as ‘inadequate in part’ or ‘inadequate overall’ or has assessed the Provider as having made ‘insufficient progress’ or ‘ineffective for safeguarding’ after a monitoring visit;

X. Has been considered by OFSTED as having ineffective safeguarding or the Provider has made insufficient progress in safeguarding and identified significant risk to learners or the Provider does not have regard to guidance published, from time to time, by the Secretary of State for Education which sets out the expectations in relation to safeguarding practice;

XI. Has failed to repay any funding due to the Department or any other public body in excess of £50,000 including through a subcontract;

XII. Has been or is subject to any of the following and this constitutes a breach of the terms and conditions of the relevant agreement/contract and/or the circumstances leading to these falls within the criteria specified in paragraph 5 of this policy:

• Involuntary withdrawal of Initial Teacher Training Accreditation;
• Removal of funding by the Office for Students;
• Removal from any professional or trade registers which would impact on the ability to deliver the agreed education/training.

XIII. Has a director, shadow director, person in control or with powers of representation, influence or management who is subject to a prohibition order from the Teaching Regulation Agency on behalf of the Secretary of State for Education unless 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.

5.1.2: Department records indicate a demonstrable and consistent track record of previous underperformance or the Provider 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. This includes but is not limited to:

I. 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;

II. Delivery of poor quality services/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;

III. Has been/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;

IV. Does not engage with Department processes and/or provides misleading/inaccurate/incomplete/inadequate data or information indicating systemic inadequacies in capacity or capability to deliver;

V. Is guilty of serious misrepresentation in providing any information to the Department;

VI. Is unable to meet and/or maintain the financial health requirements of the relevant funding stream(s) to the satisfaction of the Department;

VII. Failing 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.

6. Application of the criteria

6.1: Where one or more of the criteria set out in paragraphs 4 and 5 apply to any Provider the Department operating within the processes set out 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 (considering the criteria set out in paragraphs 4 and 5) including but not limited to one or more of the courses of action specified below:

• Refuse to register the Provider on any register used by the Department including but not limited to the register of training organisations, the register of apprenticeship training Providers and the register of end point assessment organisations;
• Remove a Provider from any register used by the Department including but not limited to the register of training organisations, the register of apprenticeship training Providers and the register of end point assessment organisations;
• Refuse to accept a Provider’s bid(s) for funds - and/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 contract or agreement with the Department for apprenticeships funding;
• Terminate one or more or all of the contracts or agreements held by the Provider with the Department where contracts/agreements allow;
• Restrict or withdraw funding and/or stop payments on either a temporary or permanent basis.

6.2: Where action is being pursued under this policy the Deputy Director responsible for the policy or their nominated representative(s) must be notified of this intention, consulted and fully involved in the decision making process on behalf of the Chief Executive of the Department in line with existing delegated authorities.

7. The Decision Making Process

7.1: The policy does not sit and operate within a standalone process but is used within existing management and monitoring processes and established governance arrangements, relevant to the funding stream(s) concerned.

7.2: The Department as part of its decision making process will consider the level of risk associated with the provision of funding to the Provider, any legal restrictions and consider information the Department has from its own knowledge/intelligence from records it maintains, information already in the public domain and accessible records held by other organisations.

7.3: The Provider concerned will be notified of the intention to take action under the policy and any relevant funding agreement/contract. It will be given the opportunity to make representation in all cases unless the Department has a right to immediate termination as set out in the relevant contract/agreement, before a final decision is made. Decisions will be made on a case by case basis. In all cases the decision and rationale will be recorded ensuring transparency and fairness.

7.4: If a Provider falls within one or more of the criteria set out in paragraphs 4 and 5 the Department may exercise its right to take action as set out in paragraph 6 for a period of time to be determined by the Department acting reasonably and proportionately up to a maximum of 3 years except where the Rehabilitation of Offenders Act 1974 (and subsequent amendments) applies.

The Department will inform the Provider of the decision and the reasons for it, except in limited circumstances where the Department believes fraud has occurred or the Department reasonably concludes that to do so could prejudice or undermine an investigation.

7.5: The Department’s decision is final and there is no appeal process to the Department. 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 Department’s official complaints procedure which can be accessed on GOV.UK

1. Shadow Director: A shadow director is a person, although not officially appointed to the Board of Directors, who controls or influences the management of the company and in accordance with whose directions or instructions the Directors of a company are accustomed to act. ↩

2. Blind Trust: A blind trust is a trust in which the trust beneficiaries have no knowledge of the holdings of the trust, and no right to intervene in their handling. In a blind trust, the trustees (fiduciaries, or those who have been given power of attorney) have full discretion over the assets. Blind trusts might be used where the trust creator wishes for the ESFA to be unaware of the persons in a position of influence/control. ↩

3. Connected Party: A connected party is persons who deal with each other otherwise than at arm’s length. Examples include members of the same family, companies within the same group, trusts and trustees, companies and their shareholders, partners and their families.

   Persons are considered connected with the Provider or its directors or its persons discharging managerial positions if they are a member of the director’s family. A company is connected with a director if the director (and persons connected to them) is interested in 20% or more of the equity share capital of the company or can exercise more than 20% of the voting power. ↩