Government warned over ‘too big to fail’ outsourcing deals

In the wake of Carillion’s collapse, the public accounts committee (PAC) has published a blistering report on the government’s handling of £500m of contracts with Learndirect, the contractor delivering apprenticeship training, on the grounds that poor management has allowed the outsourcer to becoming ‘too big to fail’ despite inadequate performance

The committee’s inquiry heard that Learndirect Ltd’s performance on apprenticeships has been in steep decline since 2013. The company was paid a total of £500m in the academic years from 2013–14 to 2016–17. Despite independent criticism of Learndirect by the education regulator Ofsted, the outsourcer received £121m in the 2016/17 academic year, and expects to receive over £105m of funding from its main government contracts in 2017/18.

Ofsted had concerns about Learndirect Ltd in spring 2015, but despite the company’s 75,000 learners making it the UK’s largest commercial further education provider, Ofsted decided not to inspect until November 2016. Even then, Ofsted accepted the potential sale of part of the company as a reason to postpone its inspection, and only finally inspected in March 2017.

When Learndirect Ltd found that it had been rated as ‘inadequate’, it launched a legal challenge which delayed publication of the inspection report. The judge ruled fully in Ofsted’s favour, and the report was finally published in August 2017.

PAC pointed out that the Department for Education would normally cancel an ‘inadequate’ provider’s contract and withdraw its funding almost immediately. But Learndirect Ltd threatened that such a course of action would harm its learners and jeopardise its ability to deliver other key government contracts.

As a result, the company continues to function, with the committee saying ‘this apparent special treatment clearly begs the question of whether Learndirect Ltd was too big, and too important to government, to be allowed to fail.’

Meg Hillier, PAC chair, said: ‘Outsourcing is an abiding interest for our committee but recent events have brought concerns about government’s relationship with its contractors into sharp focus.

‘In the case of Learndirect, thousands of learners have been let down amid poor oversight by government and at significant public expense. There has been disruptive legal action and, finally, a scathing Ofsted report. Yet still Learndirect appears to hold the whip hand.

‘It cannot be right that individual contractors should command such large sums of public money regardless of their performance. No commercial provider should be allowed to become so essential to the delivery of services that it cannot be allowed to fail.’

The committee’s report recommends the government develops a methodology to record how many government contracts a company holds at a given time and how well it is performing against each of those contracts. It should also develop a framework for identifying any risk that a commercial provider becomes so large and essential to the delivery of public services that it cannot be allowed to fail, or requires special treatment if it begins to do so.

In addition, PAC says Ofsted should look more closely at its priorities for deciding on inspections and on whether commercial providers are eligible for a deferral from the usual timetable.

Hillier said: ‘Government has a duty to manage taxpayers’ exposure to risk diligently and we urge it to act on the recommendations set out in our report.’

The monitoring, inspection and funding of Learndirect Ltd is here. 

Report by Pat Sweet

Pat Sweet |Reporter, Accountancy Daily [2010-2021]

Pat Sweet was the former online reporter at Accountancy Daily and contributor to the monthly Accountancy magazine, pub...

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