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We are actively working with our clients on
assessing the implications of each of these
and putting plans into action: for the time
being, here are some of our brief initial
thoughts. Turn the pages to read more
on the perspective our sector specialists
have on the apprenticeship levy and the
insolvency regime.
Area Review implementation guidance
Guidance has been issued on the manner
in which the Government would like to see
accepted Area Review recommendations
implemented. There are some useful
questions and checklists contained within
the Guidance and there is a recognition in
the documentation that a proportionate
approach to any given implementation
project will be appropriate. Having said that,
the proposed due diligence framework is
quite extensive.
We are working on a number of
implementation projects, some which started
before the release of the Guidance and some
after, but in many cases the full framework is
in our view too heavy handed.
Due diligence underpins any project
involving structural change, and it is helpful
to see a fuller framework in the sense that
Governors and Senior Leadership Teams can
see what a quite fulsome exercise looks like.
We would, however, recommend that caution
is exercised to ensure that the nature of any
due diligence exercise is such that it seeks
to draw out the issues that really matter and
that are relevant to the stage in the process
that the particular project is at.
It should also not be assumed that
multiple parties to a potential transaction
are seeking information in order to fulfil
the same objectives. For example, in a
typical Type B college merger scenario,
the Governors of the Corporation being
dissolved need to be satisfied that the
Corporation to whom the business and
assets are being transferred is sound
and will be a good home for the future
fulfilment of the dissolving Corporation’s
objects. For the receiving (i.e. continuing)
Corporation, the Governors need to be
content that in accepting an inwards
transfer of the business and assets of the
dissolving Corporation the continuing
Corporation will prosper in the medium-to-
long term and as a minimum survive in the
shorter term. Early engagement with Banks
is important and in many cases providers
should expect that affected Banks will wish
to carry out their own top-up exercise.
Also in this issue
Q&A – Apprenticeship Levy Pitfalls
and Benefits
Is your estate in order?
Implementing the New Fair Deal
for the LGPS – consultation on
proposed changes
A proposal for a College
Insolvency Regime
Ofsted logo clampdown
Risk to Academies of breaching
transparency rules
rollits.com
Autumn 2016
Education Focus
Apprenticeship Levy, Area Reviews and the college insolvency regime: all major issues impacting on the
sector, all becoming increasingly urgent, all awaiting key announcements from the Government – until
now. With the Government effectively re-formed after the initial fall-out from the Brexit vote and a raft of
new Ministers in place, the Secretary of State for Education and the Minister for Apprenticeships and Skills
seemingly wanted to take a moment – or more accurately a few months – to take stock. Not an unreasonable
position, but the timing was not fantastic for providers who are then expected to find a way to help deliver
the Government’s agenda. Over the course of a few days in October, the log jam started to be cleared, with
several hundred pages of guidance and supporting papers being released for Senior Leadership Teams and
Governors to start digesting. Guidance which in light of the AoC’s recent judicial review challenge (since
resolved) the Government is perhaps more conscious than ever it needs to follow.
Continues on page 3…
Just like buses…
What do you believe are the most
significant changes coming in May 2017
for employers regarding Apprenticeships?
Tax, but with a chance to get it back
and create an improved workforce at
the same time! The 2015 conservative
manifesto promised to deliver 3 million
apprenticeships over the next 5 years.
That promise will start to bite in April
2017 with the introduction of the
Apprenticeship Levy. UK employers
with a pay bill of £3million plus will be
required to pay a levy of 0.5%. This will be
supplemented by a 10% top up from the
Government with the fund to be used to
pay for training/assessment of apprentices
in England. Where UK employers do
not have an annual pay bill in excess of
£3million or the levy pot is exhausted, the
Government will co-invest 90% of training
and assessment costs.
Who is likely to benefit most from
these changes?
Done right, it should be a win-win for all.
The introduction of the levy will inevitably
result in larger employers taking stock of
their training needs and, in order to ensure
they take advantage of the levy payment,
investing in apprenticeships and training.
This should allow employers the opportunity
to invest for the future in their workforce
and provide the right training for their
employees. The challenge for employers
will however be to ensure that the training
providers they utilise provide good quality
and relevant training for their employees
– which offers a fantastic opportunity for
providers who are on the ball.
What benefits will the Apprenticeship Levy
bring for providers?
New markets have been created by the
levy and, for those providers with strong
links to business communities and who
offer excellent provision, there are great
opportunities to engage with employers
and increase their apprenticeship provision.
The initial proposal to restrict the use of
subcontractors, thereby making it more
difficult for providers to offer a diverse
range of courses appears to have been
relaxed significantly leaving providers with
the ability to offer learning in a wide variety
of areas. However, whilst the levy offers
opportunities for providers, there are a
number of risks to be aware of.
What risks do you envisage providers
will face?
One of the key issues for providers is
going to be the credit risk. Under the
current proposals, employers are not
required to have funds to cover the
full cost of the apprenticeship prior to
engaging the provider. This being the
case, there will always be a risk that the
employer cannot meet all the costs of the
learning provision.
A further risk lies with the integrity
of the digital account into which levy
payments are made and from which the
providers are paid. In the event that
there are problems with the system, this
may impact upon payments being made
correctly and/or in a timely fashion. The
Digital Apprenticeship Service will also
allow employers to stop or suspend
payments if they have an issue with the
service given by the provider. Whilst this
can protect the employer from providers
who are not providing the level of service
which should be expected, this does
raise the question as to what providers
should do if employers withhold money
without legitimate grounds to do so. At
the present time, there does not appear
to be any prescribed dispute resolution
procedure available.
A further concern for providers is in
relation to pricing. There are 15 funding
bands which cap the use of the funds and
Government co-investments. However,
there is no lower limit on the bands with
the result that employers may seek to
push down providers on price. The risk is
that the provider, in order to ensure that
it is awarded the contract for delivery of
learning, is tempted to agree a price
at which learning can only be provided at
the expense of quality and therefore the
reputation of the provider.
Q&A
The Apprenticeship Levy remains a hot topic for the FE sector
with the imminent implementation of the Levy in April 2017.
Caroline Hardcastle, who leads on dispute resolution matters
for the Education Team, looks briefly at some of the benefits
but also the potential pitfalls for providers engaged in the
delivery of apprenticeships.
Apprenticeship Levy Pitfalls
and Benefits
Page 2
Education Focus
Autumn 2016
With all these risks facing
providers, is there any way they
can protect themselves?
The key to the provider reducing risk
is to ensure that there is an effective
agreement in place between the provider
and the employer. This can cover what
happens when there are delays in
receiving payments, either due to non
payment by an employer or the failure of
the Digital Apprenticeship Service and
specify a dispute resolution procedure to
resolve issues where the employer stops
or suspends payments. In any event, it is
always advisable for a provider to enter
into a contract with the employer to
ensure that both sides know what their
rights and obligations are. It also allows
providers to limit their liability and to
reduce the risk of an employer putting
the provider in breach of any SFA rules.
Employer agreements currently in place
are in our experience inadequate to
protect against the new risks presented by
the changes coming in 2017.
You have mentioned the importance of an
employer agreement being entered into
but are there any other ways in which a
provider can reduce risks?
What most good providers are doing now
and what they should continue to do is
ensure that there is full and proper due
diligence of the employer. This should
be a thorough exercise, undertaken
for all employers, with the answers
reviewed and followed up where there are
discrepancies. This should not be a simple
tick box exercise. By ensuring a proper due
diligence process is undertaken, the risk of
issues arising over payment will hopefully
be minimised.
It is also essential for providers to be firm
and clear in their negotiations on price
and to make sure the price being offered
is sufficient to cover every element of
work to be undertaken to avoid having to
compromise on quality. Where possible, all
negotiations should be documented in the
event that there is an issue at a later date.
Often due diligence is split into two
parts – an exercise on each stand alone
Corporation and an exercise on the
combined colleges operating under
the continuing Corporation. Where
either exercise uncovers serious issues
there is an opportunity to apply via the
Transaction Unit for support from the
Restructuring Facility. This is distinct from
the Transition Grant available to all who
agree to implement a recommendation
arising from an Area Review, but both
come with strings attached. It is fair to
say that early indications are that the
Transaction Unit is not processing huge
volumes of successful applications at this
stage and we are aware of a number of
potential projects where there is a strong
view that if at all possible a Restructuring
Facility application needs to be avoided –
which all points back to the importance of
due diligence and the associated business
plans which will be based on that exercise.
Apprenticeship Levy
One of the most eagerly awaited set of
publications was the guidance around
the Apprenticeship Levy following the
Government’s consultation on its (already
then overdue) initial guidance issued
earlier this year. The levy brings some
exciting opportunities for providers,
creates new markets and allows much
needed flexibility to support employers in
training their future workforce.
The overall impression is that the
Government has listened to some of the
concerns raised during the consultation
process. Funding has been looked at
again and some transitional arrangements
are being put in place to provide more of
a ramp than a cliff edge. The very clear
attempt to severely curtail subcontracting
has been reigned in for the time being,
with providers now only having to
directly provide some apprenticeships
for an employer where the provider
also wishes to subcontract provision in
respect of that employer’s apprentices
(a move away from subcontracting being
limited to substantially less than half of
each apprenticeship). This clearly does
not mean that the Government has
had a complete u-turn: there is a still a
political feeling that subcontracting is
a bad thing because there have been
enough examples of bad subcontracting.
There does, however, seem to be some
recognition that there are also plenty of
examples of good subcontracting, where
good quality provision has been made
possible by pooling viable numbers
of apprentices and delivering a more
cohesive one stop shop offer to employers
who have some specialist requirements
alongside their mainstream needs.
The Digital Apprenticeship Service is more
“DAS-lite” than what we are being told
will come in the future. Trading of levy
between employers; ATAs being able to
receive a portion of their work providers’
levies; and taking employer contributions
through the DAS rather than directly from
employers are all features that we are
promised in the coming years, with all
employers intended to be using the DAS
by 2020. In the meantime one practical
change which will be welcomed by levy
payers is that levy funds will have a shelf
life of 24 months rather than expiring after
only 18 months.
There is a great deal of concern around
end point assessment. There is currently
a paucity of end point assessors. Given
that the funding band caps include end
point assessment costs, a real worry
is that in a market of assessors where
demand may outstrip supply the price
will go up leaving less money available
for the provision itself. The sector is
working hard to find solutions to this,
and to try to make sure that funds do
not get unnecessarily dispersed. One
solution we are increasingly seeing
proposed is providers coming together
to arrange to deliver assessment services
for each other – either directly or through
grouped arrangements. There will no
doubt be capacity and timing issues to
work through, but solutions such as this
demonstrate the resilience of the sector.
We are on with developing employer,
apprentice, end point assessment and
subcontractor contracts for providers to use
to protect themselves and make the most
of the opportunities the levy brings. This
edition’s Q&A also covers some concerns
which Education Team dispute resolution
specialist Caroline Hardcastle has about
how providers may be exposed to new risks
and how these could be mitigated.
The proposed insolvency regime
Education Team member and corporate
insolvency specialist Richard Field
has brought his wider experience
of insolvency to our analysis of the
Government’s consultation, its response
and the associated Technical and Further
Education Bill. His early thoughts are
set out later in this edition of Education
Focus. The key issue appears to us to be
whether the insolvency regime will (and
whether it should) have an impact on
the attitudes of Banks, LGPS, Governors
and other stakeholders towards further
education corporations.
There is a wide variance in popular
reporting on this topic, with some
seeing the Government’s response as an
indication that it will be willing to “bail
out” colleges in the future (ignoring of
course the impact changing Government
policy has had on colleges in recent years
in particular). It seems to us that it is more
accurate to say that the Government
knows that there is a serious risk that,
if mishandled, the bringing into force
of the proposed regime could have a
very significant and detrimental effect
on college finances. A concern is that
the Banks are taking a more cautious
approach to the sector and so the
Government is in danger of causing the
very destabilisation it is seeking to avoid.
So there is a lot going on, even on the
scale the education sector has become
accustomed to. On the up-side, and
having just returned from this year’s AoC
conference where there seemed to be a
renewed optimism in the air, the can-do
attitude prevalent amongst providers and
their pin sharp focus on improving the
lives of millions of learners gives us all
hope for the future. No sector is better
equipped to manage the threats and
maximise any opportunities that all of
these policy changes might bring.
Tom Morrison
Just like buses…
Continued from cover…
Page 4
Education Focus
Autumn 2016
That guidance also does not apply to
transfers from local government (and other
best value authorities), as these are currently
subject to the Best Value Authorities Staff
Transfers (Pensions) Direction 2007 (which
itself broadly reflected the previous Fair
Deal provisions).
After much delay, the Department for
Communities and Local Government
(“DCLG”) has recently published draft
provisions to the Local Government
Pension Scheme (“LGPS”) Regulations
2013. These set out how the New Fair
Deal is to be implemented for central
government bodies such as local authorities
compulsorily transferring staff to a private
sector employer on an outsourcing. As
expected, such transferee employers will,
except in limited cases, be required to enter
into an Admission Agreement to participate
in (and contribute to) the LGPS, removing
the option for the employer to enter into “a
broadly comparable pension scheme.”
However, in contrast to the New Fair Deal
provisions, on a re-tender or subsequent
transfer to another contractor where staff
have already transferred out to a broadly
comparable scheme under existing
provisions, there is to be no requirement
to obtain admission to the LGPS for the
purpose of the new contract.
Other provisions have been introduced to
improve administration, including enabling
a surplus to be paid out to a contractor
by the LGPS fund where at the end of a
contract the cessation valuation shows a
surplus (in similar manner to the existing
provisions where an exit payment is to be
made by an employer where the cessation
valuation shows a deficit). Further, the
draft regulations also allow Admission
Agreements to have retrospective effect,
which should help where transfers to
contractors are negotiated on short notice.
One note of caution – these new provisions
would catch almost all scheme employers,
including small admitted bodies (a large
number of which are charities), thereby
increasing the costs for these bodies
(as bonds and guarantees would need
to be put into place by them under the
Admission Agreement).
The consultation on these draft provisions
closed in August, and DCLG is currently
considering the responses before
finalising the draft regulations. Education
providers who have staff in the LGPS
should take note, particularly on any
contracting-out of employees to private
contractors in the future.
Craig Engleman
In previous editions of Education Focus we reported on the New Fair Deal guidance applies to
staff transferring from public sector pension schemes to private sector contractors as a result of the
outsourcing of services, and the fact that it was not made mandatory for the FE or HE sector.
Implementing the New Fair Deal for the LGPS – consultation on proposed changes
Consider property ownership – if your
organisation has a number of sites, it
would be useful to prepare a schedule
of properties setting out the property
address, whether the property is freehold or
leasehold, the title numbers for the property,
whether the property is charged (and if so
to whom) and whether there are any leases
(and if so to whom). A list of any rights,
covenants, options, overage provisions and
other documentation could also be entered
onto the Schedule.
Locate the title deeds – you should
ensure that the location of any title deeds
for each property, including the lease for
any leasehold property, is known. If the
location of the title deeds is unknown,
make enquiries with your (current and any
previous) solicitors and any lender to locate
the deeds.
Register any unregistered land – the
Land Registry currently has a considerable
backlog and first registration applications
are taking in excess of one year. It is
therefore advisable to voluntarily register
any unregistered land, and deal with any
title issues, now so that problems do not
arise when any future charges are granted
or transfers are entered into. This will also
enable any future transactions to be dealt
with quicker and more cost effectively.
Check extent of registered titles – it
should be ensured that the whole
extent of each property owned by the
organisation is registered and that the
actual boundaries of each property match
the boundaries of the title plans for the
property and adjoin the public highway.
A search of the index map can be carried
out to ensure that the whole extent of each
property is registered. Any discrepancies
can then be dealt with.
Deal with any title issues – any known
title issues or disputes should be dealt with
expeditiously so that any issues do not delay
any future transactions.
Formalise any informal arrangements
– any informal rights, covenants or
occupational arrangements should be
formalised in writing to ensure such
arrangements are valid and registered
against the title to the property (if
appropriate). This will reduce the likelihood
of any future disputes regarding the nature
and extent of any informal arrangements.
If you are able to carry out all, or even
some, of the above exercises then when it
comes to potentially urgent transactions
you will be in much better shape to be able
to maximise any opportunities which may
present themselves in the future.
Libby Clarkson
In the current climate there has never been a more pertinent time to ensure that your Estate is in order.
In further and higher education, providers are seeking funding from commercial lenders more than ever
before and the nationwide programme of Area Reviews has provided an opportunity to revisit each
college’s estates strategy. We have set out below a list of proactive steps which should be undertaken
and issues considered to ensure that your organisation’s Estate is in good order to enable any future
dealings with it to be dealt with quickly and efficiently.
Is your estate in order?
Page 5
Education Focus
Autumn 2016
Colleges are self evidently large and
increasingly complex businesses. Although
there is a commitment to funding the sector,
the way it is funded is changing and with
that change comes uncertainty – all in the
context of a sector where a very significant
proportion of colleges were in deficit last
year. The Government’s programme of Area
Reviews was launched across England with
the aim of ensuring ‘high quality, sustainable
provision capable of meeting the future
needs of leavers and employees’. It is hoped
that one of the results of the Reviews will be
to reduce the possibility of financial failure in
the future.
So that begs the question, if the Area
Review programme is successful in this
objective why is a new insolvency regime
needed? What happens at the moment
and why is change needed?
Exceptional Financial Support has in the
past been used to help colleges in financial
difficulty, and with that comes other forms
of “support” involving a process which
may result in significant changes within
a college. Sometimes colleges (as with
many other types of businesses) have had
structural issues such that a merger is a
potential solution, but finding a merger
partner can be difficult because a failing
college is perhaps inherently so unattractive
such that no prudent college would risk
a merger unless there was something in
it for them. There have been examples
where the deal has been sweetened by
the Government to enable a successful
transaction, but there have been some
prominent examples where nobody wanted
to do the deal on offer. The plain fact is that
a bad deal is a bad deal whether or not it
is done under the current regime or, in the
future, with an insolvency practitioner.
If a formal insolvency process is to be
introduced in the sector, legislative
change is needed as there is uncertainty
about whether the current insolvency
legislation has current application. Any
changes would require both primary and
secondary legislation.
The reasons given for the new proposals
by BIS are:
• an orderly process which protects creditors;
• protection of learners;
• retention of independence and
freedoms for colleges whilst removing
the expectation of additional public
funding; and
• support for local and national education
and training needs.
The sixty four thousand dollar question
(if only it were so little) is whether the
proposed new regime will do this any more
efficiently than the current regime.
So what is the new proposed regime?
The proposals are similar to those that
apply to companies under the Insolvency
Act 1986. The regime includes Company
Voluntary Arrangement, Administration,
Compulsory Liquidation and Creditors’
Voluntary Liquidation. But, most
importantly and, in addition, a Special
Administration Regime (“SAR”). This
would be triggered if a college becomes
insolvent and the Secretary of State
deems it appropriate to apply for a SAR to
protect learning provision. A SAR has some
overtones of a Trust Special Administrator
in the Health Sector who is appointed if
the Secretary of State considers it to be
‘appropriate in the interests of healthcare’.
So will the new regime change anything
in the FE sector. It could, but there may
also be unintended consequences on
bank funding, the costs of ‘rescue’ and the
willingness of individuals to become or
remain governors – to name just a few. The
insolvency specialists within our Education
Team are currently assessing the impact of
the draft Bill currently going through the
Houses of Parliament and, if enacted, what
the effect could be on the behaviour of a
range of stakeholders. In the next edition of
Education Focus we will analyse the process
and the possible impacts in greater detail.
Richard Field
Earlier this year BIS published a Consultation on developing an insolvency regime for the sector. Last week
in Parliament, Robert Halfon, the Minister for Apprenticeships and Skills said, “We have a moral duty to
students that money is spent on learning and a responsibility to deliver value for money to tax payers.”. He
went on to say that the Bill “will also encourage prudent borrowing and lending, making sure that money
that would otherwise be spent servicing the debt will be invested in high quality education and training.”
A proposal for a College Insolvency Regime
Ofsted hit the headlines
recently when it threatened
to bring legal action against a
number of education providers
for their unauthorised use of
the Ofsted logo.
Although it may initially seem strange to
group it with marketing heavyweights such
as Coca Cola, Apple and McDonalds, there
can be no denying that Ofsted is another
famous brand known throughout the
UK. And, just like those aforementioned
heavyweights, Ofsted has taken steps to
protect its brand by registering its name as
a trade mark and asserting its ownership of
the copyright in the various incarnations of
its logo.
Under Ofsted’s logo terms of use, there are
only very limited circumstances where third
parties may reproduce the logo. Education
providers who are awarded an overall
judgement of ‘Outstanding’ are permitted
to use Ofsted’s ‘Outstanding Provider’ logo
on stationery and signage but otherwise
the terms of use are quite prohibitive (and
specifically state that there is no logo
available for ‘Good’ providers to use).
However, it has been known for education
providers to adapt Ofsted’s existing
logo into a ‘Good Provider’ logo for
promotional purposes. This came to
a head recently when Ofsted wrote to
several providers informing them that such
actions were an infringement of Ofsted’s
intellectual property rights and threatening
legal action unless the offending logos
were removed (which would result in
expense for the provider).
Ofsted’s approach has been criticised and
it is believed that it is reviewing its logo
policies internally before taking any further
action. That said, although the vast majority
of education providers concerned will likely
have adapted the Ofsted logo without
any malicious intent, the case serves as a
poignant reminder for providers to ensure
they have obtained appropriate the consent
before reproducing any third party trade
marks or copyright works, however well
meaning their intentions.
James Peel
Ofsted logo
clampdown
Page 6
Education Focus
Autumn 2016
Following this, BBC England’s data unit
selected 100 academies across England
at random and found 19 of them had not
published the required current Register of
Interests for governors and members on their
school or trust websites. The BBC’s report
said “education campaigners” alleged a
“culture of secrecy” around some academies.
It is reported that the DfE is investigating the
academies which apparently did not comply.
A DfE spokesperson was quoted as saying
that “…this system of financial oversight and
accountability is more transparent and more
robust than for council-run schools. We take
any breaches seriously and where trusts are
found to be flouting the rules, we will not
hesitate to take action.”
Again, this emphasises the need for all
academies to ensure that they maintain and
publish Registers of Interests. The Registers
must be kept up to date and governors and
members should be periodically asked to
review their entries. Adequate procedures
must also be put in place to identify and
effectively manage conflicts of interest and
to ensure that the Academies Financial
Handbook is complied with.
As above, the DfE takes the failure of
academies to identify and effectively
manage conflicts very seriously because
it goes to the heart of public trust and
confidence in academies. The BBC also
quoted Russell Hobby, general secretary of
the National Association of Head Teachers
as saying “…Education, is now a high
stakes and highly scrutinised business. It is
important that schools lead by example, and
demonstrate a gold-standard approach to
financial matters.”
It is a legal requirement for conflicts of
interest to be effectively managed and failure
to do so can have serious consequences
not only for trustees personally in respect of
breach of company and charity law, but also
in academy trusts and multi-academy trusts’
relationships with the EFA.
The DfE has also announced that it is
proceeding with the termination of DAT’s
funding agreement after the academy chain
refused to cede to the DfE’s demand to
sever links with Sir Greg Martin. The DfE has
issued a notice of intention to terminate its
agreement, claiming that DAT has failed to
comply with 6 of 8 requirements set out in
the termination warning notice. DAT has said
that it intends to challenge any termination
in court. The termination gives DAT one
year’s notice, after which the DfE can either
find a new sponsor or close the school.
Irrespective of the final outcome, a great
deal is at stake in terms of reputation and
students’ education.
We advise all academies to provide
adequate training to their trustees and
members, to keep records of this and, in
particular, to make new trustees aware of
their legal duties to be transparent, declare
interests, manage conflicts and ensure
compliance with the requirements of the
Academies Financial Handbook.
Gerry Morrison
In the previous edition of Education Focus we reported that the EFA
had issued a pre-termination warning to Durand Academy Trust (DAT).
The warning was issued because of concerns about the structure of
DAT and potential conflicts of interest in respect of its relationship
with other organisations. The EFA was also demanding that DAT sever
its links with its Chair of Governors and former Executive Head, Sir
Greg Martin, who was criticised by MPs after it transpired he was paid
more than £400,000 in salary from DAT and management fees from a
related-party organisation.
Risk to academies
of breaching transparency rules
We were delighted when Legal 500
published its latest law firm rankings last
month. The work which Rollits’ Education
Team has carried out in partnership with
our education sector clients over the past
year has been recognised and rated by the
independent editors, with their resulting
report that ‘Rollits is noted for its “impressive
sector knowledge”. The Team is led by the
“insightful” Tom Morrison, who handles
strategic and commercial issues, and includes
the “excellent” Caroline Hardcastle, who
is highly experienced in dispute resolution
matters.’ Our work is a genuine team effort
– a team comprising all of the impassioned
lawyers whose pictures you can see in every
edition of Education Focus and the scores
of dedicated and talented individuals
working at the providers to whom we have
the privilege of being advisors. We are
immensely proud of the work of our clients
and grateful for their continued support.
Information
If you have any queries on any issues raised
in this newsletter, or any education matters
in general please contact Tom Morrison on
01482 337310.
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Rollits Education Focus Autumn 2016

  • 1. We are actively working with our clients on assessing the implications of each of these and putting plans into action: for the time being, here are some of our brief initial thoughts. Turn the pages to read more on the perspective our sector specialists have on the apprenticeship levy and the insolvency regime. Area Review implementation guidance Guidance has been issued on the manner in which the Government would like to see accepted Area Review recommendations implemented. There are some useful questions and checklists contained within the Guidance and there is a recognition in the documentation that a proportionate approach to any given implementation project will be appropriate. Having said that, the proposed due diligence framework is quite extensive. We are working on a number of implementation projects, some which started before the release of the Guidance and some after, but in many cases the full framework is in our view too heavy handed. Due diligence underpins any project involving structural change, and it is helpful to see a fuller framework in the sense that Governors and Senior Leadership Teams can see what a quite fulsome exercise looks like. We would, however, recommend that caution is exercised to ensure that the nature of any due diligence exercise is such that it seeks to draw out the issues that really matter and that are relevant to the stage in the process that the particular project is at. It should also not be assumed that multiple parties to a potential transaction are seeking information in order to fulfil the same objectives. For example, in a typical Type B college merger scenario, the Governors of the Corporation being dissolved need to be satisfied that the Corporation to whom the business and assets are being transferred is sound and will be a good home for the future fulfilment of the dissolving Corporation’s objects. For the receiving (i.e. continuing) Corporation, the Governors need to be content that in accepting an inwards transfer of the business and assets of the dissolving Corporation the continuing Corporation will prosper in the medium-to- long term and as a minimum survive in the shorter term. Early engagement with Banks is important and in many cases providers should expect that affected Banks will wish to carry out their own top-up exercise. Also in this issue Q&A – Apprenticeship Levy Pitfalls and Benefits Is your estate in order? Implementing the New Fair Deal for the LGPS – consultation on proposed changes A proposal for a College Insolvency Regime Ofsted logo clampdown Risk to Academies of breaching transparency rules rollits.com Autumn 2016 Education Focus Apprenticeship Levy, Area Reviews and the college insolvency regime: all major issues impacting on the sector, all becoming increasingly urgent, all awaiting key announcements from the Government – until now. With the Government effectively re-formed after the initial fall-out from the Brexit vote and a raft of new Ministers in place, the Secretary of State for Education and the Minister for Apprenticeships and Skills seemingly wanted to take a moment – or more accurately a few months – to take stock. Not an unreasonable position, but the timing was not fantastic for providers who are then expected to find a way to help deliver the Government’s agenda. Over the course of a few days in October, the log jam started to be cleared, with several hundred pages of guidance and supporting papers being released for Senior Leadership Teams and Governors to start digesting. Guidance which in light of the AoC’s recent judicial review challenge (since resolved) the Government is perhaps more conscious than ever it needs to follow. Continues on page 3… Just like buses…
  • 2. What do you believe are the most significant changes coming in May 2017 for employers regarding Apprenticeships? Tax, but with a chance to get it back and create an improved workforce at the same time! The 2015 conservative manifesto promised to deliver 3 million apprenticeships over the next 5 years. That promise will start to bite in April 2017 with the introduction of the Apprenticeship Levy. UK employers with a pay bill of £3million plus will be required to pay a levy of 0.5%. This will be supplemented by a 10% top up from the Government with the fund to be used to pay for training/assessment of apprentices in England. Where UK employers do not have an annual pay bill in excess of £3million or the levy pot is exhausted, the Government will co-invest 90% of training and assessment costs. Who is likely to benefit most from these changes? Done right, it should be a win-win for all. The introduction of the levy will inevitably result in larger employers taking stock of their training needs and, in order to ensure they take advantage of the levy payment, investing in apprenticeships and training. This should allow employers the opportunity to invest for the future in their workforce and provide the right training for their employees. The challenge for employers will however be to ensure that the training providers they utilise provide good quality and relevant training for their employees – which offers a fantastic opportunity for providers who are on the ball. What benefits will the Apprenticeship Levy bring for providers? New markets have been created by the levy and, for those providers with strong links to business communities and who offer excellent provision, there are great opportunities to engage with employers and increase their apprenticeship provision. The initial proposal to restrict the use of subcontractors, thereby making it more difficult for providers to offer a diverse range of courses appears to have been relaxed significantly leaving providers with the ability to offer learning in a wide variety of areas. However, whilst the levy offers opportunities for providers, there are a number of risks to be aware of. What risks do you envisage providers will face? One of the key issues for providers is going to be the credit risk. Under the current proposals, employers are not required to have funds to cover the full cost of the apprenticeship prior to engaging the provider. This being the case, there will always be a risk that the employer cannot meet all the costs of the learning provision. A further risk lies with the integrity of the digital account into which levy payments are made and from which the providers are paid. In the event that there are problems with the system, this may impact upon payments being made correctly and/or in a timely fashion. The Digital Apprenticeship Service will also allow employers to stop or suspend payments if they have an issue with the service given by the provider. Whilst this can protect the employer from providers who are not providing the level of service which should be expected, this does raise the question as to what providers should do if employers withhold money without legitimate grounds to do so. At the present time, there does not appear to be any prescribed dispute resolution procedure available. A further concern for providers is in relation to pricing. There are 15 funding bands which cap the use of the funds and Government co-investments. However, there is no lower limit on the bands with the result that employers may seek to push down providers on price. The risk is that the provider, in order to ensure that it is awarded the contract for delivery of learning, is tempted to agree a price at which learning can only be provided at the expense of quality and therefore the reputation of the provider. Q&A The Apprenticeship Levy remains a hot topic for the FE sector with the imminent implementation of the Levy in April 2017. Caroline Hardcastle, who leads on dispute resolution matters for the Education Team, looks briefly at some of the benefits but also the potential pitfalls for providers engaged in the delivery of apprenticeships. Apprenticeship Levy Pitfalls and Benefits Page 2 Education Focus Autumn 2016
  • 3. With all these risks facing providers, is there any way they can protect themselves? The key to the provider reducing risk is to ensure that there is an effective agreement in place between the provider and the employer. This can cover what happens when there are delays in receiving payments, either due to non payment by an employer or the failure of the Digital Apprenticeship Service and specify a dispute resolution procedure to resolve issues where the employer stops or suspends payments. In any event, it is always advisable for a provider to enter into a contract with the employer to ensure that both sides know what their rights and obligations are. It also allows providers to limit their liability and to reduce the risk of an employer putting the provider in breach of any SFA rules. Employer agreements currently in place are in our experience inadequate to protect against the new risks presented by the changes coming in 2017. You have mentioned the importance of an employer agreement being entered into but are there any other ways in which a provider can reduce risks? What most good providers are doing now and what they should continue to do is ensure that there is full and proper due diligence of the employer. This should be a thorough exercise, undertaken for all employers, with the answers reviewed and followed up where there are discrepancies. This should not be a simple tick box exercise. By ensuring a proper due diligence process is undertaken, the risk of issues arising over payment will hopefully be minimised. It is also essential for providers to be firm and clear in their negotiations on price and to make sure the price being offered is sufficient to cover every element of work to be undertaken to avoid having to compromise on quality. Where possible, all negotiations should be documented in the event that there is an issue at a later date. Often due diligence is split into two parts – an exercise on each stand alone Corporation and an exercise on the combined colleges operating under the continuing Corporation. Where either exercise uncovers serious issues there is an opportunity to apply via the Transaction Unit for support from the Restructuring Facility. This is distinct from the Transition Grant available to all who agree to implement a recommendation arising from an Area Review, but both come with strings attached. It is fair to say that early indications are that the Transaction Unit is not processing huge volumes of successful applications at this stage and we are aware of a number of potential projects where there is a strong view that if at all possible a Restructuring Facility application needs to be avoided – which all points back to the importance of due diligence and the associated business plans which will be based on that exercise. Apprenticeship Levy One of the most eagerly awaited set of publications was the guidance around the Apprenticeship Levy following the Government’s consultation on its (already then overdue) initial guidance issued earlier this year. The levy brings some exciting opportunities for providers, creates new markets and allows much needed flexibility to support employers in training their future workforce. The overall impression is that the Government has listened to some of the concerns raised during the consultation process. Funding has been looked at again and some transitional arrangements are being put in place to provide more of a ramp than a cliff edge. The very clear attempt to severely curtail subcontracting has been reigned in for the time being, with providers now only having to directly provide some apprenticeships for an employer where the provider also wishes to subcontract provision in respect of that employer’s apprentices (a move away from subcontracting being limited to substantially less than half of each apprenticeship). This clearly does not mean that the Government has had a complete u-turn: there is a still a political feeling that subcontracting is a bad thing because there have been enough examples of bad subcontracting. There does, however, seem to be some recognition that there are also plenty of examples of good subcontracting, where good quality provision has been made possible by pooling viable numbers of apprentices and delivering a more cohesive one stop shop offer to employers who have some specialist requirements alongside their mainstream needs. The Digital Apprenticeship Service is more “DAS-lite” than what we are being told will come in the future. Trading of levy between employers; ATAs being able to receive a portion of their work providers’ levies; and taking employer contributions through the DAS rather than directly from employers are all features that we are promised in the coming years, with all employers intended to be using the DAS by 2020. In the meantime one practical change which will be welcomed by levy payers is that levy funds will have a shelf life of 24 months rather than expiring after only 18 months. There is a great deal of concern around end point assessment. There is currently a paucity of end point assessors. Given that the funding band caps include end point assessment costs, a real worry is that in a market of assessors where demand may outstrip supply the price will go up leaving less money available for the provision itself. The sector is working hard to find solutions to this, and to try to make sure that funds do not get unnecessarily dispersed. One solution we are increasingly seeing proposed is providers coming together to arrange to deliver assessment services for each other – either directly or through grouped arrangements. There will no doubt be capacity and timing issues to work through, but solutions such as this demonstrate the resilience of the sector. We are on with developing employer, apprentice, end point assessment and subcontractor contracts for providers to use to protect themselves and make the most of the opportunities the levy brings. This edition’s Q&A also covers some concerns which Education Team dispute resolution specialist Caroline Hardcastle has about how providers may be exposed to new risks and how these could be mitigated. The proposed insolvency regime Education Team member and corporate insolvency specialist Richard Field has brought his wider experience of insolvency to our analysis of the Government’s consultation, its response and the associated Technical and Further Education Bill. His early thoughts are set out later in this edition of Education Focus. The key issue appears to us to be whether the insolvency regime will (and whether it should) have an impact on the attitudes of Banks, LGPS, Governors and other stakeholders towards further education corporations. There is a wide variance in popular reporting on this topic, with some seeing the Government’s response as an indication that it will be willing to “bail out” colleges in the future (ignoring of course the impact changing Government policy has had on colleges in recent years in particular). It seems to us that it is more accurate to say that the Government knows that there is a serious risk that, if mishandled, the bringing into force of the proposed regime could have a very significant and detrimental effect on college finances. A concern is that the Banks are taking a more cautious approach to the sector and so the Government is in danger of causing the very destabilisation it is seeking to avoid. So there is a lot going on, even on the scale the education sector has become accustomed to. On the up-side, and having just returned from this year’s AoC conference where there seemed to be a renewed optimism in the air, the can-do attitude prevalent amongst providers and their pin sharp focus on improving the lives of millions of learners gives us all hope for the future. No sector is better equipped to manage the threats and maximise any opportunities that all of these policy changes might bring. Tom Morrison Just like buses… Continued from cover…
  • 4. Page 4 Education Focus Autumn 2016 That guidance also does not apply to transfers from local government (and other best value authorities), as these are currently subject to the Best Value Authorities Staff Transfers (Pensions) Direction 2007 (which itself broadly reflected the previous Fair Deal provisions). After much delay, the Department for Communities and Local Government (“DCLG”) has recently published draft provisions to the Local Government Pension Scheme (“LGPS”) Regulations 2013. These set out how the New Fair Deal is to be implemented for central government bodies such as local authorities compulsorily transferring staff to a private sector employer on an outsourcing. As expected, such transferee employers will, except in limited cases, be required to enter into an Admission Agreement to participate in (and contribute to) the LGPS, removing the option for the employer to enter into “a broadly comparable pension scheme.” However, in contrast to the New Fair Deal provisions, on a re-tender or subsequent transfer to another contractor where staff have already transferred out to a broadly comparable scheme under existing provisions, there is to be no requirement to obtain admission to the LGPS for the purpose of the new contract. Other provisions have been introduced to improve administration, including enabling a surplus to be paid out to a contractor by the LGPS fund where at the end of a contract the cessation valuation shows a surplus (in similar manner to the existing provisions where an exit payment is to be made by an employer where the cessation valuation shows a deficit). Further, the draft regulations also allow Admission Agreements to have retrospective effect, which should help where transfers to contractors are negotiated on short notice. One note of caution – these new provisions would catch almost all scheme employers, including small admitted bodies (a large number of which are charities), thereby increasing the costs for these bodies (as bonds and guarantees would need to be put into place by them under the Admission Agreement). The consultation on these draft provisions closed in August, and DCLG is currently considering the responses before finalising the draft regulations. Education providers who have staff in the LGPS should take note, particularly on any contracting-out of employees to private contractors in the future. Craig Engleman In previous editions of Education Focus we reported on the New Fair Deal guidance applies to staff transferring from public sector pension schemes to private sector contractors as a result of the outsourcing of services, and the fact that it was not made mandatory for the FE or HE sector. Implementing the New Fair Deal for the LGPS – consultation on proposed changes Consider property ownership – if your organisation has a number of sites, it would be useful to prepare a schedule of properties setting out the property address, whether the property is freehold or leasehold, the title numbers for the property, whether the property is charged (and if so to whom) and whether there are any leases (and if so to whom). A list of any rights, covenants, options, overage provisions and other documentation could also be entered onto the Schedule. Locate the title deeds – you should ensure that the location of any title deeds for each property, including the lease for any leasehold property, is known. If the location of the title deeds is unknown, make enquiries with your (current and any previous) solicitors and any lender to locate the deeds. Register any unregistered land – the Land Registry currently has a considerable backlog and first registration applications are taking in excess of one year. It is therefore advisable to voluntarily register any unregistered land, and deal with any title issues, now so that problems do not arise when any future charges are granted or transfers are entered into. This will also enable any future transactions to be dealt with quicker and more cost effectively. Check extent of registered titles – it should be ensured that the whole extent of each property owned by the organisation is registered and that the actual boundaries of each property match the boundaries of the title plans for the property and adjoin the public highway. A search of the index map can be carried out to ensure that the whole extent of each property is registered. Any discrepancies can then be dealt with. Deal with any title issues – any known title issues or disputes should be dealt with expeditiously so that any issues do not delay any future transactions. Formalise any informal arrangements – any informal rights, covenants or occupational arrangements should be formalised in writing to ensure such arrangements are valid and registered against the title to the property (if appropriate). This will reduce the likelihood of any future disputes regarding the nature and extent of any informal arrangements. If you are able to carry out all, or even some, of the above exercises then when it comes to potentially urgent transactions you will be in much better shape to be able to maximise any opportunities which may present themselves in the future. Libby Clarkson In the current climate there has never been a more pertinent time to ensure that your Estate is in order. In further and higher education, providers are seeking funding from commercial lenders more than ever before and the nationwide programme of Area Reviews has provided an opportunity to revisit each college’s estates strategy. We have set out below a list of proactive steps which should be undertaken and issues considered to ensure that your organisation’s Estate is in good order to enable any future dealings with it to be dealt with quickly and efficiently. Is your estate in order?
  • 5. Page 5 Education Focus Autumn 2016 Colleges are self evidently large and increasingly complex businesses. Although there is a commitment to funding the sector, the way it is funded is changing and with that change comes uncertainty – all in the context of a sector where a very significant proportion of colleges were in deficit last year. The Government’s programme of Area Reviews was launched across England with the aim of ensuring ‘high quality, sustainable provision capable of meeting the future needs of leavers and employees’. It is hoped that one of the results of the Reviews will be to reduce the possibility of financial failure in the future. So that begs the question, if the Area Review programme is successful in this objective why is a new insolvency regime needed? What happens at the moment and why is change needed? Exceptional Financial Support has in the past been used to help colleges in financial difficulty, and with that comes other forms of “support” involving a process which may result in significant changes within a college. Sometimes colleges (as with many other types of businesses) have had structural issues such that a merger is a potential solution, but finding a merger partner can be difficult because a failing college is perhaps inherently so unattractive such that no prudent college would risk a merger unless there was something in it for them. There have been examples where the deal has been sweetened by the Government to enable a successful transaction, but there have been some prominent examples where nobody wanted to do the deal on offer. The plain fact is that a bad deal is a bad deal whether or not it is done under the current regime or, in the future, with an insolvency practitioner. If a formal insolvency process is to be introduced in the sector, legislative change is needed as there is uncertainty about whether the current insolvency legislation has current application. Any changes would require both primary and secondary legislation. The reasons given for the new proposals by BIS are: • an orderly process which protects creditors; • protection of learners; • retention of independence and freedoms for colleges whilst removing the expectation of additional public funding; and • support for local and national education and training needs. The sixty four thousand dollar question (if only it were so little) is whether the proposed new regime will do this any more efficiently than the current regime. So what is the new proposed regime? The proposals are similar to those that apply to companies under the Insolvency Act 1986. The regime includes Company Voluntary Arrangement, Administration, Compulsory Liquidation and Creditors’ Voluntary Liquidation. But, most importantly and, in addition, a Special Administration Regime (“SAR”). This would be triggered if a college becomes insolvent and the Secretary of State deems it appropriate to apply for a SAR to protect learning provision. A SAR has some overtones of a Trust Special Administrator in the Health Sector who is appointed if the Secretary of State considers it to be ‘appropriate in the interests of healthcare’. So will the new regime change anything in the FE sector. It could, but there may also be unintended consequences on bank funding, the costs of ‘rescue’ and the willingness of individuals to become or remain governors – to name just a few. The insolvency specialists within our Education Team are currently assessing the impact of the draft Bill currently going through the Houses of Parliament and, if enacted, what the effect could be on the behaviour of a range of stakeholders. In the next edition of Education Focus we will analyse the process and the possible impacts in greater detail. Richard Field Earlier this year BIS published a Consultation on developing an insolvency regime for the sector. Last week in Parliament, Robert Halfon, the Minister for Apprenticeships and Skills said, “We have a moral duty to students that money is spent on learning and a responsibility to deliver value for money to tax payers.”. He went on to say that the Bill “will also encourage prudent borrowing and lending, making sure that money that would otherwise be spent servicing the debt will be invested in high quality education and training.” A proposal for a College Insolvency Regime Ofsted hit the headlines recently when it threatened to bring legal action against a number of education providers for their unauthorised use of the Ofsted logo. Although it may initially seem strange to group it with marketing heavyweights such as Coca Cola, Apple and McDonalds, there can be no denying that Ofsted is another famous brand known throughout the UK. And, just like those aforementioned heavyweights, Ofsted has taken steps to protect its brand by registering its name as a trade mark and asserting its ownership of the copyright in the various incarnations of its logo. Under Ofsted’s logo terms of use, there are only very limited circumstances where third parties may reproduce the logo. Education providers who are awarded an overall judgement of ‘Outstanding’ are permitted to use Ofsted’s ‘Outstanding Provider’ logo on stationery and signage but otherwise the terms of use are quite prohibitive (and specifically state that there is no logo available for ‘Good’ providers to use). However, it has been known for education providers to adapt Ofsted’s existing logo into a ‘Good Provider’ logo for promotional purposes. This came to a head recently when Ofsted wrote to several providers informing them that such actions were an infringement of Ofsted’s intellectual property rights and threatening legal action unless the offending logos were removed (which would result in expense for the provider). Ofsted’s approach has been criticised and it is believed that it is reviewing its logo policies internally before taking any further action. That said, although the vast majority of education providers concerned will likely have adapted the Ofsted logo without any malicious intent, the case serves as a poignant reminder for providers to ensure they have obtained appropriate the consent before reproducing any third party trade marks or copyright works, however well meaning their intentions. James Peel Ofsted logo clampdown
  • 6. Page 6 Education Focus Autumn 2016 Following this, BBC England’s data unit selected 100 academies across England at random and found 19 of them had not published the required current Register of Interests for governors and members on their school or trust websites. The BBC’s report said “education campaigners” alleged a “culture of secrecy” around some academies. It is reported that the DfE is investigating the academies which apparently did not comply. A DfE spokesperson was quoted as saying that “…this system of financial oversight and accountability is more transparent and more robust than for council-run schools. We take any breaches seriously and where trusts are found to be flouting the rules, we will not hesitate to take action.” Again, this emphasises the need for all academies to ensure that they maintain and publish Registers of Interests. The Registers must be kept up to date and governors and members should be periodically asked to review their entries. Adequate procedures must also be put in place to identify and effectively manage conflicts of interest and to ensure that the Academies Financial Handbook is complied with. As above, the DfE takes the failure of academies to identify and effectively manage conflicts very seriously because it goes to the heart of public trust and confidence in academies. The BBC also quoted Russell Hobby, general secretary of the National Association of Head Teachers as saying “…Education, is now a high stakes and highly scrutinised business. It is important that schools lead by example, and demonstrate a gold-standard approach to financial matters.” It is a legal requirement for conflicts of interest to be effectively managed and failure to do so can have serious consequences not only for trustees personally in respect of breach of company and charity law, but also in academy trusts and multi-academy trusts’ relationships with the EFA. The DfE has also announced that it is proceeding with the termination of DAT’s funding agreement after the academy chain refused to cede to the DfE’s demand to sever links with Sir Greg Martin. The DfE has issued a notice of intention to terminate its agreement, claiming that DAT has failed to comply with 6 of 8 requirements set out in the termination warning notice. DAT has said that it intends to challenge any termination in court. The termination gives DAT one year’s notice, after which the DfE can either find a new sponsor or close the school. Irrespective of the final outcome, a great deal is at stake in terms of reputation and students’ education. We advise all academies to provide adequate training to their trustees and members, to keep records of this and, in particular, to make new trustees aware of their legal duties to be transparent, declare interests, manage conflicts and ensure compliance with the requirements of the Academies Financial Handbook. Gerry Morrison In the previous edition of Education Focus we reported that the EFA had issued a pre-termination warning to Durand Academy Trust (DAT). The warning was issued because of concerns about the structure of DAT and potential conflicts of interest in respect of its relationship with other organisations. The EFA was also demanding that DAT sever its links with its Chair of Governors and former Executive Head, Sir Greg Martin, who was criticised by MPs after it transpired he was paid more than £400,000 in salary from DAT and management fees from a related-party organisation. Risk to academies of breaching transparency rules We were delighted when Legal 500 published its latest law firm rankings last month. The work which Rollits’ Education Team has carried out in partnership with our education sector clients over the past year has been recognised and rated by the independent editors, with their resulting report that ‘Rollits is noted for its “impressive sector knowledge”. The Team is led by the “insightful” Tom Morrison, who handles strategic and commercial issues, and includes the “excellent” Caroline Hardcastle, who is highly experienced in dispute resolution matters.’ Our work is a genuine team effort – a team comprising all of the impassioned lawyers whose pictures you can see in every edition of Education Focus and the scores of dedicated and talented individuals working at the providers to whom we have the privilege of being advisors. We are immensely proud of the work of our clients and grateful for their continued support. Information If you have any queries on any issues raised in this newsletter, or any education matters in general please contact Tom Morrison on 01482 337310. This newsletter is for the use of clients and will be supplied to others on request. It is for general guidance only. It provides useful information in a concise form. Action should not be taken without obtaining specific advice. 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