House of Commons Committee of Public Accounts The monitoring, inspection and funding of Learndirect Ltd. Twenty-Second Report of Session 2017–19 Report, together with formal minutes relating to the report Ordered by the House of Commons to be printed 26 February 2018 HC 646 Published on 2 March 2018 by authority of the House of Commons The Committee of Public Accounts The Committee of Public Accounts is appointed by the House of Commons to examine “the accounts showing the appropriation of the sums granted by Parliament to meet the public expenditure, and of such other accounts laid before Parliament as the committee may think fit” (Standing Order No. 148). Current membership Meg Hillier MP (Labour (Co-op), Hackney South and Shoreditch) (Chair) Bim Afolami MP (Conservative, Hitchin and Harpenden) Sir Geoffrey Clifton-Brown MP (Conservative, The Cotswolds) Martyn Day MP (Scottish National Party, Linlithgow and East Falkirk) Chris Evans MP (Labour (Co-op), Islwyn) Caroline Flint MP (Labour, Don Valley) Luke Graham MP (Conservative, Ochil and South Perthshire) Robert Jenrick MP (Conservative, Newark) Gillian Keegan MP (Conservative, Chichester) Shabana Mahmood MP (Labour, Birmingham, Ladywood) Layla Moran MP (Liberal Democrat, Oxford West and Abingdon) Stephen Morgan MP (Labour, Portsmouth South) Anne Marie Morris MP (Conservative, Newton Abbot) Bridget Phillipson MP (Labour, Houghton and Sunderland South) Lee Rowley MP (Conservative, North East Derbyshire) Gareth Snell MP (Labour (Co-op), Stoke-on-Trent Central) Powers Powers of the Committee of Public Accounts are set out in House of Commons Standing Orders, principally in SO No. 148. These are available on the Internet via www.parliament.uk. Publication Committee reports are published on the Committee’s website and in print by Order of the House. Evidence relating to this report is published on the inquiry publications page of the Committee’s website. Committee staff The current staff of the Committee are Richard Cooke (Clerk), Dominic Stockbridge (Second Clerk), Hannah Wentworth (Chair Support), Ruby Radley (Senior Committee Assistant), Kutumya Kibedi (Committee Assistant), and Tim Bowden (Media Officer). Contacts All correspondence should be addressed to the Clerk of the Committee of Public Accounts, House of Commons, London SW1A 0AA. The telephone number for general enquiries is 020 7219 6593; the Committee’s email address is [email protected]. The monitoring, inspection and funding of Learndirect Ltd. 1 Contents Summary 3 Introduction 4 Conclusions and recommendations 5 1 Learndirect Ltd.’s funding, performance, and contracting arrangements 8 Learndirect Ltd’s declining performance 8 Government’s ability to take action 9 Subcontracting arrangements 10 2 Inspection 11 Planning and prioritising inspections 11 Deferring inspections 12 Formal minutes 13 Witnesses 14 Published written evidence 14 Published correspondence 14 List of Reports from the Committee during the current session 15 The monitoring, inspection and funding of Learndirect Ltd. 3 Summary With the collapse of Carillion, questions are rightly being asked about how Government manages companies who deliver our public services. The failure of Learndirect in delivering quality training to apprentices whilst receiving millions of pounds of taxpayers’ money, £121 million in the 2016–17 academic year alone, is another stark example of a poorly performing contractor and poor oversight by Government and its regulators. And another contractor with contracts across several Government Departments. Learndirect Ltd’s performance on apprenticeships has been in steep decline since 2013. Learndirect failed to address its under-performance, and has failed to act in the best interests of learners. 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. 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. The company continues to function, and expects to receive over £105 million of funding from its main government contracts in 2017–18. 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. The Government needs to learn lessons from the failure of its contractors and, particularly where a company holds contracts across several Departments, ensure it has a grip on how these companies are performing. 4 The monitoring, inspection and funding of Learndirect Ltd. Introduction Learndirect Ltd is the UK’s largest commercial further education provider, engaging with around 75,000 learners each year. Most of its funding comes from the Education and Skills Funding Agency (ESFA), but it also has contracts with several other government bodies, for which it is sometimes the sole supplier. In the 2016–17 academic year, the company received £121 million from all of its central government contracts, of which £106 million (88%) was from ESFA. Ofsted planned to inspect Learndirect Ltd in November 2016, but agreed to defer the inspection because the company was negotiating the sale of its apprenticeships business, a sale which did not ultimately take place, despite there being widespread concern about Learndirect Ltd’s performance. Ofsted finally carried out its inspection in March 2017, the same time that ESFA issued the company with a notice of serious breach of contract for falling below expected levels of service, and rated the company’s overall effectiveness as ‘inadequate’. Learndirect Ltd made a formal complaint about the timing and conduct of the inspection, followed by a legal challenge. These steps were unsuccessful, but they delayed the publication of Ofsted’s report until mid-August 2017. The government bodies contracting with Learndirect Ltd have since had to make decisions about their ongoing dealings with the company. ESFA decided to continue funding Learndirect Ltd through to July 2018, and it is possible that the company may retain some government contracts beyond that date. The monitoring, inspection and funding of Learndirect Ltd. 5 Conclusions and recommendations 1. Learndirect Ltd has received hundreds of millions of pounds of public money, while neglecting its learners in pursuit of profit and frustrating the Ofsted inspection regime with delaying tactics and spurious legal action. ESFA and its predecessor the Skills Funding Agency (SFA) gave Learndirect Ltd almost £500 million in the academic years from 2013–14 to 2016–17. The quality of Learndirect Ltd’s apprenticeships provision was in decline from 2012–13, and in 2015–16 it failed to achieve ESFA’s minimum standard for apprenticeships. Yet, despite this downward trend, the company waited until September 2016 to develop an improvement plan. In March 2013, Ofsted rated Learndirect Ltd as ‘good’ for overall effectiveness, but by March 2017 Ofsted considered the company’s performance to be ‘inadequate’. Learndirect Ltd launched a legal challenge, claiming that: Ofsted should not have inspected its apprenticeships provision, because it was about to be moved to another company in the Group; and Ofsted had not gathered enough evidence to reach reliable conclusions on its apprenticeships training. The judge ruled fully in Ofsted’s favour, but the legal action meant that the report could not be published until August 2017, five months after the original inspection. This prevented valuable information on Learndirect Ltd’s performance from being in the public domain, and stopped government from intervening sooner. Recommendation: Government should learn the lessons from the failure of Learndirect Ltd, in particular concerning the need to understand how many government contracts a company holds at a given time and how well it is performing against each of those contracts. 2. Having awarded Learndirect Ltd several vital contracts for a variety of public services, government was then restricted in its ability to take decisive action when the company’s apprenticeships provision began to fail. Learndirect Ltd is England’s largest commercial further education provider, and in the 2016–17 academic year around 88% of the £121 million it received for carrying out work for central government came from ESFA. It is also the single supplier on the government’s framework contract for testing services. Under this framework, the company delivers UK citizenship tests for the Home Office and initial teacher training tests for the Standards and Testing Agency (STA). From May 2017, following the 2017 Ofsted inspection, ESFA began work to establish the full extent of government’s involvement with Learndirect Ltd, and to develop a coordinated plan for the future of those contracts. ESFA had to consider whether to withdraw the company’s funding for further education activities within three months, in line with normal practice.