36. The demise of the Individual Learning Account
provides an interesting case study in collaboration between the
public and private sectors. The Government appointed Capita to
run the Individual Learning Accounts Centre, following a full
tendering exercise under EC rules. The contract, dated 2 June
2000, was valued at around £55m over a five-year period.
The Centre was required to provide services to individuals to
enable them to open an ILA; to answer queries people had about
accounts; and to provide annual statements to people about learning
they had done using their account. It was also required to provide
administrative support to learning providers who had learners
with Individual Learning Accounts. The Centre was required to
calculate the relevant discount so that the individual would only
have to pay the balance. It would then contact the Department
who would pay the remaining balance to the learning provider.
Individuals were able to apply to become account holders and providers
could register with the ILA Centre from June 2000.
37. The Department retained responsibility for
the policy framework and overall design of the ILA programme,
including the eligibility conditions for individuals and the definition
of eligible and ineligible learning for funding. Capita was responsible
for translating the policy intentions set out in the contract
into a robust and functional system and for the operation of the
system and associated call centre facilities to deliver the ILA
programme. Their interpretation of this policy was presented in
the form of a Business Rules Handbook, which was agreed by both
the Department and Capita.
The Department told us that they and Capita jointly reviewed the
services provided against the detail set out in the contract using
formal quarterly and annual review mechanisms and by way of an
annual customer satisfaction survey, and that changes made to
the service became part of the formal change control process.
The Department's evidence was rather complacent, given that the
process failed to indicate at an early stage that the ILA scheme
was running into problems. The change control process clearly
did not work.
38. The Individual Learning Account was not a
Private Finance Initiative project, nor strictly a Public Private
Partnership. Capita was hired to provide a service within the
limits of the policy design and delivery model drawn up by the
DfES. Despite the out-sourcing of service delivery, the risks
in effect always remained with the Department. Surprisingly, the
potential expertise of Capita in designing systems to be fraud-resistant
was neither called upon, nor offered. The opportunity to use
private sector expertise in policy design fell between the two
stools of policy [retained in-house by civil servants] and delivery
[narrowly defined by the contract as performing operations to
a required standard].
39. The contract was further developed to reflect
the requirements of the ILA service and the needs of a new public/private
partnership approach to delivery. In particular, the contract
specified a series of service, performance and payment details.
A multidisciplinary team, consisting of DfES policy, finance
and procurement staff, external consultants and commercial lawyers,
conducted negotiations with Capita. Those negotiations, together
with contract signing, were overseen by the ILA Project Board
which included a range of policy officials and specialists (Finance,
Internal Audit, Procurement). DfES Ministers were involved in
key stages of the process and were kept informed of progress.
There is nothing in the evidence we have received to suggest
that Ministers sought advice from other Government Departments,
or even heeded warnings from within their own Department, on how
to protect such a scheme from unscrupulous opportunists.
40. In a written answer, Mr John Healey stated
that the DfES "employed a team of four who were responsible
for day-to-day performance monitoring, issue resolution, contract
finance and budget management. These people, supported by specialists
employed within the Department were also engaged in matters relating
to the 7 December planned closure of the individual learning account
programme. An assessment of the compliance of Capita Business
Services in their provision of services at the individual learning
account centre is integral to standard contract management arrangements."
41. Mr Derek Grover of the DfES told us that:
"It was not Capita's job to be expert on
the quality training provision; that is not what they were asked
to do in their contract. What they were asked to do was to run
the system that brought together the providers' claim for funding
in the individuals' account and their entitlements and to bring
those two together. There was a system of provider registration
but it was a very basic system; it simply required them to say
who they were and give the contact name and the details that were
required to do that processing work I have described. It was not
a quality assurance system".
42. Mr Grover added: "Clearly we were alert
to issues around IT security. That was very much built into the
contract discussions with Capita. We took expert external advice
on those issues".
By contrast, Mr Roger Tuckett of Henley Online described the level
of computer security as "pitifully low".
The fact that a provider "could enter a single number and
not even have to crossrelate it to the surname, for example,
was crazy. The fact that the number was a numeric number rather
than alphanumeric meant that there were ten options rather than
26 and so on".
Capita's ILA Centre gave any provider who joined the system
unlimited access to individuals' accounts.
43. Mr Paddy Doyle of Capita admitted that once
providers had been admitted to the system "it was very open
scheme" and that the numbers of accounts "were purely
in the scheme as reference numbers".
Mr Simon Pilling of Capita explained that an authorised learning
provider with their authorised user ID and password could go on
the system and draw out information from the system.
An unscrupulous provider could trawl the database and submit
claims for having trained any individual on the system whose account
had not already been spent.
44. Ms Caroline Lambie of Hairnet suggested simple
steps to preserve the security of the database:
"people who typed in the wrong number three
times should have been shut out of the system in the same way
if you are trying to register with your online banker. People
who were registering more than 1,000 students per week per centre
should have been shut out of the system because there is no way
any training centre could train that many people in a week. There
are simple things that databases can do and it does not take an
IT expert to understand that. I do not know who commissioned it
or what consultancy they received on designing databases but certainly
it was a very simple system".
45. Mr Paddy Doyle of Capita said: "looking
back on it now, looking closely at the sequence of events, as
we have done in our investigations, I believe we should have shouted
louder and harder at that time about things that we were identifying".
He assured us that although "there was an element in the
contract which was volume-based" there was no incentive for
Capita to ignore fraud and abuse of the system.
Mr Simon Pilling of Capita told us that "the client, in this
case the DfES, gets best value from organisations like us taking
a risk on what the volumes will be, and that is what has happened".
Mr Doyle told us that Capita "share our part of the blame
in that the scheme has gone wrong".
46. There is a tendency to exaggerate the confidentiality
of the Government's commercial contracts. A large FTSE-100 company
like Capita is bound by Stock Exchange rules on disclosure, for
example, which might include announcements about the value of
the major contracts and their effect on future earnings. Once
the competitive tendering process is over, it may be questioned
whose interests are being served by continuing secrecy. Mr Doyle
described the ILA Service Provider Agreement as "an open
book contract in terms of costs and profits and all those kinds
We appreciate the willingness of the DfES to supply us with the
Service Provider Agreement [except for the details of the actual
prices in the structure] and other documentation relevant to the
conduct of the ILA contract.
47. The lack of prior scrutiny of the delivery
model did nothing to improve the ILA scheme's chance of success.
We recommend that in future the non-confidential clauses of
any such major Service Provider Agreement should be laid before
Parliament at least three weeks before coming into effect, in
order to allow interested parties and this Select Committee to
assess the practicality of the proposed delivery model.
The individual contribution
48. A fundamental principle of the design of
the ILA scheme was that individuals had to pay a contribution
for their learning. This personal investment aspect of ILAs was
not only intended to give learners greater control over their
personal development but also to increase their personal stake
so that they would make sensible and informed decisions about
their choice of learning.
Mr Peter Lauener of the DfES told us that the requirement for
the individual to make a contribution was an important element,
although he accepted that having to make a contribution did not
equate to satisfactory quality assurance on its own.
The DfES had in some cases secured the recovery of public money
where the individual contribution had not been made.
Mr James O'Brien of Pitman Training Group plc and the Association
of Computer Trainers told us "we have certainly found that
the more that an individual contributes to the scheme, the greater
their ownership and the greater their desire actually to complete
that course and complete that experience".
Mr Rodger said that York Consulting had found that about half
of ILA users heard of the account through a supplier:
"The way in which it is meant to work is
that an individual opens an account and is therefore empowered
to purchase learning on an informed basis and he/she shops around.
Clearly, some did that but it is also quite clear that others
were perhaps introduced into a particular kind of learning by
a supplier and in many cases did not realise that the account
was part of that".
49. Mr Healey said that in a successor scheme
the individual's control of the ILA should be emphasised more
strongly "because if we are going to realise the policy ambition
of this, then the individuals involved, taking out the accounts
and then taking up the learning helped by the account, need to
understand more clearly the sort of mechanism that they are using".
50. Mr Stuart Ingleson of Preston College commented
that "in practice, I would say that this is actually not
a demandled scheme at all. It has been a providerled
scheme and it is only through the promotion of it that we have
attracted many of the individuals that we have".
51. Commercial providers have made a significant
contribution to widening knowledge about and access to ILAs, but
naturally this contribution was based on the expectation of a
direct financial return. If the individual learning account mechanism
is to be better understood, users should be told more clearly
- but still simply - that far from being tied to a single provider
it is designed to enable choice between providers. We recommend
that in the successor scheme to the ILA providers should be required
to make clear to learners that the learners have a choice about
how, when and with whom they use their ILA.
52. In the period leading up to the roll-out
of the ILA scheme in September 2000, more than 50,000 individual
accounts were opened. Most of these (about 80 per cent) were generated
by individuals who had requested an personalised application pack
from Capita's ILA Centre. The ratio of personalised application
packs mailed out from the ILA Centre to accounts opened was approximately
2 to 1. In that quarter,
the remaining 10,000 individual accounts were generated from the
481,000 non-personalised application packs distributed to registered
learning providers, employers, and others. The next Quarterly
Review, for December 2000 to February 2001, recorded that ILA
membership was increasingly (60 per cent) obtained through the
use of non-personalised forms.
The use of non-personalised forms indicates that the opening of
the account was probably stimulated by the provider. In the following
quarter, 988,539 accounts were opened and Capita reported that
sub-contractors would be used to clear the backlog of non-personalised
application forms and to insure that future influxes of applications
on non-personalised forms were handled effectively.
Between June and August 2001 the trend continued, with 83 per
cent of members joining through a non-personalised application
applications were no longer accepted after 25 September 2001.
One of the reasons for withdrawing the use on non-personalised
application forms was doubt about whether the individuals in whose
name the applications were being submitted really existed. According
to Ms Denyse Metcalf of Capita
"self-certification of membership - ie not
to have proof of an individual's existence - was one of those
amendments which was introduced in May 2000, so that it was no
longer deemed necessary for people to provide additional documentation
to prove they existed".
53. Mr Derek Grover of the DfES said that the
practice of providers submitting block applications was "one
of the areas it became apparent was a source of abuse and we did
end that practice and make that unacceptable".
Until remedial measures were taken in the summer of 2001, Capita's
ILA Centre could not prevent unscrupulous providers creating accounts
for individuals whom they had not trained, or who did not even
55 See Q.525. Back
Ev115 paragraph 8. Back
See Table at page 29 taken from Ev120. Back
Ev13 paragraph 3. Back
Ev13 paragraph 4. Back
Q.206. See also Q.316. Back
Sixth Report from the Education and Employment Committee, Session
1997-98, Further Education, HC 264, paragraph 21. Back
The Minister wrote to the Further Education Funding Council
and to all FE colleges on 5 February 1997, placing a copy of
his letter in the House of Commons Library. See HC Deb 7 February
1997 vol 289 col 758-9W. Back
See chapter by Guardino Rospigliosi in Recurrent Funding in
Further Education Reformed edited by Alan Smithers and
Pamela Robinson, 2000. Back
HC Deb 27 March 1998 vol 309 col 346W. Back
Paragraph 22. Back
Ev115 paragraph 13. Back
Ev115 paragraph 10. Back
Ev115 paragraph 11. Back
Ev115 paragraph 14. Back
HC Deb 17 January 2002 vol 378 cols 445-6W. Back
Q.43. The external consultants were KPMG see paragraph 21. Back
Q.367. See also QQ.442,470. Back
Q.378. See also QQ.397 to 401, 632 to 638. Back
QQ.391, 641. Back
Ev115 paragraph 8. Back
Quarterly Service Review June to August 2000 paragraph 3.2 [evidence
not reported]. Back
Quarterly Service Review December 2000 to February 2001paragraph
3.6 [evidence not reported]. Back
Quarterly Service Review March to May 2001paragraphs 3.1 and 2.7
[evidence not reported]. Back
Quarterly Service Review June to August 2001paragraph 2.3 [evidence
not reported]. Back
Quarterly Service Review September to November 2001 paragraph
2.6 [evidence not reported]. Back