Select Committee on Education and Skills Third Report


The delivery model

31.  Under the universal national framework, some specific groups were targeted through marketing: women returners, younger workers with low skills or few qualifications, self­employed people and non­teaching school staff. ILAs were also a mechanism to encourage the development of wider choice and innovation in the delivery of training and to attract new providers, not just established providers known to TECs and the Further Education Funding Council. This in turn would support improvement in the training market as individuals and their funding would flow away from inefficient and ineffective providers and make room for new providers, particularly those operating in smaller niche markets and with new, non­traditional learners.[55]

32.  Because the objective was to bring in new learners and providers, the programme was designed to be simple and flexible for the learner and provider with the minimum of form-filling. The programme was designed to open up the learning market and to place as few restrictions as possible on what people could choose to learn; placing real purchasing power and consumer choice in the hands of learners for the first time. ILAs were not, however, intended to be a guarantee of quality of learning or learning providers as such Government endorsement might give an unfair market advantage to registered ILA providers.[56] Mr Derek Grover of the DfES told the Committee "There is an old saying - 'If you do what you always did, you get what you always got' - and we really wanted to get some different learners involved and some different providers".[57]

33.  A large number of providers signed up to deliver learning paid for by ILAs — 8,910 by the time the scheme was closed down.[58] We welcome the entry of new and innovative providers into the market for delivering lifelong learning. It should have been possible to design a scheme to encourage new providers that was not wide open to fraud or abuse by unscrupulous people posing as learning providers, but the lack of quality assurance made it almost inevitable that it would be abused.

34.  The Association of Computer Trainers described the structure of the ILA scheme as "fundamentally flawed"[59] with shortcomings that were "preventable and avoidable".[60] Mr Stuart Ingleson of Preston College said that "the scheme was set out in such a way that it was a licence to print money".[61] He referred to "the sound of slightly hollow laughter"[62] at the decision of the Government to pull the plug on ILAs, because —

    "the people who have worked in this sector since incorporation have been here twice before already. The FEFC administered a scheme called the Demand-Led Element Funding, which ... was almost identical in principle and concept to the Individual Learning Account. That was stopped when it exceeded any budget estimates that had been made for it. The FEFC had to engage in a very humbling retraction in mid-year - it left a lot of colleges in some difficulty and a lot of students promised activity that they were never able to pick up. We have had a similar experience in franchising ... we had similar issues around that and the numbers were at a very, very high level and there were budget considerations. The ILAs have been extremely successful. It is clear that you cannot live with a completely uncapped budget in terms of delivering a project of this size."[63]

35.  Our predecessor Committee described the Demand-Led Element [DLE] as "an important incentive for encouraging growth" in the FE college sector.[64] The DLE was an uncapped source of funding, additional to the main allocation to each college, which provided a spur to rapid growth for colleges. It was withdrawn at short notice during the financial year 1996-97, when the then Government decided that bids by colleges for DLE funding would lead to an unacceptable increase in expenditure.[65] According to Mr Guardino Rospigliosi, Principal of Richmond upon Thames College and then Plymouth College of FE, "the DfEE and its predecessors had a good record of planning and it was in this context that the Treasury felt there was not too much risk in offering an open­ended commitment to fund growth in excess of DfEE forecasts through the demand­led element formula".[66] The risk turned out to be too great for the Treasury to bear and the Government decided that all FE funding was to be claimed against the cash­limited section of the Departmental Estimate.[67] Although there are substantial differences between the DLE and the ILA, the Treasury and the Department had reason to be cautious about open-ended commitments to fund learning. As we commented above,[68] the failure of the DfES to learn from past experiences, such as franchising and demand-led funding, is a matter of concern.

Public/private partnership

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.[69] 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.[70] 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.[71] 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.[72] 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."[73]


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".[74]

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".[75] By contrast, Mr Roger Tuckett of Henley Online described the level of computer security as "pitifully low".[76] 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".[77] 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".[78] 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.[79] 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".[80]

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".[81] 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.[82] 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".[83] Mr Doyle told us that Capita "share our part of the blame in that the scheme has gone wrong".[84]

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 of things".[85] 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.[86] 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.[87] The DfES had in some cases secured the recovery of public money where the individual contribution had not been made.[88] 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".[89] 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".[90]

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".[91]

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".[92]

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.[93] 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.[94] 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.[95] Between June and August 2001 the trend continued, with 83 per cent of members joining through a non-personalised application form.[96] Non-personalised applications were no longer accepted after 25 September 2001.[97] 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".[98]

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".[99] 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 exist.

55   See Q.525. Back

56   Ev115 paragraph 8. Back

57   Q.9. Back

58   See Table at page 29 taken from Ev120. Back

59   Ev13 paragraph 3. Back

60   Ev13 paragraph 4. Back

61   Q.224. Back

62   Q.206. Back

63   Q.206. See also Q.316. Back

64   Sixth Report from the Education and Employment Committee, Session 1997-98, Further Education, HC 264, paragraph 21. Back

65   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

66   See chapter by Guardino Rospigliosi in Recurrent Funding in Further Education Re­formed edited by Alan Smithers and Pamela Robinson, 2000. Back

67   HC Deb 27 March 1998 vol 309 col 346W. Back

68   Paragraph 22. Back

69   Ev115 paragraph 13. Back

70   Ev115 paragraph 10. Back

71   Ev115 paragraph 11. Back

72   Ev115 paragraph 14. Back

73   HC Deb 17 January 2002 vol 378 cols 445-6W. Back

74   Q.10. Back

75   Q.43. The external consultants were KPMG see paragraph 21. Back

76   Q.81. Back

77   Q.81 Back

78   Q.376. Back

79   Q.415. Back

80   Q.81. Back

81   Q.367. See also QQ.442,470. Back

82   Q.378. See also QQ.397 to 401, 632 to 638. Back

83   Q.400. Back

84   Q.379. Back

85   QQ.391, 641. Back

86   Ev115 paragraph 8. Back

87   Q.36. Back

88   Q.36. Back

89   Q.63. Back

90   Q.106. Back

91   Q.582. Back

92   Q.235. Back

93   Quarterly Service Review June to August 2000 paragraph 3.2 [evidence not reported]. Back

94   Quarterly Service Review December 2000 to February 2001paragraph 3.6 [evidence not reported]. Back

95   Quarterly Service Review March to May 2001paragraphs 3.1 and 2.7 [evidence not reported]. Back

96   Quarterly Service Review June to August 2001paragraph 2.3 [evidence not reported]. Back

97   Quarterly Service Review September to November 2001 paragraph 2.6 [evidence not reported]. Back

98   Q.501. Back

99   Q.33. Back

previous page contents next page

House of Commons home page Parliament home page House of Lords home page search page enquiries index

© Parliamentary copyright 2002
Prepared 1 May 2002