DfES Approved Service Providers (March 2004)
Introduction
Outsourcing, or the delivery of services by specialist providers, usually private companies, has grown dramatically in the public sector in recent years. It was initially confined to areas such as school and nursery inspection services, careers guidance and cleaning services. In the last three years, however, the private sector has been given a role in the delivery and management of the state education system.
According to Capital Strategies, an independent corporate finance house which specialises in “people based” service sectors, LEA outsourcing is expected to grow in the medium term and extend beyond failing LEAs. It believes that it is likely that LEAs with good track records will increasingly choose to outsource all or part of their work.
Surrey LEA are in the process of setting up a Joint Venture Company, (4S) with a private sector partner to deliver the LEA’s education services and to be in prime position to trade with other LEAs and Schools. Vosper Thorneycroft Education, part of the VT defence and shipbuilding group, has been awarded the £100m, seven year contract. Surrey will have a 20 per cent stake in the joint venture company, which will be operating from September 2003 if, as expected, the county council gives final approval. LEA staff will transfer to the company on existing terms.
In April 2001 Capital Strategies, estimated that the education outsourcing market currently worth £2.5b could increase to £4.9b per year within the next few years. Its UK Education and training Index, measures the relative share price performance of UK quoted companies with significant parts of their income derived from the training and education sectors, £1,000 invested in the companies making up the Education and Training Index at the start of 1996 was worth £2,931 in 2001, compared to £1,660 for an investment tracking the performance of the FTSE All Share index.
As one example, Nord Anglia’s (Hackney, Waltham Forest, Sandwell, etc) interim financial results to June 2001 showed that its annual turnover increased by 9% to £34m and its pre-tax profit increased by 50 per cent to £1.5m.
In January 2003, however, the Times Educational Supplement reported that since December 2001 education firms had seen their shares fall dramatically. It stated that an investor who brought £100 worth of shares in each of the nine leading education firms would now be left with just £371 worth of shares – a loss of £529. Leading PFI firms such as Amey, W.S Atkins and Jarvis have all seen their share price fall. Education services firms such as Capita, Serco and Nord Anglia have fared slightly better as local authorities continue to contract out services. They have however lost around half of their market value.
A TES report of 14 March 2003 reported that WS Atkins had been under pressure since recording pre-tax loses of £32.8 million in December. A takeover was mooted but its shares fell by 7 per cent to around 111p in February after it was revealed that the company was no longer talking to potential buyers. Its share price has since increased after it announced the termination of its contract with Southwark LEA.
In March 2003 Amey posted a pre tax loss of £129.5m for 2002 compared with one of £18.3m in 2001. The company stated that it had incurred exceptional charges of £110.2m in 2002, mainly through writing down PFI investments such as the Croydon Tramlink. In April 2003 Amey was sold for £81m to Ferrovial, a Spanish construction and business services giant, which will assume debts of £190m.
These figures illustrate the fluctuations in the stoke market which characterise and influence private companies’ performance and viability. This makes their clients, which now include schools and LEAs, vulnerable. Private companies have no statutory responsibility nor public duty to provide education services nor are they democratically accountable to their communities. They are bound by contracts which can be varied or broken.
It is inevitable that any profits made by contractors will come from money previously ear-marked for the benefit of schools and their pupils. Profit from outsourcing can be achieved in two ways: by reducing the service through efficiency gains or reductions in provision and by the addition of a profit margin and the providers’ management/staffing costs to the contract. The real cost of providing services must therefore be increased.
The private sector expects to benefit further from the Government’s Best Value, Fair Funding and contracting out policies. The involvement of the private sector is also highlighted in the Education Act 2002, which provides significant opportunities for outside participation, including in the establishment of new schools.
In March 2003 the Times Educational Supplement reported that education companies were seeking involvement in the direct running of state schools. It reported that Nord Anglia, Cambridge Education Associates and the Centre for British Teachers were speaking to ministers regarding the taking over and setting up of schools. The companies want control of teaching and learning in schools contracted out to them for up to 30 years in deals that would enable them to employ staff. They hope to take advantage of plans put forward by School Standards minister David Miliband to extend the Private Finance Initiative. Cambridge Education Associates will attempt to persuade ministers to accept its proposals by the end of May 2003. Vincent McDonnell, CEA’s operations director was quoted as stating “This could take private-sector involvement in education to another level”.
The Government has created a pool of contractors to take on education service consultancy and provider roles. The companies listed below are included in the revised list of Approved Education Service Contractors and Consultants, issued in May 2000. The complete list includes for-profit companies, charities and “successful” LEAs. The information on the companies below has been gathered from those divisions which have supplied information to the Privatisation in Education Unit on the LEAs currently undergoing outsourcing and has been supplemented with information gathered from UNISON and other independent sources as well as the companies’ own bidding and other corporate documentation.
Bevan Ashford Consortium comprises Focus Consultancy Ltd (a consultancy specialising in black and ethnic minority relations), Open IT Ltd (an educational IT company), Full Circle Ltd (an educational consultancy). the Wessex Trust for International Education (a not for profit organisation including Bath and North East Somerset Council, City of Bath College, City of Bristol College, Filton College, Bristol, Learning Partnership West, Norton Radstock College, University of Bath Centre for the Study of Education in an International Context and the University of the West Of England) and Bevan Ashford, a large law firm with many public sector clients.
Bevan Ashford is based in Bristol and is one of the country’s largest regional law firms, with 84 partners and over 600 staff and an annual turnover of more than £30m. It website describes its principal activity as: “acting mainly for employers, both private and public sector, and provides an innovative and cost effective approach to solving HR and employment problems”. The law firm is an approved legal advisor to Ofsted for six regions across England. The appointment follows Ofsted taking responsibility for the regulation of childminders and day care providers for under 8s. Bevan Ashford has a growing national reputation for PFI and PPP projects, acting for both PFI consortia and public sector clients
It has been involved in 186 schemes to date, including 12 educational projects, 14defence, 44 waste/energy management and 82 capital assets and related services. It is acting on the biggest NHS PFI to date, the £1billion NHS Local Improvement Finance Trust (LIFT) scheme. It advised Canterbury College on its £30m relocation and redevelopment PFI and is acting for Bro Morgannwg Trust for a new District General Hospital PFI.
The Wessex Trust was formed in 1995 as a private, limited by guarantee, not-for-profit company with no share capital. It is supervised by a Board of Directors which includes “senior level professionals and councillors from member organisations”. Its website states that “Wessex International has access to senior professional staff in several Local Education Authorities across the south west of England. Some of these staff are involved in the teams of consultants that Wessex International can put together”. Its Chief Executive is Frank Courtney. Over the past four years, the Trust has focused on education management consultancy, training for senior educationalists and organising trips to the UK, based in central and Eastern Europe, the Caribbean and East and South Africa. In July 2000, it sold its trading subsidiary Wessex International Services Ltd to QAA Education Consultants to “enable a major expansion of the consultancy capability under the QAA banner”.
Cambridge Education Associates (CEA) was awarded a seven year contract to run Islington’s central education services, estimated to be worth £11,500,000 per year or £86.6m in total, with a profit cap of £600,000 p.a., dependent on over 440 performance targets. The contract is held jointly with the Mott McDonald Group, a construction company (annual turnover £220m) which was necessary to provide financial backing for the bid. All Islington education service staff have transferred to CEA: CEA are reported to have attempted to increase their working hours from 35 to 37 a week, in contravention to the TUPE transfer regulations. According to the local UNISON branch, it is also planning to introduce performance-related pay.
CEA were financially penalised by Islington in November 2000, after six months of the contract, for failing to meet contractual obligations in five areas, including establishing complaints procedures, systems to support schools in special measures and monitoring schools’ budgets and also in September 2001, when it lost £300,000, almost half of its management fee, after failing to meet its targets for improving GCSE results. CEA needed to improve results by 8.5% but only managed a 1.2% increase in five or more A* - C passes. Vincent McDonnell, director of schools services for CEA in Islington, commented, “The problem was, we had six of the nine secondary schools showing improvement but three slipped back.”
CEA’s proposal to close Angel Primary School from July 2002, in order to reduce the number of surplus places in the Borough, was approved by a Government-appointed adjudicator in August 2001, despite outrage from parents, objections by the Islington School Organisation Committee and the school’s status as one of the most improved schools in the country. CEA’s Managing Director, Brian Oakley-Smith, is reported as viewing the contract as “an opportunity to gain a footing in what is clearly going to be a developing market.”
In addition, CEA was an unsuccessful bidder for Haringey LEA’s outsourcing contract and is OFSTED’s largest contractor (it has a network of 2,250 consultants and Registered OFSTED Inspectors). It has worked with the following LEAs on preparation for inspection, service reviews and development planning: Medway Towns, Wokingham, Surrey, Hammersmith and Fulham, Greenwich and Westminster. In 1999 it won a £25m p.a. contract to deploy over 3,000 regional assessors to monitor teachers’ performance related pay arrangements for five years.
It has also provided interim management for Telegraph Hill School, Lewisham. CEA are also on the DfEE approved list of education service consultants. In addition, CEA is part of the North Somerset Education Partnership, established through a DfEE pilot project to develop a model where the Partnership is given responsibility for securing and delivering LEA services, which are likely to include School Improvement, Special Educational Needs, Admissions, Transport and back office services. Cambridge Education Associates have been appointed as the sole contractor for the elements of the reform programme relating to the recruitment and deployment of Threshold Assessors and External Advisers to governing bodies.
Brian Oakley-Smith, the company’s managing director, established CEA as a private limited company in 1987. He was previously chief inspector and deputy chief education officer of Cambridgeshire LEA. It is a small company, employing approximately 30 employees, many of whom have a local government background. Vincent McDonnell, CEA’s Director of School Services in Islington and previously Chief Education Officer of Richmond LEA, is being promoted to the company’s board. Bill Clark, currently an inspector of schools in Scotland, will be taking his place. Two ex-assistant directors of Haringey Council and senior officers from Luton and Lewisham have also joined CEA. The company holds a database of more than 2,000 freelance education experts it can call on.
Its 1998 – 99 annual turnover of £5m was considerably augmented by the Islington and performance assessor contracts. In 2001 annual turnover was £52m.
In November 2002 the Times Educational Supplement reported that allegations regarding the tampering of Key Stage 2 maths papers at an Islington primary school were ignored for a year by CEA.
In December 2002 The Guardian reported that CEA was likely to forego an estimated an estimated £400,000 from its annual management fee after failing to meet its performance targets for improving GCSE and Key Stage 2 results. Bill Clark, director of CEA was quoted as stating that whilst the results were bad for moral he was confident that Islington will get there by 2004.
In March 2003 the Times Educational Supplement reported that Cambridge Education Associates were speaking to ministers regarding the taking over and setting up of schools. CEA hope to take advantage of plans put forward by School Standards minister David Miliband to extend the Private Finance Initiative. Cambridge Education Associates will attempt to persuade ministers to accept its proposals by the end of May 2003. Vincent McDonnell, CEA’s operations director was quoted as stating “This could take private-sector involvement in education to another level”.
In August 2003 it was reported that CEA would be fined again for failingto meet its targets for improving GCSE and national test results. CEA will forgo £518,645 of the annual management fee it receives from the Government. The fine has been imposed because of lack of progress in primary schools and failure to improve the percentage of pupils gaining five or more good GCSEs. CEA missed seven out of 11 strategic targets whiles also failing short in five out of 29 operational targets, and failing four out of 33 assessments by headteachers.
CEA recognise trade unions and consult with them: UNISON have reported that “in negotiations they are inexperienced, they flag up issues but do not seem to have a clear plan or objective”.
Cap Gemini Ernst and Young prepared the initial output specification for Leeds LEA outsourcing, as it is also on the DfEE Approved List of Education Service Consultants.
The consulting business of Ernst and Young was sold to Cap Gemini in May 2000, although it retained its accountancy business. Cap Gemini Ernst and Young (CGEY) is one of the UK’s largest professional services firms and has offices throughout the country. The Cap Gemini Group is based in France. Cap Gemini’s businesses are organised into three divisions: management and IT systems consulting, systems development and outsourcing. Its principle markets are in northern Europe, although it also has a significant presence in the USA. In November 2001 a consortium led by CGE&Y won a seven-year contract from the Scottish Executive procurement service. The project will provide e-procurement processes across the Scottish public sector, and will particularly target local and central government and the NHS. The company have also won a 3-year outsourcing contract valued at £19 million from DARA, the Government’s Defence Aviation Repair Agency.
CGE&Y has seen its annual operating profits fall by 40 per cent, and its profit margins halved to 5 per cent, despite drastic restructuring measures during the course of 2001. The company stated the results were due to customers delaying or cancelling orders as a result of the economic downturn
Capita is Britain’s biggest outsourcing company and relies on public funds for more than half of its business.
Capita withdrew from the bidding for Southwark LEA’s services and was unsuccessful in Bradford. It was named as Leeds LEA’s partner in a new joint venture company to run schools’ services, Education Leeds, in April 2001. It has provided two directors for the company and supports it with strategic management, change management and other “capacity issues” in return for a fee of £3.7m over five years. It provides management support and a Director of Education for Haringey LEA. Capita works with 158 LEAs in total, mainly providing customer support services. It was chosen as the preferred strategic partner by Blackburn with Darwen Council in November 2000 to provide all revenue collection and back office functions over a fifteen-year period for an estimated £190m fee.
Capita is part of the North Somerset Education Partnership, established through a DfES pilot project to develop a model where the Partnership is given responsibility for securing and delivering LEA services, which are likely to include School Improvement, Special Educational Needs, Admissions, Transport and back office services. In addition, it is involved in a further DfES New Models pilot project with Oxfordshire, West Berkshire and Wokingham LEAs, which aims to combine the authorities’ back office functions to achieve economies of scale and explore collaboration on school improvement service delivery. Capita will assist with the process of partnership working, identification of markets, consultation with stakeholders and evaluation.