Subcontracting in Higher Education Under the New Proposed OfS Condition  

OfS consultation on subcontractual arrangements and what providers need to know

As highlighted in our previous blog on this topic, the OfS is currently consulting on the Oversight of Subcontractual Arrangements in English Higher Education. This would create a new general ongoing condition of registration (“Condition E8”), targeting lead providers operating through subcontractual arrangements – an arrangement often called franchising.

The consultation comes following concerns of inadequate oversight, insufficient control of recruitment, admissions, student attendance and assessment in subcontractual arrangements, and inappropriate student loan claims. The consultation is open until 1 October 2025, with the condition expected to come into force in January 2026.

There are some concerns with the proposed new condition and its implementation. Following our previous summary of the proposals, we have set out a general commentary and provided our responses to the consultation questions – institutions may wish to refer to these when preparing their own submissions.

Our general commentary on the proposals

We’ve set out our responses below to the questions asked by the OfS in its consultation. In terms of the general approach, we recognise the legitimate concerns in relation to subcontractual provision and the need to address the major issues to mitigate risks to students, taxpayer and the wider reputation of the sector.

It is absolutely right that, as the consultation states (in paragraph 60), “a lead provider takes an active and direct role in overseeing its subcontracted delivery.” A lead provider remains responsible for the quality of the education and student support provided and the standard of the awards ultimately issued in its name.

The OfS identifies (in paragraph 63) the risk for some that “the financial importance of maintaining subcontractual partnerships may discourage a lead provider from implementing robust oversight measures because this could introduce additional costs or operational complexity.” Whilst this is a legitimate concern there are elements of the proposals which go too far in seeking to formalise arrangements to mitigate the identified risks. In broad terms:

• E8, the new general condition, goes too far and is too detailed and prescriptive. At six full pages plus another 13 ½ pages of Annex and Guidance this goes far beyond anything already published as part of any of the general conditions of registration.

• What the OfS describes as a ‘governance and control’ environment, intended to ensure that providers do not simply take a ‘hands off’ approach to overseeing subcontractual provision and have in place the right level of oversight and control of risks, seems instead to transfer the oversight to the OfS with its new information requirements.

• Developing and maintaining a new “comprehensive source of information” relating to subcontractual arrangements imposes a new and burdensome demand on providers.

• The OfS already has sufficient power in terms of issuing directions and therefore the creation of a specific OfS direction, a “subcontractual arrangement direction” or SCD, looks unnecessary.

• Whilst requiring the publication of some of the details of subcontractual arrangements in providers’ accounts may be appropriate, if this entails too much information being made public it may compromise providers’ commercial interests.

Overall, addressing subcontractual activity should be viewed as the introduction of modest additional regulations so there really is no need to introduce a new “comprehensive routine approach to monitoring” such arrangements.

Our response to the consultation

This is our response to the consultation – institutions may wish to consider the points we raise in preparing their own responses.

Question 1

Are there aspects of the proposals you found unclear? If so, please specify which, and tell us why.

No.

Question 2

In your view, is the proposed definition of subcontractual arrangements clear and does it correctly capture the nature of these arrangements?

Whilst the definition is not unclear, more detail and certainty would be useful.

Paragraphs 50 and 153 of the consultation explain how the OfS will take regulatory action against a provider which has tried to conceal subcontracted delivery. Our experience of similar situations in the further education sector is that some providers will use uncertainty over what constitutes subcontracting to hide arrangements which should properly be classified as subcontracting. Or, more commonly, delivery partners will seek to “sell” arrangements to main providers by explaining how they do not constitute subcontractual delivery.

Unless the definition of subcontractual arrangements is definitive, it will be hard for providers to understand what does and does not constitute subcontractual delivery. As a consequence, it will be hard for the OfS to take regulatory action against providers which have not behaved properly.

Question 3

Do you have any comments on the scope of providers that will have obligations under the proposed condition?

This seems broadly appropriate. Whilst it could be argued that 100 students – whether FTE or heads, actual or forecast – is too low a threshold, the risks and issues remain the same. Whatever the final threshold, the fact that the OfS retains the right to bring any provider into scope means that the actual number is of lesser concern.

Question 4

Do you have any comments on the impact of these proposals for particular groups of students?

No

Question 5

Do you have any alternative suggestions to the approach we have proposed?

The broad approach does need to be reconsidered. There are elements of the proposals which go too far in seeking to formalise arrangements to mitigate the identified risks. Specifically:

• The new general condition, E8, is excessively detailed and prescriptive. At six full pages plus another 13 ½ pages of Annex and Guidance this goes far beyond anything already published as part of the general conditions of registration.
• What the OfS describes as a ‘governance and control’ environment seems to be less about ensuring providers do not adopt a ‘hands off’ approach than introducing additional controls on the part of the OfS. Providers have to have in place the right level of oversight and control of risks but these proposals are over-elaborate for this purpose.
• The requirement for the maintenance of a “comprehensive source of information” imposes a new and burdensome demand on providers which should not be required in the form specified.
• The creation of a specific OfS direction, a “subcontractual arrangement direction” or SCD, is unnecessary as relevant directions can already be issued by the OfS.
• The publication of details of subcontractual arrangements in providers’ accounts, whilst appropriate to an extent, if over-specified, as they appear to be here, may compromise providers’ commercial interests.

Overall the approach of the OfS here should be the introduction of modest additional regulations to cover the very specific nature of subcontractual provision. Given that the intention is to ensure that providers are executing their normal responsibilities properly, actively and directly, and not adopting a hands off attitude, there really is no need to introduce a new “comprehensive routine approach to monitoring” such arrangements.

Finally, it is unfortunate that these proposals are not properly co-ordinated with changes under consideration by the DfE which consulted earlier this year on strengthening oversight of subcontractual provision (including a proposal that delivery partners with 300 or more students must register with the OfS) but has yet to announce the outcomes. Whilst the OfS states that it will adjust its approach in the light of any changes if necessary this really does feel as if prior alignment would be sensible for all involved.

Question 6

Do you have any comments on the nature of the risks that we have included in our draft guidance that we are proposing providers mitigate?

As a non-exhaustive list of possible risks it is not problematic as far as it goes. However, it should also include the risks to the provider – reputational, regulatory and financial – as well as the wider sectoral reputational risks too.

We would caution against too much detail being required of providers as to how they will protect students in the case of the failure of a subcontractor (as required by paragraph 90). The OfS will have seen from recent examples that the nature of the support which a provider can offer to students will depend on the nature of the failure of the subcontractor. It may well even be the case that the main provider offers different types of support to different students within the same cohort.

Question 7

Do you agree or disagree with the minimum content requirements we have proposed for the single document we propose a provider should maintain? Please give reasons for your answer.

The ‘comprehensive source of information’ (CSI) is wrongly conceived. A document that institutions are required to develop and maintain but may never need to share with the OfS represents an unnecessary burden on providers. It would be better to tell providers they need to be able, briefly, to evidence how they are meeting general conditions in the subcontract than requiring an additional comprehensive set of documents – they should be able to do this routinely rather than create a whole new suite of documents, which is what the CSI would surely become.

Paragraph 69 refers to “consolidated information” which feels like a much clearer way of expressing the requirement here. Essentially, providers should be able to present an overarching and concise consolidated summary of their approach to subcontractual provision covering the five areas specified in paragraph 75 – rationale, new arrangements, governing body oversight, policies and procedures, adaptability – in just a couple of pages with relevant links. Specifying them afresh for the purposes of creating a document for the regulator ONLY in the event that it asks for it is excessive. Specifying that these are the questions providers will ask themselves and that they should be able to summarise their approach should be sufficient. The principal point being, most features should be largely the same as for non-subcontractual provision and it is only the additions and variances which need to be highlighted.

Paragraph 94 suggests that there will be minimum content requirements for contracts. This is an area where any requirements from the OfS must be unequivocal. If the OfS requires defined clauses, then they will be included and easy to negotiate. If the OfS requires only vague principles, then delivery partners will push back against them.

Question 8

Do you have any views on any challenges that you anticipate with the implementation of this proposal?

As indicated in the answer to Q7 the CSI is wrongly conceived and represents an unnecessary burden on providers. A much briefer consolidated document should suffice.

Question 9

In your view, are there any barriers to implementing the measures in this proposal, which require a provider to operate in accordance with its comprehensive source of information? If so, please specify which, and tell us why.

Paragraph 111 proposes that “a provider’s oversight mechanisms should always enable testing of its delivery partners’ practices, for example through unannounced inspections, student interviews, assessment sampling or similar methods.” Reporting by the delivery partner alone would be seen as insufficient.

On the assumption that a consolidated (rather than a comprehensive) source of information is provided which highlights the sources of existing policies and procedures which apply to the delivery partner together with any variances, this should not be problematic. In essence any subcontracting provider would operate its normal procedures with additional controls as it saw fit, noting that simple reporting from the partner would not suffice. Given the risks to the provider and its reputation it seems to us extremely unlikely that any institution would rely wholly on written reports from a partner to satisfy itself of the quality of the education and student support provided and the standard of the awards which it will ultimately be issuing. [It is accepted therefore that a ‘best endeavours’ approach would be insufficient in this context.]

Question 10

Do you have any comments on the proportionality and effectiveness of our proposed approach tousing subcontractual arrangement directions?

This seems disproportionate and over-specified. The creation of a specific OfS direction, a “subcontractual arrangement direction” or SCD, is unnecessary as relevant directions can already be issued by the OfS. The interventions the OfS can already make would allow it freedom to impose specific ongoing conditions of registration.

Paragraph 134 of the consultation suggests that the OfS may require registered providers to take actions such as withholding payments to subcontractors. This could put a main provider in breach of its obligations to the subcontractor. This would be disproportionate. One solution to this issue would be if the OfS included a mandatory clause for inclusion in contracts which allowed the registered provider to take such action as is required by the OfS.

Question 11

Are there aspects of the proposal to require additional disclosures in a relevant provider’s audited financial statements that you found unclear? If so, please specify which, and tell us why?

The proposals are clear but problematic. See Q 12 below.

In response to paragraph 141a and 146, it would be helpful if the OfS could clarify to what extent it believes that a main provider is allowed to use the generation of a surplus as a subcontractual rationale. Of course quality must always be assured, but it is not clear whether or not generating a surplus is a valid rationale for subcontracting.

Question 12

In your view, are there any barriers to implementation of this proposal?

Yes. Inclusion of a brief statement on the subcontractual strategic rationale in the event that this does not already appear would seem uncontroversial. The proposal for a financial disclosure setting out the proportion of student fees retained by the lead provider in each subcontractual arrangement, including SLC fees, requires reconsideration though. The commercially sensitive nature of such arrangements, particularly the likely differences between levels of payments to delivery partners, makes the publication of this information highly problematic. Publication on an anonymous and aggregated basis might be feasible but not in the manner presented in the example box on pages 39-41 of the consultation.

Publication of this information could also jeopardise the OfS’ duty to promote competition in the sector. Once payment information becomes public, it is likely that payments will be compared between providers and a common amount would become the norm.

Question 13

Do you have any comments on the proposals to publish this information, either in providers audited accounts or by the OfS?

Provided it is anonymised then aggregate data will be of public interest.

Question 14

Do you have any comments on the appropriateness and effectiveness of our proposed approach to monitoring compliance with the proposed condition?

Noting the fundamental concerns about the excessive scale and detail of the draft proposed condition E8, assuming that a significantly streamlined condition and a more concise alternative to a CSI is finally introduced, then the proposal that the OfS will use its normal approach to monitoring is appropriate.

In response to paragraph 153b, please see our answer to question 2 above; without a more robust definition of subcontracting, it will be hard to show that a provider has tried to hide it.

The speed of implementation at paragraph 159 is disproportionately burdensome for providers. Whilst issues around subcontracted delivery in higher education are undoubtedly important, they are not new. These issues have been known for many years and it would have been open to the OfS to regulate in this area earlier. To expect providers to move so quickly now is disproportionately burdensome. Indeed better results will be possible if a more proportionate timeframe is used.

How can we help?

The consultation is open until 1 October 2025, but in the meantime if you would like any further information or support in relation to subcontracting or other regulatory issues then please do get in touch with our expert education team.