More on the A4e sell-off

Not a great deal more, to be honest.  But this piece on Education Investor suggests that the company could be sold off "in chunks", which would make sense.  There will be companies like Interserve keen to buy up the welfare-to-work business, while outfits already in the OLASS field might want what's left of the prison education side of things.  Both this piece and the FT article have the suggestion that a group of northern colleges (Newcastle College?) is interested.
Why now?  The articles talk about A4e being "mired in scandal"; but there have been scandals for years, none of them anywhere near the scale of Serco's or G4S's.  Both point out that the company's finances are recovering from the pre-tax loss of £11.5m in the 2013 year.  But this sale has been on the cards for a while.  A4e hit a peak around 2011, with a presence in 11 countries and Emma Harrison riding high as its chairman as well as owner.  That went spectacularly wrong when she took nearly £10m out of the company in one year prior to stepping down as chairman and bowing out of her government role.  Since then she has not received a dividend and the company has got back into the black by getting out of all overseas business except in Australia and not going after contracts on which it knows it would lose money.  If Harrison is to make anything further from A4e she has to sell it off now.

Marking time

Right, I'm back.  Sorry about the hiatus.  What has been going on in my absence?

On the A4e front, very little.  There is no news about the fraud trial, which surely should have finished by now.  But FE Week reports that the £17m London prison education (OLASS) contract, which A4e gave 3 months notice of handing back in August, will continue in A4e's hands until the new year, because the Skills Funding Agency can't find any college willing to take it on.  This seems to back up A4e's claim that the contract was no longer viable.  The prison system is in such a mess that prisoners are being shifted around too often to make education possible.  

On the wider subject of "welfare", I don't need to detail the antics of Iain Duncan Smith.  He was on Radio 4's Today programme on Tuesday, setting out the new timetable for Universal Credit.  Mishal Hussein, who interviewed him, raised the obvious points about missed targets and wasted money.  Now for IDS, that is not how the BBC should behave.  The interviewer should just listen respectfully to whatever fantasies he chooses to spout.  I feared for Hussein at the time.  And sure enough, the next day IDS was reported to have lodged a complaint about her being "negative".  At the same time the National Audit Office warned that any further delays in UC would be hugely costly.  It said that there were no contingency plans to deal with delays.

There's a report in the Independent today about single parents being wrongly threatened with sanctions, or having those sanctions imposed.  I was struck by the blatant lie in the DWP's response: "Sanctions are a necessary part of the benefits system but they are only used as a last resort for a tiny minority who don’t follow the rules and hardship payments are available if people need them.”  This is utterly dishonest propaganda.  But then, if the man at the top of the department is a fantasist it's going to permeate the whole organisation.

A4e pulls out of another prison contract

One of our commenters broke the news yesterday, but now we have confirmation and the details in the Guardian.  A4e has pulled out early from a £17m contract to provide prison education (OLASS) in 12 London prisons.  The contract had almost two more years to run, so we can assume that pulling out has cost the company dear.  But it claims that it couldn't run the contract at a profit.  Without any more details from the company, there is speculation that the reason is that overcrowding and under-staffing in prisons is resulting in prisoners being unable to attend classes, and this impacts on the private companies which are paid according to the number of classes they run.  To add to A4e's embarrassment, the contract was initially delayed by the extended audit of its activities which followed fraud allegations.  And, as the Guardian points out and as we reported at the time, it's not the first time A4e has done this.  In 2008 it pulled out of 8 OLASS contracts in Kent prisons because it was making huge losses.  It had then severely underestimated the costs of providing a pension scheme for the professional teachers it took over from the previous providers.  Presumably it factored all that in to the London bid.
Maybe it's an indication that A4e now can't withstand the losses it might once have absorbed.  It adds to the sense that this is a company in trouble.

A4e's accounts

The accounts for the year ending 31 March 2013 are now available.  You can get them for only £1 from the Companies House website.
Things were bad for A4e in 2011/12 but they got a lot worse.  They had an operating loss of £10.3m compared to a £1.7m loss the previous year, and an EBITDA loss of £5.8m compared to £4m profit in the previous year.  (EBITDA means earnings before interest, taxes, depreciation and amortization - yes, I had to look it up.)  They state that they actually moved into profitability in the final quarter of the year.  They had to borrow a great deal of money.  Liabilities stood at £53.4m, compared to £35.7m in the previous year.   They have a large credit facility with Thornbridge Ltd, which is owned 50/50 by Emma Harrison and her husband.  No dividend was paid.
They confirm that they closed their businesses in France and Germany, and now the focus is on the Work Programme, OLASS 4 (prison education contracts) and on expanding the business in Australia.  They also mention Advice and Enterprise (services to start-ups).  There are confident noises about the WP becoming profitable and getting TR contracts (the outsourced probation services).
It must be stressed that this is the information as at March last year.  We don't know what's happened since then, or why their credit rating was cut in the last three months or so.

Those two new contracts

The Mail has reacted to the news of the two prison education contracts awarded to A4e ("worth up to £30m") with its usual stridency.  How can they do that when the company is being investigated for fraud and the DWP has launched its own enquiry?  They choose to ignore the SFA's decision to conduct an audit before the contracts are finalised.  But I suppose that would complicate the story.  The decision has "provoked anger"; from Margaret Hodge, who said it was astounding, and from an unnamed, and possibly apocryphal, rival bidder who said: "It seems deeply ironic that offenders are to be given lessons in getting back on the straight and narrow by a firm that is being investigated for fraud."
The article doesn't go into how any government department or agency could legally block A4e from getting contracts at this stage.  The bids for OLASS went in and were accepted before the storm broke.  The procurement process, ridiculously, doesn't allow a company's past record to be taken into account.  The only way A4e, or any company, could be barred would be if "systemic" fraud was found - and most of us are agreed that it won't be.  
PS.  Yesterday, we read on the TheyWorkForYou website, an MP, Andy Slaughter, asked the Secretary of State for Business Innovation and Skills " whether the tendering process for the OLASS4 contract was undertaken while A4e were under investigation by (a) the Department of Work and Pensions, (b) the Serious Fraud Office, (c) the police and (d) other public bodies."  John Hayes MP replied: "Under the Apprenticeships, Skills, Children and Learning Act 2009, decisions about the awarding of contracts are for the chief executive of Skills Funding to make.  In respect of the OLASS4 procurement process, the chief executive is undertaking a procurement process in line with the EU Procurement and EU Remedies Directives. That process is still under way and will not conclude until May 2012 at the earliest.  As part of this procurement, the chief executive of Skills Funding has made clear to A4e that he must have the results of the independent review of audit and control procedures A4e is undertaking into its own operations, and the results of the Department for Work and Pensions' investigation, before any formal contract with A4e is entered into." 

"All relationships" - and new contracts

It must be serious, it was covered by the BBC.  The new fraud allegations and the DWP's investigation were reported, albeit briefly, on Newsnight.  Paul Mason put a slightly different spin on it.  As the Guardian reported, the government has launched an audit of 10 other A4e contracts.  Mason takes that to mean that it will ask why A4e was given so many contracts; but I doubt that.  It would have to go back ten years to be credible.
Most of the media add little to the press releases of the DWP and A4e.  The Huffington Post carries the reaction of union leader Mark Serwotka.  The Guardian gets someone to explain how the MWA fraud might have come about.  The Mail is remarkably restrained.
At the same time as all this bad publicity, there is good news for A4e.  As reported on FE Week, it is the "preferred bidder" for 2 of the 9 prison education contracts announced by the Skills Funding Agency.  The SFA is keen to make clear that this doesn't mean that the contracts are signed.  There's a "due diligence" stage to go through before they are finalised in the early summer.  But this will be the acid test of the government's seriousness.  I have had to delete comments from people who know, and are concerned about, A4e's role in OLASS, but some of them may now make themselves known to journalists.
A4e has announced that its new non-executive Chairman is Sir Robin Young.  He was a career civil servant before retiring to directorships, and became a member of A4e's board in 2007.  He begins his statement with the words "A4e's role is to improve people's lives".
Back to the investigation.  The government has said that A4e could have its contracts suspended if it is found guilty of "systemic fraud".  It's that word "systemic" which could prove the get-out for A4e.  It seems likely that the instances of fraud are the result of two factors; the intense pressure in the company to meet targets and make the money, with bonuses for outcomes, team prizes etc.; and a large proportion of inexperienced, minimally trained staff.  But if that is the case, should it let A4e off the hook?

Unanswered questions

Two Labour MPs have tried asking questions about A4e but have not received answers.

The first is Liam Byrne.  Yesterday he put in a written question to Francis Maude, Cabinet Office Minister, asking "when allegations of fraud at A4e were drawn to the attention of his Department's Propriety and Ethics team.  The answer was: "As has long been the practice, information relating to internal discussion and advice is not normally disclosed."  No joy there, then, but I don't suppose Byrne expected anything else.
Last Tuesday Fiona Mactaggart asked "the Secretary of State for Justice what contracts his Department has with A4e; and what the (a) purpose and (b) value is of each such contract."  Now, you would have thought that was straightforward.  But Kenneth Clarke replied: "The Ministry of Justice has no current contracts with A4e. However other departments do have contracts with A4e that deliver services to offenders."  What Mactaggart probably had in mind were the contracts for prison education, known as OLASS (Offender Learning and Skills Service).  Helpfully, back in 2008 A4e submitted a memorandum to the Public Accounts Committee trumpeting its involvement in these contracts.  On their own website A4e talk about working in 20 prisons with 400 staff on OLASS and providing careers guidance in 7 prisons.  It's big business.  And apparently these contracts don't come from the Ministry of Justice.  So, do they come from the Department for Education?  It would seem so. 
If even MPs have trouble getting information, no wonder the rest of us struggle.

Other contracts

• Train to Gain is a government scheme under which employers are encouraged to release members of their staff to take an NVQ Level 2, by paying their wages for the time they spend on the course. A4e won a large number of these contracts in the short term, but created a tortuous administration which hampered the scheme, and the company subsequently lost many of the contracts.
• Recruitment services, particularly in education and the NHS.
• Online business courses for Learndirect.
• OLASS - Prisoner education contracts in four areas of the country. Perhaps A4e saw this as similar to training the unemployed but with less chance of the clients dropping out! Certainly they saw the benefit (to them) of tacking the New Deal stuff onto the education programme. One problem they hit was in staffing; they had to take on existing teaching staff but could not join the teachers' pension scheme, and this meant that staff were worried about a possible reduction in their pensions.
• Money advice Courses on money management are provided to schools. Stoke Council have given A4e a contract to give money advice to council tenants, in a scheme which in July 2009 claimed that "Almost 2,800 residents have been helped to reschedule £9.6 million worth of personal debt and receive over £3.5 million in unclaimed benefits". All this has inspired Emma to go further. She wants to start a bank aimed at the poor. She said recently that she hopes to have three trial branches operating within 18 months. Encouragingly, a partnership with RGMR consultancy has secured a titbit from the Treasury to pilot generic financial advice initiatives.
• A4e were, on 14 January 2009, announced as one of the "partners" in a Money Guidance pilot programme in the North West and North East, along with genuine advice agencies like the CAB and the Consumer Credit Counselling service.
• Social Care As the government pursued the idea of direct payments for social care, A4e was in there, waiting to grab a slice of the cake. By late 2008 it had 12 contracts across the country, including Middlesborough and Somerset.
• CLACs Intentionally or not, the government created another opening for A4e when it sought to reduce the bill for legal aid. Local authorities which used to fund advice charities like CAB now have to put these out to tender, seeking bids from partnerships between solicitors and advice organisations. The first of these was in Gateshead, where the voluntary sector managed to win the contract. But A4e got its act together for the next offering in Leicester, and won the contract. In Hull it was also announced as the preferred bidder, and despite a determined campaign by the CAB the Hull CLAC opened its doors in December 2008. The government has since had to rescue the Hull CAB, and has decided that CLACs are not a good idea.
• Choice Advisors Along with Centra, A4e have the contract for the Choice Advisors Support and Quality Assurance Network, which "supports" people in local authorities who advise parents on school admissions.
• An education business link organisation consortia (EBLOC), which organises work-related learning activities across the four local authority areas of the Tees Valley. This gives A4e a foothold in schools.

It's a Frequently Asked Question - how has A4e managed to insert itself into so many "markets"? With the reputation it has, how does it secure contract after contract? There are two main reasons:

1. When considering bids for a new contracts, government departments are not allowed to take into account the previous records of the bidders. Odd? Yes, and it means that you can bodge one contract but secure the next.
2. Local authorities which feel that they can't, or don't want to, provide a service in-house have to go through rigorous procurement processes. They have to accept the bid which offers "best value", which is not necessarily the cheapest - but if it's not the cheapest they have to have a very good reason, and not liking a particular company isn't good enough.