Report 99/63

Higher education in further education colleges:
Code of practice on indirectly funded partnerships

Executive summary

1. Purpose

2. This document provides a code of practice for indirectly funded partnerships entered into by higher education institutions (HEIs) and further education sector colleges (FECs). These partnerships are often known as franchises.

   Key points

3. The code of practice provides guidance on the principles that should be reflected in indirectly funded partnership agreements.
4. The code sets out seven principles, together with a commentary on their application.
5. Institutions should reflect the code in any new partnership arrangements that they are establishing and use it to review existing indirectly funded partnerships.
6. We have mounted on our web-site (http://www.hefce.ac.uk under ‘Good Practice) examples of existing partnership agreements to illustrate the variety of good practice that partners have already established.

   Action required

7. Institutions should review partnership agreements to see how far they meet the principles of the code. We will undertake a sample survey of agreements in two years' time.

Background

7. In June 1999 we consulted institutions on a draft code of practice (HEFCE 99/37) for promoting effective indirect funding relationships. This followed a more wide-ranging consultation in 1998, and a series of seminars, on funding higher education provision in further education colleges.
8. Institutions' responses to the draft code were very positive. The main themes which ran through the responses were that:
   • most of the principles described in the code are current practice in many institutions
   • institutions welcomed the non-prescriptive approach of the code and its proposal that the financial basis of agreements should be open and transparent
   • the code would help to open up channels of communication between institutions
   • partners should be responsible for monitoring their own agreements
   • we should carry out a sample survey after two years to find out how far agreements meet the terms of the code.
9. We have taken into account institutions' responses in preparing the final code of practice.

Principles

10. Many institutions which have existing partnership agreements will be familiar with most aspects of the code of practice. However, other institutions which are considering partnership arrangements for the first time may be unsure of the principles which they should address. The code offers guidance to HEIs and FECs on the principles which they should reflect in their partnership agreements, with a view to ensuring that partnerships are well understood, transparent, and able to command the confidence of both partners. These principles provide a framework for promoting good practice in indirect funding relationships. The best test of such a relationship is whether both parties believe that it helps them deliver high quality, accessible and cost-effective HE programmes taking account of their individual circumstances and needs. Therefore, the principles are not intended to be exhaustive or prescriptive, and partners will want to determine the specific arrangements that suit their circumstances.
11. The code is intended to complement the Quality Assurance Agency’s (QAA) code of practice on collaborative provision. There is deliberate overlap between the two since they are addressing the same issue from different perspectives. The QAA’s code concerns those aspects of collaborative arrangements relevant to quality and standards. This code concerns those aspects of a particular set of collaborative arrangements in England – indirect funding relationships – which relate to value for money in securing a high quality experience for students.

Existing partnerships

12. We expect partners to reflect the code in any new arrangements that they are establishing and to use it to review existing indirectly funded partnerships.
13. We know that in existing partnerships there is much good practice and a wide variety of models of agreements. We are grateful to institutions that have provided examples of existing agreements. These enable us to feed back to the sector the main features of some models already in operation. We have mounted some examples on our web-site (http://www.hefce.ac.uk under ‘Good Practice’); we hope that institutions will find these helpful when they draw up their own agreements.

Funding implications of new partnerships

14. FECs and HEIs establishing new partnerships may wish to transfer existing directly funded programmes so that they become indirectly funded through the HEI. This may be particularly appropriate for small pockets of HE provision in FECs. In some cases, the HEFCE funding attached to existing provision in FECs may be below the standard level of resource which we have calculated for each institution. Where this falls below the tolerance band of -5 per cent of the standard, we have agreed with the institutions concerned a migration plan which shows how we expect them to move within the tolerance band over a period of four years. In such cases, for colleges whose HE provision does not exceed 200 full-time equivalent (FTE) students, we will accelerate the migration period if the provision becomes indirectly funded. We will apply a sliding scale as follows:
    • for colleges with fewer than 100 FTE HE students we will increase funding to the tolerance band of the standard rate of funding immediately the transfer take place
    • for colleges with between 100 and 200 FTE HE students we will increase funding to the tolerance band of the standard rate of funding over two years from when the transfer takes place.

Monitoring

15. There will be no formal monitoring process. Instead, we invite HEIs and FECs to review existing and new partnerships to see how far they meet the principles of the code. Indirectly funded partnerships are not obligatory, and they work best when both partners find them an effective means of securing mutual advantage. Therefore, partners should have discretion to decide what suits them best. We hope that the code will help establish common expectations about the characteristics of effective franchising. It is for the partners to judge in each case whether their existing partnership has those characteristics, and if not how it can be improved.
16. In the autumn of 2001 we will carry out a sample survey to find out whether HEIs and FECs have reviewed their partnership agreements, and how far they meet the terms of the code. If the survey provides evidence of continuing concern about the effectiveness of indirect funding partnerships, we will consider at that stage what further steps would be appropriate.

Code of practice for indirectly funded partnerships

Introduction

1. This document is a code of practice for indirectly funded partnerships (commonly known as franchises) entered into by higher education institutions (HEIs) and further education sector colleges (FECs).
2. It has been prepared in the light of:
   • the conclusions and recommendations on franchising made by the Dearing Committee
   • the study jointly commissioned by the HEFCE and the Quality Assurance Agency (QAA) into the nature of higher and further education sub-contractual partnerships (HEFCE 98/58)
   • comments received from FECs at HEFCE regional seminars held in October 1998 for newly HEFCE-fundable FECs, and a seminar with those HEIs that have the most indirectly funded provision
   • responses to the consultation document, ‘Funding higher education in further education colleges’ (HEFCE 98/59)
   • responses to the draft code of practice on indirectly funded partnerships (HEFCE 99/37).
3. The code is intended to provide guidance to HEIs and FECs but is not intended to be either exhaustive or prescriptive. The circumstances of individual partnerships vary. So long as the end result is high-quality teaching and learning for students, on financially viable programmes, it is for the partners to determine the precise arrangements that will best suit them. All partnerships should reflect the principles stated below, although their implementation may vary.
4. This code should be used in conjunction with the QAA’s code of practice on collaborative provision. The two codes of practice address the same issue, but from different perspectives. The code here covers aspects of indirect funding partnerships that are of concern to the HEFCE because they relate to value for money in securing an acceptable quality of experience for students on courses funded in this way. The QAA code relates to aspects of collaborative arrangements relevant to quality and standards.

Background

5. From 1999-2000, the HEFCE is responsible for funding all HNCs, HNDs, degree-level and postgraduate provision whether delivered in HEIs or FECs. Some provision delivered in colleges is funded directly; some will be funded indirectly. Indirect funding can be provided either through sub-contractual partnerships with HEIs or through consortia arrangements with other FECs and HEIs. This code of practice is concerned with the former.
6. An indirectly funded partnership is one in which the student is attributed to the HEI for funding purposes but the course is wholly or partly delivered in the FEC. There are some exceptional cases where an HEI franchises provision to another HEI (for example, a university franchises to a college of higher education). This code also applies in such cases.
7. There are good reasons for maintaining and encouraging these partnerships. They fulfil an important role in widening access for students. They can provide good opportunities for student progression. They offer a valuable vehicle for close collaboration between HEIs and FECs in meeting local and regional needs for coherent provision of HE. They also help to develop diversity in the sector. Where partnerships are already working well, we want to sustain them. We also want to encourage the formation of new partnerships.
8. On the other hand, some colleges have in the past experienced difficulties with their indirectly funded partnerships. The HEFCE has a responsibility to ensure that the provision it funds offers students a comparable quality of HE experience, irrespective of where that provision is located or how it is organised. Higher education provided through FECs is becoming increasingly important in delivering the objective of widening access for students, and it will continue to grow. Therefore it becomes correspondingly important to ensure that indirect funding partnerships contribute to the achievement of high standards and value for money.
9. This code seeks to identify the characteristics of effective funding partnerships. There is much good practice already in evidence. That practice now needs to become universal. The HEFCE expects HEIs and FECs to use the code as a basis for reviewing existing indirectly funded partnerships, and for developing new partnerships.

Seven principles of effective indirectly funded partnerships

10. The purpose should be defined in relation to both parties’ missions and strategic plans.
11. Both parties should be clear why they have entered into the partnership.
12. It should be possible for each party to assess whether in practice it is achieving the purpose, which implies that each party should have considered what success criteria or performance indicators it would use.

13. The statement should be a formal written agreement. It should be drawn up by means of an agreed and explicit procedure, involving all those in both the HEI and the college who will have a significant part to play in implementing it. The agreement should be approved by the Senate or equivalent academic body of the HEI, and signed by senior managers from both the HEI and the college.
14. It should be:
    • comprehensive
    • cross-referenced to other related documents
    • available to staff, students and anyone else with an interest. There may be elements which both parties agree should be kept confidential (notably anything which would risk prejudicing commercial or management interests); these should be very much the exception.

15. The agreement document should state:
    1. The duration of the agreement. Franchising agreements can be of any duration; from one or two years to provide a specific course, through to long-term association between the HEI and the FEC across a range of activities. So the duration will depend on purpose and circumstances.
    2. Action to be taken if either party is not meeting the terms of contract, and procedures for resolving disputes.
    3. How, within both the HEI and the FEC, the operation of the agreement will be managed. Particularly in cases where the HEI enters into agreements with a number of FECs, there is likely to be value in a central unit to ensure effective and consistent management. Where responsibilities are delegated to departments of the HEI, it should be stated what those responsibilities are, and how the HEI will monitor its effectiveness in discharging the agreement.
16. The agreement should cover the following:
    • designated responsibilities
    • finances
    • reassignment of student numbers.

    Designated responsibilities

17. Each partner should be clear about their respective responsibilities:
    • who is responsible for student recruitment, selection and admission?
    • what support is provided for students, and by whom?
    • who deals with complaints and appeals?
    • who is responsible for staff recruitment and development?

    Finances

18. For the duration of the agreement, the HEFCE will fund the student numbers at the standard rate for the relevant price band. Those students may also attract funding premiums (for example, the widening participation weightings) and Access Funds. The amount of money from within that income stream which the HEI retains to cover its contribution to the arrangements will differ in each partnership. The HEFCE will not prescribe a set proportion which must apply, but in all cases, both parties should be clear:
    1. What is the total HEFCE funding, including premiums and Access Funds, allocated to the HEI in respect of those students.
    2. What part of that funding the HEI will retain.
    3. What that retained funding is intended to pay for, in terms of the HEI’s overheads and services contributed to the partnership arrangements, with an indication of how that retention has been calculated.
19. It is not feasible to cost every aspect of a partnership agreement. Particularly in a long-term and wide-ranging association between HEI and FEC, there will be intangible and unquantifiable benefits. One of the advantages of indirect funding partnerships is that an HEI can undertake activities at marginal cost which would cost the FEC a great deal more to do on its own (for example, the various administrative requirements associated with HEFCE funding). There will be wider activities and facilities provided by the HEI whose contribution to the franchised provision cannot sensibly be costed. Nonetheless, both parties should be clear about how the total funding available for the franchised provision is being used.
20. Currently, most agreements operate by the HEI transferring to the FEC a net amount of funds, after deducting the amount it retains for the services it provides. An alternative model is a service level agreement whereby all the allocated funds flow through to the FEC, which then buys back agreed support services from the HEI.
21. There should be agreement on:
    • how and when payments will be made, and the recording of transactions
    • which party collects student fees
    • what happens to funding when students fail to complete a course
    • what happens if there are changes in public funding.
22. The students contracted by the HEI to the FEC will be included within the HEI’s total HEFCE-funded student numbers when calculating any grant allocations for special funding initiatives which are based on a student-number related formula. Non-formula project and special programme funding received by HEIs can also cover relevant activity in the FEC. The partnership agreement should set out how the HEI and FEC will determine what element of any special funding allocations from the HEFCE is attributable to the programmes delivered in the FEC.

    Reassignment of student numbers

23. For the duration of the partnership agreement, so far as the HEFCE is concerned, the student numbers belong to the HEI. The HEI must have reasonable discretion to move numbers around. It is one of the advantages of franchising for FECs that it gives flexibility to re-deploy numbers within a larger student total so as to reflect fluctuations in recruitment. This can help ensure that penalties do not apply for over- or under-recruitment to specific FEC courses, as they would if the college were directly funded by the HEFCE. That flexibility needs to be retained.
24. Flexibility needs to be exercised by agreement between the HEI and the FEC, so that the FEC is not surprised by a sudden and unilateral decision to re-deploy, with consequent disruption for students and possible reduction in the local accessibility of provision.
25. The partnership agreement therefore should state in what circumstances numbers may be re-deployed from the FEC; and the procedures for agreeing such redeployment. This should include arrangements for ensuring that existing students are able to complete their course of study.
26. The agreement should also state what happens to the student numbers at the end of the agreement period; in particular, whether on expiry they are attributed to the FEC or to the HEI. For the duration of a partnership agreement, the franchised student numbers must be within the HEI’s total. If the FEC also has its own numbers, there is nothing to prevent it reassigning them to the HEI for incorporation within the HEI’s student number total for the duration of the agreement, with those numbers then reverting to the FEC at the end of the agreement. However, the HEFCE’s consent will be required for any such transfers between institutions.

27. An objective of all indirect funding agreements should be to ensure good quality and high standards of provision for students, and effective partnership between the institutions. There is no single right way of doing it: the method will depend on circumstances. In all cases, however, the arrangements should be published for the students and staff concerned.
28. Indirect funding partnerships can provide opportunities to broaden and enrich the experience of students on the courses involved. The areas which may be considered in terms of student access to HEI facilities include:
    • access to libraries and general resource centres
    • access to equipment, facilities and resources specific to the subject area
    • access to student union, welfare and social facilities and services.
29. Improved opportunities for student progression are a valuable feature of many franchising arrangements. The institutions should agree, and students should be told, what the opportunities are, including:
    • what range of courses they may be able to progress to at the HEI
    • whether such progression is automatic for FEC students who reach a specified level of attainment on the course provided at the college, or whether the HEI will apply a selection procedure
    • the basis for calculating the ‘credit’ the student will get for successful completion of the FEC-provided course in terms of the point of entry to the HEI-provided course.
30. Opportunities for collaboration between staff are also a valuable feature of franchising, and may include:
    • HEI staff contributing to the teaching of FEC provision
    • joint staff training and development
    • collaborative curriculum development
    • involvement of FEC staff in research and development activity undertaken by HEI staff.
31. Although there is a greater likelihood of this sort of collaboration where the HEI and FEC are in close proximity, distance should not rule it out.
32. In many cases, HEIs have partnership arrangements with two or more FECs. There are major benefits if the FECs can work together collaboratively, as well as with the HEI, to achieve greater coherence and strategic planning on a local or regional basis.

33. The HEI is responsible for the quality and standards of all programmes for which it receives HEFCE funding, in accordance with the QAA’s code of practice on collaborative provision.
34. The agreement should state the respective responsibilities of the HEI and the FEC in undertaking quality assurance procedures.
35. The agreement should state what happens if provision is judged by the QAA to be of unacceptable quality, particularly if funding for that provision is withdrawn.

36. The HEFCE expects the partners to the agreement to monitor its operation and effectiveness. They should hold regular reviews of the agreement and performance in carrying it out.
37. The HEI and the FEC should agree how often the review will take place, and the procedure for undertaking it, including reporting results to the governing bodies of both institutions.
38. The HEI and the FEC should have in place procedures which will allow them to assess whether and how far:
    • the needs of the students are being met
    • the conditions of the agreement are being met
    • where relevant, students are gaining access to HEI facilities
    • where relevant, students are progressing on to the HEI’s directly provided courses.
39. Any changes in the partnership document should be made by mutual agreement and incorporated in revisions to the written statement.

40. No FEC should use any HEFCE funding to engage in ‘serial indirect funding’, where the HEI contracts with one college to deliver provision but that college subsequently sub-contracts the work to a second college.
41. Beyond that, the HEFCE will not limit the number of indirect funding partnerships that an HEI or FEC should enter into using HEFCE funds: that will depend on circumstances, and is for the judgement of the HEI and FEC.
42. Nonetheless, the HEFCE expects HEIs or FECs with multiple partnership agreements to be able to:
    1. Demonstrate that their indirectly funded partnerships have academic coherence and contribute to the quality of the student experience.
    2. Explain the principles they are applying in choosing partners.
    3. Explain, in the case of an HEI franchising provision in subjects which it does not directly provide, what quality assurance safeguards will apply, given that the HEI does not have its own subject expertise in that area.