VET set for full contestable funding

TAFE is to be forced onto an uneven playing field when competitive tendering takes over the VET landscape next year.

Sue Simpson
Research Officer

From July 1 next year, all federal and state government-funded vocational education and training (VET) in NSW will be subject to competitive tender. Currently only 17 per cent of federal and state VET fund- ing is contestable funding.

Under the NSW Government’s Smart and Skilled policy, students studying entry level training up to Certificate III will be eligible for “entitlement” funding. They will choose their preferred provider using information from the My Skills website.

Students undergoing training in higher qualifications identified on an as yet unpublished skills list will be entitled to government subsidised training. However, these students will be expected to pay a higher student fee, the higher the qualification. Higher level training in courses not on the skills list will involve students paying the full fee, which will not be regulated. Students will then take out income contingent loans to offset costs.

Exemptions and concessions will be retained for Aboriginal and Torres Strait Islander students, students with a disability and welfare beneficiaries.

Students with previous qualifications at Certificate IV or higher will pay a higher subsidised fee for a course up to and including Certificate III, while students with previous qualifications at Certificate IV or higher, who do not meet the age and eligibility criteria, will pay the commercial fee for a course up to and including Certificate III.

The Independent Pricing and Regulatory Tribunal (IPART) has been asked by the NSW Government to recommend a methodology for determining the common price that registered training organisations (RTO) and TAFE can charge for government-funded VET, how much of the price will be paid by the student, and how much will be paid by government. In April, IPART released its issues paper for public response.

Federation’s response to the IPART issues paper exposed the inconsistencies between government support for TAFE as a public institution, including TAFE’s role in facilitating the state’s economic and social objectives, and concurrent government support for demand driven competitive tendering, which threatens that very public purpose.

Federation argued that the establishment of competitive markets across the whole government funded VET sector is a dangerous and foolish neoliberal experiment, which is not being pursued anywhere else in the world. Its purpose is to drive down costs and shift more of the costs of acquiring skills onto students. In the process, government funding is diverted to private providers, which are less accountable to the Parliament than the public provider, TAFE.

There has been no public evaluation of the impact of existing competitive tendering on quality across the NSW VET sector. In the absence of any government inquiry, in 2010 Federation commissioned Professor Bob Walker and Dr Betty Con Walker of Centennial Consultancy to analyse, from the public record, the tendering of the Literacy, Language and Numeracy Program (LLNP). Their Report on Competitive Tendering in VET: Cheaper is not better showed that low price had come at the expense of quality. Investments in quality, such as high teacher qualifications, decent salaries, good working conditions, security of employment, career paths and professional development, appeared to have been devalued in the tender process.

In March 2013, the Federal Government established a parliamentary inquiry into TAFE, the first in many decades. Its terms of reference include examination of the operation of a competitive training market. However, it will report after IPART conducts its review.

With more TAFE budget cuts, tender processes that emphasise price at the expense of quality, plus the strictures of “competitive neutrality” on public providers, the quality brand that is TAFE NSW is not likely to survive as a full service public institution. In a further blow to TAFE, the NSW Government announced last month its intention to fund part of its commitment to the Gonski school reforms by increasing fees and reducing subsidies in VET.

On the matter of student fees, Federation believes that a fundamental responsibility of government is to provide free and accessible public education and training. A progressive taxation system has the capacity to recognise the private benefit of education and training.

While not endorsing Smart and Skilled, Federation called for any methodology to be clear as to how TAFE NSW’s future would be ensured under full competitive tendering. Under full competitive tendering, TAFE in Victoria is no longer the dominant VET provider. In 2008 in Victoria, TAFE’s market share was 66 per cent compared to 14 per cent for private RTOs. In 2012, TAFE’s share had fallen to 45.6 per cent with private providers increasing to 46 per cent of market share.

Federation’s response examined the concept of “competitive neutrality”. Governments in Australia have dictated that public sector agencies that sell goods or services in competition with the private sector or other government suppliers are required to price them on a competitively neutral basis. Competitive neutrality requires the elimination of competitive advantages or disadvantages that arise through the ownership status of an entity.

In the case of TAFE, it must eliminate its advantages by including in its pricing the cost of capital as well as taxes and other charges for which it is not liable. But at the same time, TAFE is not permitted to adjust its pricing for a range of overheads that are not necessarily incurred by the private sector. These include the cost of public sector wages and employment conditions, which have developed incrementally over many years. These wages and conditions are enshrined in industrial awards.

Additionally, TAFE is required to manage and maintain massive infrastructure across the state in city centres, regional locations and small towns. None of TAFE’s competitors have these requirements. This places private training providers in an advantageous position in the pricing of their tendered services.

TAFE institutes have been required to count items such as depreciation on buildings and equipment in their costs as well as a percentage of the value of their net assets as a cost of capital. When competing against bids from private sector operators that do not provide the same facilities, it is not surprising that TAFE’s bids would be uncompetitive.

TAFE incurs other overheads that do not apply in general to private sector providers. The cost of corporate governance in TAFE will always be higher than for private providers. As a public sector agency funded to deliver services, TAFE is required to formally report financial and service performance to the government. This requires a level of bureaucracy that would not be necessary in the private sector.

The competitive neutrality approach to pricing has simply doomed TAFE to losing tenders when private sector providers can tender prices based on marginal costs, minimal overheads and, in some cases, questionable standards of quality. An overarching concern is that introducing further competition into the VET sector may weaken the capacity of the existing TAFE system to contribute to state and federal government objectives to enhance skills and upgrade educational qualifications.