Removal of cap on student numbers - will this affect universities' status as contracting authorities?

From the academic year 2015/16, the cap on student numbers will be removed. The Guardian newspaper has conducted a survey which suggests that around half of Russell Group universities plan to expand recruitment while the other half have no plans to take on more students.

Where more students are recruited this will probably increase the proportion of funds a university receives via tuition fees. This effect may well be amplified by the fact that the government funding allocation to English universities for teaching for the years 2014/15 and 2015/16 is falling with the Higher Education Funding Council for England (HECFE) commenting that the reductions extend more widely than merely those accounted for by the switch to funding via tuition fees.

Why is this relevant from a procurement perspective? Because universities will only be covered by the public procurement regime if they meet the definition of contracting authorities. The Public Contracts Regulations 2015 came into force in February this year but introduced no material changes to the definition. A university will still be a contracting authority if more than 50% of its funding is classed as public money. If it is not a contracting authority a university is free of the requirements of the regime which some would see as an advantage in a sector hard pressed by funding cuts.

The ever-increasing shift to funding via student tuition fees reignites the debate around whether these tuition fees where they are funded via loans from the publicly-owned Student Loans Company (SLC) should be categorised as public or private money when assessing whether a university is funded mainly from the public sector or not. At the time tuition fees were introduced the Department of Business  Innovation and Skills (BIS) stated that such tuition fees might well be private sector funding and as such universities might be more likely to find themselves outside the scope of the public procurement rules as a result of the new funding structure. However it left the risk of making this judgment up to individual universities to decide on a case by case basis.

We disagreed with the BIS view having sought the legal opinion of one of the leading QCs in this area. With the question now coming once more into sharp focus we have seen nothing which changes our view on the point.

The SLC is itself a contracting authority and receives its money from the government out of which it makes tuition fee loans to students with the fees in question being paid direct to the relevant university. Indirectly therefore the university receives public money from the state. The loan between the student and SLC is made on non-commercial terms and indeed may be written off in the future in what could be regarded as a form of public subsidy. If the issue came before the court we think it is likely that the court would take a purposive approach and look through the supposedly private contract between student and university to find the (public) source of the funding underlying the arrangement.

Were the SLC ever to reach a point where its funds to make loans were derived from the private sector predominantly then of course that could well change the analysis. For now though in our view the increasing sum being paid through tuition fees funded via the SLC is unlikely to assist universities to wriggle free of the public procurement regime.

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