Students Loan Company funding - is the procurement regime about to change for universities?

Procurement professionals in universities were excited to read the following in a recent Department of Business Innovation and Skills White Paper (Students at the heart of the system) presented in June by David Willetts Minister for Universities and Science:

Changes to the way institutions are funded may also reduce regulatory requirements. For example because in future most funding will follow students in the forms of loans and direct grant funding from Government will decrease fewer institutions may be subject to EU Procurement Rules.

So what is the legal position? Are universities now exempt from the procurement rules?

In broad terms a university will be a contracting authority (ie a public body subject to the procurement rules) if in excess of 50% of its funding is public funding. Public funding for these purposes includes sums paid by other contracting authorities in respect of tuition fees.

The relevant change here is that funding in respect of tuition which would have previously been paid to a university by the Higher Education Funding Council for England (HEFCE) will now be paid to the university by the Student Loans Company (SLC). As far as the university is concerned payments from the SLC are payments for the provision of tuition to a student on a qualifying education programme. Therefore in terms of the university as a recipient of the payments there is no material difference in terms of the purpose and/or use of the payments from the position where the sums were received from HEFCE.

The SLC will seek repayment from students via the tax system on the basis of a contract between the relevant students and the SLC. The university is not a party to the contract and the money paid to the university is in no way contingent on or impacted by whether or not any sums are repaid by students. There is no consideration given by the university to the SLC in respect of the sums received.

The SLC is a non-departmental public body that is wholly owned by government and is therefore itself a contracting authority.

Given the above understanding of the position and the operation of the SLC our view is that it is clear that sums received from the SLC are public funding for the purposes of the procurement rules - they are sums paid by a contracting authority to universities in respect of tuition fees.

On this basis our current view is that an increase in the percentage of funding received by a university from the SLC and a corresponding decrease in the percentage from HEFCE will not have any impact on whether the university is subject to the public procurement rules. Those university procurement officers who were hoping to escape from the procurement rules are for the moment going to be disappointed.

There are two important points to note:

  • Firstly in the event that the Student Loans Company is privatised (and the government indicates in the White Paper that the sale of its loan book remains a possibility) this may have an impact on the above analysis - the precise impact would depend on what is privatised and the structure of any privatised loans provider.
  • Secondly if the increase in tuition fees leads to an increase in students paying fees themselves direct to the university (ie students funding their course privately) then that will be relevant for a university in assessing the proportion of its income that comes from public funding. Public funding does not include tuition fees paid direct by students to a university.

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