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Pricing arrangements

incentive payments, apprentices/trainees not declaring previous qualifications, employers and apprentices/trainees not declaring previous employment with the employer, employer churning of trainees and the like.

2.5 Aspects of the training market

Under its Terms of Reference, the Review is required to consider whether pricing arrangements, User Choice and Government employer subsidies and rebates ensure value for money in terms of quality of outcomes and completion rates. This section considers the first three of these matters while the question of completion rates is considered in Chapter 3.

In those industries where training involves high capital costs, mainly in the traditional apprenticeships offered through TAFE Institutes, industry bodies believed more funding for the acquisition and maintenance of facilities and equipment was needed.

This is a function of government funding to TAFE for maintenance and physical infrastructure rather than the set prices for RTO program delivery. The Review notes that the Victorian 2000–2001 Budget allocates additional funds to TAFE Institutes for maintenance, equipment and capital works.

In consultations and submissions it was the TAFE Institutes who were most

concerned about pricing of apprenticeship and traineeship training and expressed the view that it was inadequate to support quality training delivery and assessment. Many of the price issues raised by TAFE Institutes were really cost issues, reflecting their particular cost structures, and involve the far wider issue of public funding to and financial viability of TAFE Institutes. These cost issues lie beyond the Terms of Reference of this Review. The recent announcements in the 2000–2001 Budget of additional funding support for TAFE Institutes should address many of these concerns, especially in the important area of capital funding referred to above and funding for community service obligations and compensation for additional costs related to regional delivery.

Two aspects of the pricing arrangements for apprenticeships and traineeships warrant particular comment.

Pricing for workplace delivery

Some TAFE Institutes are struggling to finance a move to what for them is the more costly mode of flexible workplace delivery. One TAFE Institute calculated that a unit of study, which traditionally takes 40 hours to deliver in a classroom mode with 20 apprentices/trainees, translates in workplace delivery mode to two hours of teacher time per trainee.19 Another made a similar point.

The economics of workplace training, particularly in rural areas where enterprises are small and distance between towns is large, have not been taken into account in the current funding model . . . Without a change to the current funding

arrangements, training in the workplace has the potential to degenerate to an assessment service that recognises current competency, with very limited training provided by the RTO to apprentices/trainees.20

Unions likewise argued that the costs involved in the shift to on-the-job training and assessment are not recognised in the PETE pricing model.21

Industry bodies too are concerned that current pricing arrangements are insufficient to support quality workplace training and assessment and professional development of trainers and assessors.

Industry is very sceptical of the quality of training that can be achieved through a provider that receives 400 hours of funded training for a trainee and enters the worksite on only six occasions.22

19 Submission 29, TAFE Institute

While this Review has not done any analysis of the cost–price relativities between workplace delivery and institutional delivery, the cost structure of delivering quality training in the workplace will inevitably be different in some cases from that of delivering in an institution, be it a TAFE Institute or a private education or training institution or skills centre and this may have relevance in future considerations on pricing arrangements.

Where prices are low and costs high, savings are being achieved by:

Ÿ reducing the quantum of facilitated learning in the workplace and increasing the quantum of self-managed learning — while this can have beneficial learning outcomes and quality is not necessarily reduced, especially where the workplace provides a learning environment, it is not an appropriate response for all learners in all workplaces in all training programs at all levels;

Ÿ minimising investment in the development of learning materials, teaching technologies, equipment and materials supplied and other teaching resources;

Ÿ increasing the use of sessional staff;

Ÿ minimising the monitoring and management of workplace delivery by the RTO and relying to a high degree on the individual trainer’s professionalism; and Ÿ cutting professional development to the bone.

The cumulative impact on quality appears in some fields and some locations to be quite significant and the longer-term prospects for quality teaching and training are not always positive. This view that reduced prices have lowered quality must, however, be seen from another angle.

Reduced funds to actual delivery

The apprenticeship and traineeship market is now covered by multiple players trying to gain some financial advantage by offering various brokerage deals and undertaking vigorous marketing activities.

The consultations with NACs indicated that brokers are performing activities that should be performed by NACs or their subcontractors, and taking advantage of employers by charging for services that NACs provide free. DETYA now has to approve NAC subcontractors, but this doesn’t cover brokers.

A number of TAFE providers gave examples of what they considered to be inappropriate brokerage activities.

(This) Institute of TAFE has been approached to pre-sign ‘application for subsidy’

documents or lose business to a more ‘compliant’ provider. Commissions have also been offered to direct business to NACs as well as being asked for part of our RTO subsidy in return for business. It has been stated at a meeting that one Melbourne TAFE offers $300.00 per sign up as a spotter’s fee.23

It would seem that Training Agreements have become tradeable commodities within some parts of the training market.24 This is a dangerous development undermining their value.

23 Submission 23, TAFE Institute


Another TAFE Institute advised that

The evolution of a secondary market or ‘spotters fee’ offered by New

Apprenticeship Centres to RTOs referring employers of New Apprentices to the Centre could be viewed as unethical practice. This practice is common and one new Apprenticeship Centre tenderer offered this arrangement to establish a presence in [Victorian region]. The fee for referring Apprentices/Trainees and acting as an agent for the New Apprenticeship Centre was approximately $200 per training contract. 25

Other providers expressed concerns about brokerage activities by TAFE Institutes and offered examples where TAFE Institutes were also paying such fees.

The point to be made here is not so much about the existence of brokers or the use of spotters’ fees per se; these would be difficult but not impossible to control or restrain in some way if the government wished to do so. The central issue is that through the payment of such brokerage and spotters’ fees, through significantly increased costs of marketing activities by RTOs in particular and the administrative costs associated with managing flexible apprenticeship and traineeship training, more and more of the training dollar assigned under the Set Price is being diverted away from actual

training delivery and this inevitably reduces the quality of training. The following is a good example of the problem which extends beyond the training dollar to broader budget issues.

A Melboume based NAC sub-contracts a local [name] employment agency, and for an administration fee the agency finds a suitable RTO based in Melboume to provide the most economical training. This RTO cannot deliver the training but acts as a broker and then arranges for the local TAFE Institute to provide the training. There are four players in this transaction, which means four shares of whatever incentives, or funding is available for hiring an apprentice or trainee.

This reduces the funding available to deliver quality training. It is unclear where the employer, a fifth player fits into this equation.26

At least two conclusions from these observations are possible:

Ÿ that the total price is satisfactory but that so much is being taken out of that price for administrative overheads, marketing and payment of intermediaries that this is impacting on funds for actual delivery and thus on the quality of training actually delivered to learners; or

Ÿ that the total price (and therefore margin) is so low relative to costs that inappropriate short-cuts are necessary and therefore the quality of training is being affected.

Whichever of these (or other) scenarios actually proves to be the case in subsequent PETE price analyses, the quality of teaching and assessment at the top of the value chain is being reduced.

While the marketplace does have its own imperatives, government funding and pricing systems do shape provider behaviour in the area of apprenticeship and traineeships to a considerable extent. In recognition of this, DETYA (Victoria) and PETE have recently come together to consider how more of the training dollar can

make its way to training, rather than being siphoned off to non-productive activities before it is allocated to support actual delivery. This is a very welcome move which could be pursued in other jurisdictions to good effect.