The impact of TEC cost recovery: Asking the hard questions

The TEC have recently started doing what they have always said they were going to. Euphemistically entitled “cost recovery”, it means that providers have to pay back the percentage of their contracted outcomes that they didn’t meet.

For a few providers this might be a small amount of money, perhaps a few thousand dollars. And for other providers this could be much larger amounts.

Either the provider has to pay the money directly back to the TEC, or they have it deducted from the next monthly payment that they were expecting.

Larger education providers, depending on how they are structured may be able to simply take the hit, look at their delivery, tighten everything up, and carry on.

However, for smaller providers I’m picking that the results of even small cost recovery from the TEC could be potentially devastating. For example:

  • Smaller education providers often run their courses and sometimes their entire operations on or around the financial break even point.
  • They usually don’t have large infrastructures
  • They are often niche providers who specialise in particular areas of training. This means they may not have much (or any) other training bringing in funding and revenues to act as a buffer in the even of this kind of sanction.
  • Smaller providers often operate in areas where their learners are drawn from a limited pool of people (e.g. in a small town or rural area) with all of the issues associated with low levels of literacy and numeracy (e.g. unemployed and unemployable, low self esteem, transitory, not motivated, poor, and with drug and alcohol issues to name a few…).
  • The outlook for major changes in the environments for these providers is… well… things will mostly look the same in 12 months at least.

As providers, we’re all aware of the rules. I mean the TEC and NZQA rules. Or at least we should be. This doesn’t mean however, that when sanctions are applied, like the current cost recovery, that it isn’t still a shock. Even with advance warning.

What I think providers, particularly small providers, need to do is to start asking the hard questions. For example:

  • How do we reduce our major fixed costs like buildings and salaries?
  • How could we restructure our operations to increase our outcomes with our current learners?
  • How can we reinvigorate our training so that we attract new learners of a higher quality?

Probably, we should be asking these questions anyway. And of course, answering these questions begs still bigger questions as well:

  • Is this work financially sustainable?
  • Should we continue doing it?
  • What would be the tipping point?


Author: Graeme Smith

Education, technology, design. Also making cool stuff...

11 thoughts

  1. Hi Graeme

    You are spot on. As a new CEO 1 year ago walking into a small PTE in Gisborne where all of the issues you highlighted are exacerbated I undertook a significant analysis of the break even point of operations etc. Break even point for YG is several thousand dollars higher than current funding and we have low overheads. I undertook a restructure in 2013 and have redesigned all programmes however this is a challenging process to undergo while TEC are recovering at 100% as neither is cheap! Providers that did not start prior and are facing a large recovery will be unsustainable unless they have large reserves – which we do not however we do fortunatly have a backup plan. This looks like deliberate pressure on the smaller providers.

    1. Hi Jodie. Many thanks for these comments… I hear you… I’d like to draw some more attention to this issue. Do you mind if I quote your comments here in a new blog post? I’ll leave them as anonymous in the new blog post unless you tell me not too. No problem if not.

      Kind regards, Graeme

  2. I reckon you’ve hit the nail on the head, Graeme. Cost recovery can hit providers hard, especially the smaller ones with fewer resources. The obvious response is to increase efficiency wherever possible, and make optimal use of the resources available to you. However, the risk is that those learners who need training the most will be disadvantaged. To make sure that outcomes are met providers are having to be more and more selective in the type of learners they enrol. As you say “attract new learners of higher quality”. Where does this leave those learners who have higher learning needs? Cost recovery at what cost?

    1. Hi Annette! Long time no see.

      Imagine if we worked out what the expected future cost of a ‘lower quality learner’ would be if they failed to succeed. Add in social welfare, the costs of crime (maybe), incarceration, health etc. Then provide 5% of this to providers willing to take high risk learners.

      It would be an interesting economic and social study.

    2. Hi Annette. Thanks for this. I’d like to draw some more attention to this issue. Do you mind if I quote your comments here in a new blog post? I’ll leave the quoted comments anonymous unless you tell me otherwise. Kind regards, Graeme

  3. As you know I have an opinion on everything.

    I’ve been running a numeracy class the last month or so that has youth guarantee students (aged 16-19) and adults within it. They are enrolled on a vocational course and their plan is to 1. Complete this certificate; 2. Complete the next (level 3-4); 3. Gain employment.

    It’s a great plan on paper but there are a few realities that begin to bite. The first is poor literacy and numeracy. Now we hear this all the time right? But in a vocational area that relies on measurement, these learners have NEVER used a measuring tape and do not know how long one metre is. It’s not just a lack of knowledge it is a lack of conceptual understanding. Numeracy folk tell me that this is just a case of plugging holes. No it isn’t, this will require a real curriculum, a highly trained tutor and some pretty amazing resources, support and TIME. The schools have failed completely. You have to see it to believe it- intelligent kids who have learned almost nothing

    Second, the learners have short attention spans, anxieties about learning, anger problems, domestic drama, and half the enemy gang is hanging out around the corner. Getting them to show up is tough, getting them to concentrate when they do is tougher, and getting them to take personal responsibility is really tough.

    The point is that if they do not succeed at this first level (level two) they will be on the dole, or in prison or both – for the rest of their lives! The economics alone tells us that we MUST get them to experience success both for their sake and the wider community. They must pass this course and graduate to the next, then they must get employed.

    That the Government seeks to penny pinch at this level is astounding.

    Anyway- as to the questions:

    Should we be doing it: Damn right we should.

    Is it financially sustainable: Wrong question – are we attracting and keeping the skills, passion and talent this work needs? Not by a long shot.

    Tipping point: Businesses need to be investing into resources and people. Therefore making a profit is an absolute necessity.

    Love to hear someones opinion on this.

    1. Thanks D…! I’d like to draw some more attention to this issue. Do you mind if I quote your comments here in a new blog post? I’ll keep them anonymous unless you tell me otherwise. Cheers, G

  4. Thank you this article. This is the way Government contracts are all heading.

    You ask ” how can small providers reduce fixed costs?”

    Consider delivering in prisons. This has significant infrastructure, building and lease savings. TEOs are supported to deliver by Corrections staff who are qualified trades training instructors and by education staff who are trained teachers.

    Check out the latest TEC level 1 and 2 Plan Guidance and tick the “deliver in prisons” box.

    1. Hi Kris: Nice to see you here…! Thanks for the comments. I’d like to draw some more attention to this issue. Do you mind if I quote your comments here in a new blog post? I know that the comments are in the public domain here, but if I quote you in a new post I’ll just leave them unattributed unless you tell me otherwise. I want to highlight your answer here and promote this as an option for providers.

      We’d certainly be keen to look at it, but probably more in relation to the ILN funded training rather than the SAC funding.

      Cheers, Graeme

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