Is franchising out of control?

• This post was kindly authored for HEPI by Gill Evans, Emeritus Professor of Medieval Theology and Intellectual History at the University of Cambridge.

Franchising, like Topsy, has ‘just growed’. The Higher Education and Research Act (2017) cast a wide net, containing all ‘providers of higher education’, whether or not they had degree-awarding powers or the right to be called ‘universities’. It included providers offering higher education only up to Level 4, leading to Higher National Certificates, or Level 5, leading to Higher National Diplomas and externally accredited, for example by Pearson.

Some providers offer Level 6 courses but lack powers to award taught degrees to successful students; some offer research degree courses at Level 7 for which they lack research degree-awarding powers. Under ‘franchising’ and ‘validation’ arrangements these providers are able to offer their students courses which can lead to the degree of a franchising provider which has the necessary powers. HERA s. 50 (4)  makes provision for such ‘arrangements between one registered higher education provider and another registered higher education provider’ under which the first provider:

(a) grants a taught award to a person who is a student at the other provider, or

(b) authorises the other provider to grant a taught award on behalf of the first provider.[1]

The legislation does not prescribe the rules to be followed in making such arrangements. A franchising agreement does not have to take the form of a written contract and there is no approved code of practice. Yet there is recognised risk to the taxpayer, to providers engaging in such arrangements and to students at franchised providers.

An  NAO inquiry of 2014 was already intent on examining the risk to taxpayers’ money when alternative providers encouraged their students to make fraudulent claims.[2]  A follow-up NAO inquiry published in October 2017 asking whether Government policy objectives were being met took shape before the current legislation came into force.

The franchiser must notify the Student Loans Company if students withdraw or their entitlement to a loan is affected by changing circumstances. The NAO Investigation into student finance for study at franchised higher education providers published in January 2024  was prompted by concerns about ‘the risks to public funds’ in franchising. It found that the number of students enrolled at franchised providers had more than doubled, from 50,440 in 2018-19 to 108,600 in 2021-22, amounting to 4.7 per cent of the total student population, the NAO calculated. It found that eight lead providers were responsible for 91 per cent of this growth. It recognised that lead providers can create any number of partnerships, with one having 28 franchised providers. It made ‘recommendations to strengthen assurance’, concentrating on the risk to the taxpayer of inappropriateness in granting student loans. It pointed to its own Good practice guidance as applying where ‘bodies work alongside each other to achieve public policy objectives’.

However, it also noted that ‘when making payments’, the Student Loans Company relied on ‘OfS’s oversight and intervention with lead providers when there are concerns providers are not meeting requirements’. It recognised that the OfS lacked powers to impose sanctions on providers that were not registered, including some franchised providers. It found that among the franchised providers in 2021-22, 229 ‘(65 per cent) of the 355 franchised providers were not registered’. Nor did the OfS ‘currently publish information for unregistered franchised providers’, or make it clear ‘where a lead provider has multiple franchising partnerships’ which, along with many courses at franchised providers being new or small, may make it hard for prospective students to understand more about potential courses’. 

There is reputational risk to the franchiser because it is responsible for the quality and standards maintained by its franchisee and it is the franchiser’s degrees that its partner will be awarding under (b).

There is risk to students themselves. On 6 June 2023, in ‘How franchising higher education became big business’, Wonkhe found that progression beyond the first year and completion is less likely at franchisee providers. Nor is there any accepted framework for student contracts when the student is admitted by a franchisee to a course delivered under the supervision of a franchising provider.  The student contract is normally formed when the student accepts the offer of a place and now usually includes or a requirement that the student will comply with the statutes or other regulations of the provider of the course. This may be a ‘contract to admit’, forming a distinct agreement from the contract to provide a course and assess the student. Despite the overarching responsibility of a franchising university for the conduct of its franchisee a franchisee’s student may not be made aware of any effect this may have on the student contract formed with the franchisee.

The Competition and Markets Authority has now added to its guidance of 2015 on student contracts,  new advice for providers: Helping you to comply with your obligations. This points out that there is a requirement ‘where applicable’ to ‘provide information’ to prospective students ‘on who the student is contracting with’:

For example, where there are third parties involved in franchise, validation or joint course arrangements or if third parties are responsible for delivering significant aspects of the educational service. HE providers must make it absolutely clear to students, where responsibility lies for the delivery, or aspects of the delivery, of the educational service.

 If there is any foreseeable change to such arrangements, if ‘for example validation requirements may be under review’ the provider must make that clear to its students and if necessary get their consent.

The OfS has a Regulatory Notice and Regulatory Advice (both December 2023). The OfS Regulatory Framework spells out the rule that ‘lead providers subcontracting all or part of a course to a delivery provider retain responsibility for the students on those courses and the quality and standards of provision’. It does not attempt a systematic investigation of the arrangements entered into in franchising. However the OfS is conscious that there is room for better protections. In a note dated July 2023, it encourages experience of validation or franchising as a means of ensuring that an applicant provider for degree-awarding powers had sufficient relevant experience:

There is an argument that to be able to apply for Full DAPs, the provider should have been in a ‘validation’ partnership with its awarding body and that a partnership based on programmes franchised to the provider by the awarding body does not enable the provider to demonstrate an understanding of setting and maintaining academic standards.

It acknowledges that in practice ‘the categories “validated” and “franchised”, as used by various awarding bodies, can be elastic’. It:

 will therefore place the burden of proof on the provider to show that (whatever the formal status of their relationship with their awarding body) they satisfy the overarching criterion and meet the detailed criteria and sub-criteria.

The Office for Students was itself the subject of a highly critical report by the House of Lords Industry and Regulators Committee in early 2023, Must do better: The multiple roles of the Office for Students and its responsibilities for the oversight of the quality and standards of providers. This contained references to criticisms made in evidence to it that the OfS had failed to tackle problems with franchising and validation. It recommended that the OfS provide ‘new guidance to new entrants on its registration process’.

In February 2024 the Public Accounts Committee (PAC) began an investigation of its own on ‘student loans issued to those studying at franchised higher education providers’, intending to ‘take evidence from the DfE, OfS and the SLC on subjects including effective oversight of the sector’. These are to include the implications of franchising for the maintenance of the quality and standards of higher education in England. The PAC is to rely on the still-recent findings of the NAO.

        It remains to be seen whether the PAC will explore the potential consequences of recent developments affecting the registration of higher education providers by the Office for Students, such as the use of ‘split indicators’[3] including provider partnership arrangements’ whether to include the Technical qualifications’ involving ‘partnerships.

A code for an ever-changing practice?

Exploration of the need for regulation of franchising therefore remains a work in progress, though the scale of the problem remains a growing concern. Provision exists but it lacks detail and may not be enforced or enforceable.  A study by Times Higher Education published in February 2024 identified lead providers each having franchising arrangements affecting more than 10,000 students. The NAO explains that:

 lead providers can create any number of partnerships, with one having 28 franchised providers. Franchised providers can themselves create partnerships, with 31 franchised providers also acting as lead providers during that year.  

A previous provision designed to audit franchising and validation arrangements has come to an end  When it carried out an ‘institutional audit’ the Quality Assurance Agency formerly included ‘audits of collaborative provision’ in ‘partnership arrangements’, in order to check ‘maintenance of academic standards’ and ‘the quality of learning opportunities provided for students’ This was a helpful test not only of the performance of non degree-awarding higher education providers themselves,  but also how franchising arrangements were working. The method was ‘revised in 2006 following recommendations from the Quality Assurance Framework Review Group’ and again in 2009.

In 2022 the QAA announced its intention to withdraw as ‘designated provider’ of quality assurance for the Office for Students’ because OfS provisions were not compliant with European Standards. Unable to identify a suitable replacement OfS took over the task itself from 1 April 2023. However it has not attempted its own auditing of franchising as a ‘collaborative’ agreement between providers.   

At present the OfS ’ does not have powers to impose sanctions on providers that are not registered, including franchised providers’ and ‘does not currently publish information for unregistered franchised providers’, many of which are ‘new or small’ and may prove to be short-lived.  The powers of the Office for Students in regulating franchising arrangements remain largely undefined. For example at present there need be no certainty of the duration of a franchising relationship, though a break-down affects not only students but the franchisee itself. Franchising, the HEPI Debate Paper of February 2024 mentions the example of a franchisee provider which felt vulnerable ‘because its viability was entirely dependent upon the franchisor who could withdraw from the relationship at any point’.

Whatever agreement is arrived at may take the form of a contract or be ‘sub-contractual’. Wonkhe has pointed to instances of ‘sub-contracting’ of provision to private with-profit providers and to providers not registered by OfS. The National Audit Office (NAO) Investigation into student finance for study at franchised higher education providers (January, 2024) notes that the NAO had seen ‘Papers to the OfS board regarding sub-contractual relationships.’

HEPI’s Franchising has a good deal to say about contracts, not only in its account of those formed with its own franchisees by Buckinghamshire New University where the three authors are based, but more generally:

Our contracts with franchise partners include clauses on quality assurance, attendance, admissions and enrolment, staffing, marketing, monitoring and compliance and ‘step-in rights’ whereby the University can take effective control of aspects of the franchise operation if we are not confident it is being delivered in the right way.  

Buckinghamshire New University’s franchising contracts allow either party to terminate the agreement with twelve months’ notice, but require arrangements to be made to ensure ‘teaching-out’ of students who had begun on the understanding that they were to gain a named degree. It recognises that meeting ‘quality indicators’ on ‘continuation, student satisfaction, degree completion and graduate outcome indicators can lag intake by several years’. 

It has set out the elements of its own contract with its franchisees in Franchising. Its ‘contracts allow either party to exit an agreement with no fault at 12 months’ notice’ but with required ‘teach-out periods following termination of recruitment’.  Its:

contracts with franchise partners include clauses on quality assurance, attendance, admissions and enrolment, staffing, marketing, monitoring and compliance and ‘step-in rights’ whereby the University can take effective control of aspects of the franchise operation if we are not confident it is being delivered in the right way.  

It undertakes:

a comprehensive due-diligence check on franchise partners, examining their company structure, finances, insurances, policies, ownership, governance, oversight and management of academic quality, staffing, premises and student support. Due diligence checks are then conducted on an annual basis or more frequently as needed.

Its ‘governance structure includes a partnership board, chaired by a member of the University’s executive team, which obtains assurance on the arrangements in place for each franchise partner’. It monitors its franchisees annually using a ‘Teaching Excellence Framework-style rating’ and ‘requiring a documented improvement plan for any provision not rated Gold’. But this is merely one model.

In other cases concerns are being expressed. Leeds Trinity University is both franchiser and franchisee (depending on Leeds University to validate research degrees for it). It had had no franchised students three years earlier, but by 2024 it had gained 7,350 franchised students.  Its performance is to be the subject of OfS scrutiny, during its investigation of the franchising of business and management courses from February 2024. 

The OfS lists concerns raised, including whether ‘the courses delivered by Leeds Trinity University’s subcontractual partners are high quality’; whether ‘Leeds Trinity University has effective management and governance in place for subcontractual partners’ and whether it has complied with the OfS ongoing conditions of Registration. It will also consider ‘matters relevant to the provider’s authorisation for degree awarding powers in relation to its partnerships’.

Conclusion

The PAC sees the benefits of franchised arrangements as potentially ‘commercial’, though the NAO also points to public interest ‘reasons’ why ‘lead providers’ may enter into such arrangements with franchising helping to broaden higher education participation’.  Collaboration for that purpose is the subject of a new OfS Review of collaborative support for improving equality of opportunity in access to higher education (February, 2024), but the OfS has not considered the effect of franchising to that end. It defines ‘collaborative outreach as ‘the ways that higher education institutions (HEIs) work together, and with partners, to improve equality of opportunity in access to higher education.’ It seems a pity that amongst its 566 mentions of ‘partners’ and ‘partnerships’ it has not included a reflection on this benefit of franchising, though it looks at degree apprenticeships.

[1] In practice the Office for Students also grants research degree-awarding powers.

[2] Department for Business, Innovation & Skills, Investigation into financial support for students at alternative higher education providers, Session 2014-15, HC 861, National Audit Office, December 2014.

[3] https://www.officeforstudents.org.uk/media/0dc38475-3730-4173-88e7-42989be88262/revised-condition-b3-student-outcomes.pdf:

‘split indicators’ means the indicators broken down into further indicators on the basis of the following:

iv. specified student characteristics, including disability, ethnicity and sex;

v. students’ year of entry or qualification;

vi. subject type;

vii. course type;

viii. provider partnership and teaching arrangements; and

ix. any other bases as determined by the OfS