VET & TAFE decade, particularly in winning and maintaining fee-for-service contracts with numerous industry clients.
POLICY GYRATIONS IN 2012 – 13 How did events in the 12 months following that 2011 conference support either his or my position?
During 2012, the national media began exposing the rorts and scandals around shonky training providers and the negative impact on Victorian TAFE institutes of abruptly shifting funding away from them and, unwittingly, into the hands of the shonks. Meanwhile, Hansard in Victoria captured colourful accounts of rogue providers using gifts and cash incentives to attract students to courses that were clearly too short and poorly delivered. Ultimately, opportunistic training providers were so successful in obtaining government funding that the government announced successive cuts to TAFE institutes, to help pay for the over-expenditure.
I prepared 22 articles on these issues for Campus Review in the year following the conference. In October 2012, I reissued them in the one publication, From Unease to Alarm. Those articles tracked the unravelling of the Victorian government experiment with shifting public funds to the private sector without installing sufficient safeguards against rogue providers. The articles also highlighted the lack of protection for consumers and the unintended consequences of the policy gyrations for vulnerable student groups.
Also during that year, the earlier work my fellow conference presenter had performed on improving TAFE institute business plans seemed to be made redundant as the Victorian Government announced in 2012 a range of new measures to help TAFE institutes become more commercial, while unexpectedly reducing their funding.
Those new measures included the controversial hiring of a person to lead a taskforce to advise on the restructure and reform of the Victorian TAFE system, and installing the government’ s own hand-picked representatives on institutes’ boards. Following that, the government made available $ 70,000 allocations for various institutes to engage an external company to help revise their business plans. Then, in 2013, the government issued a report that provided‘ beginner-level’ guidelines to institutes on how to become more commercial.
The arbitrary funding cuts and other random initiatives of the Victorian Government throughout 2012 – 13 suggested that its officers were unsure about what business models a TAFE institute required to survive and thrive. The confidence of my co-presenter at the conference in 2011 now appeared premature; the business planning strategies he and his departmental colleagues advocated at that stage were supplanted by government changes of direction, or policy on the run.
NEW PROVIDER IMITATES LEADING TAFE MODEL Over the period 2011 – 13, the government shifted significant funds away from Victorian TAFE institutes, providing encouragement for private providers to develop their businesses with the expectation of a handsome revenue stream from government funding sources. Whilst it was probably inevitable, it still came as a surprise to some VET observers that a group of three private providers, which drew much of their income from Victorian Government funds, decided to amalgamate and list on the Australian Stock Exchange in late 2013 with the name Vocation. Arguably, this was the first predominantly VET organisation to list on the exchange and it drew instant attention from the sector.
The aspect of the Vocation business model that attracted most attention from VET observers was that most of its revenue would be from governments at first – the student would often pay nothing and the government would pick up the tab. The company set this out in its prospectus. Whilst Vocation clearly flags in the prospectus that it intends to diversify its revenue sources, its prelaunch business model looked like a TAFE institute’ s approach from a previous era.
Since the turn of this century, many TAFE institutes have drawn a significant percentage of their funds from non-government sources. For instance, in late 2012, this column profiled a TAFE institute, Challenger Institute of Technology, which at that time drew 35 per cent to 40 per cent of its funds from commercial activities, including its international on-shore and international off-shore contracts, its deals with large global companies, its agreements with local businesses, and“ small amounts of revenue from our shopfront activities, such as our beauty salons and cafes,” Challenger CEO Liz Harris had said.
In that article, in response to my question about what percentage of Challenger’ s overall income would come from commercial activities in the future, Harris explained why she wanted to become even less dependent on government funding:
“ I’ d like to see us move to 50 per cent [ of revenue from commercial activities ] and the reason for that is because we are able to reinvest it. If we’ re generating good amounts of commercial revenue, we reinvest it: we reinvest it in staff development; we reinvest it in infrastructure and equipment; we reinvest it all the time in new initiatives and programs for staff, like our innovation programs.
“ If you’ re dependent on state government funding you really are subject to the vagaries and contractions of funding.”
This target for percentage of revenue from non-government funding contrasts with actual figures for BAWM, one of the three providers that combined to form Vocation. In 2013, 95 per cent of BAWM’ s $ 36.7 million in revenue came from“ government contact training fees”, The Australian reported in April.
NEW SCRUTINY BY FINANCIAL ANALYSTS The Australian quoted from a 15-page report on Vocation by Taylor Collison analyst Michael Croser, who examined the sustainability of the existing Victorian Government funding model and the feasibility of a national expansion. Croser consulted with more than 20 other private VET providers, TAFE, department of education and regulatory representatives from each respective state. He concluded that“ while the training industry will experience tailwinds, VET’ s current business model is unsustainable”. That is, governments cannot afford to keep paying subsidies at the current level to training providers.
In particular, Croser found that the low student fee model is“ incompatible with state funding expectations’’, with most states indicating that they will expect students to contribute more and more of the cost of their course. This suggests that training providers will need to become more like progressive TAFE institutes, with a range of revenue sources.
To its credit, Vocation is determined to go down this path and diversify at a rapid rate, recently announcing the acquisition of two other colleges that will provide Vocation with more revenue options and streams. As it is a public company, it can be expected to stay in the news, with financial investors and their advisers monitoring its evolving business model. This could also extend to analyses of government funding programs, putting pressure on governments to review their policies.
Returning to my fellow conference presenter in 2011, his confidence at the time that he had put Victorian TAFEs on the right trajectory with business planning was misplaced. Interestingly, the events of the last three years show that the business models of leading TAFE institutes at that time, involving a mix of revenue sources, was a model for the future, deserving of ongoing support. ■
See the 2013 Vocation prospectus at: http:// bit. ly / 1l61sts
Dr John Mitchell is a VET researcher and analyst. Go to: jma. com. au campusreview. com. au | 27