Category: procurement

  • The network effects of a university collapse

    The network effects of a university collapse

    Universities are bound together more tightly than ministers like to admit. They share credit lines, pension schemes, suppliers, and reputations. Contagion, once started, moves faster than policy can catch it.

    The question up until recently was the wrong one: could a university fail. The grown-up question is what happens next: to students who haven’t applied yet, to local communities, and to neighbouring universities. We have to begin with the obvious: students come first.

    Failure at one institution produces contagion effects, the magnitude of which depends on regional centrality and clustering. Government should focus on keeping that transmission reproduction number (or R number – remember that from Covid?) below one. This piece maps some of those transmission channels – I’ve modelled small changes to the bottom line of an average neighbouring university, based on student spend, pensions, interest rates and group buying.

    Our patient zero – that is, the first to fall – is a provider that is OfS-registered and regionally significant, and I have estimated the price shock for its financially average neighbour. Of course, I have to assume no rescue package from government (they have signalled as such).

    The calculations below are based on the average university using 2023–24 HESA data, excluding FE colleges with HE provision. Each percentage change is illustrative rather than predictive and actual outcomes will depend on local factors.

    Stay at home

    Student demand runs on policy signals and vibes as much as price. In 2024 we saw sponsored study visas fall year-on-year and dependants drop sharply, while PGT overseas remained twitchy.

    Throw a closure into that salad and you start to see conversion eroding. Bursary spend and fee waivers will rise to keep offers attractive. A percentage point here or there looks insignificant but adds up across multiple providers.

    International students will start looking elsewhere: Australia, Canada, Germany. Or they’ll just stay at home. Better to choose a sure thing than risk having your course disrupted halfway through. Home students may be similarly spooked – but have fewer alternatives.

    There are a few antidotes: multiple guaranteed transfer corridors, decent student protection plans, and teach-out clarity. And most importantly, comms that make sense to agents and parents.

    Illustrative hits to an average university elsewhere:

    • Additional bursary spend on international: £80m × 0.5% = £400k
    • Reduced international demand: £80m × 0.5% = £400k

    Protect the USS

    Multi-employer pension schemes, like USS and LGPS, can go very squiffy when a member exits. In that case, the rules force the member to pay a large exit bill called “Section 75”, and the sums can be eye-watering. It’s a standard expectation of a “last man standing” scheme.

    Trinity College, Cambridge wrote a cheque for about £30m to leave USS in 2019. USS has suggested that, for a sample of employers (mainly Oxbridge colleges), a crystallised bill could represent anywhere from 4 to 97 per cent of their cash and long-term investment balances, averaging around 26 per cent.

    In practice, an insolvent provider wouldn’t cough up, so other universities would absorb the orphan liability. But there isn’t a mechanical “spread the S75 bill this year” formula; it would show up, if at all, via the valuation and rate-setting process. The scheme is currently in surplus, so additional contribution costs are uncertain. Of course, not all universities are enrolled in USS, but the vast majority are enrolled in multi-employer schemes.

    Illustrative hit to a USS-enrolled university elsewhere:

    • Salary base: £181m × 72% = £130m
    • USS proportion: £130m × 70% (say) = £91m
    • 1 pp rate bump: £91m × 1% = £910k

    Save livelihoods

    Universities drive jobs, rents, transport and culture. Liverpool estimates £2.2bn GVA and 26,630 jobs supported nationwide, roughly one in fifty locally. Northampton reports £823m GVA and 10,610 jobs. National estimates put the sector above £116bn.

    Remove the local provider and the GVA virtuous circle turns vicious. Cafés lose footfall, landlords lose tenants (poor them), and pubs are no longer full of students. The extent depends on how rooted the provider is in its community.

    Government will find itself paying anyway. Either pre-emptively with small civic grants to keep key services alive, or retrospectively with bigger cheques after the rot sets in. Maybe it will finally put a stop to town and gown tensions.

    Illustrative hit to an average university elsewhere:

    • No direct cost to other universities
    • Material GDP and tax impacts for government
    • Likely need for community grants.

    Flatten the yield curve

    Lenders rarely treat a closure as an isolated blip; being hawkish, they would probably reprice the entire university category.

    Add 50 basis points to a £90m facility and you’ve created a recurring £450k drag until you refinance. All in all, that’s not a huge bite out of your cash flow, but it will certainly make you more cautious.

    To fix this, listen to your finance directors: stagger your maturities and fix your rates well in advance. Or, radical thought – stop yanking at your credit lines and make do with what you have.

    Illustrative hit to an average university elsewhere:

    • Additional interest costs: £90m × 0.50% = £450k

    Herd immunity

    Group buying is one of the few places with cash on the table. In 2023–24, the UK Universities Procurement Consortia (UKUPC) members put about £2.4bn through frameworks and reported roughly £116.1m (4.84%) in cashable savings. The Southern Universities Procurement Consortium (SUPC) talks about £575m of member spend and average levy rebates of around £30,000 per full member.

    If fewer universities use those routes, frameworks lose clout, and with that, discounts and rebates. The more volume that stays in the collective pot, the better the prices – but for critical services, it’s still wise to have a backup supplier in case one fails.

    Another group issue is shared services. Up until recently, they were seen as a poisoned chalice, but are now growing out of necessity. The usual worries are well-rehearsed: loss of control, infighting and VAT jitters. Still, some experiments, like Janet and UCAS, have been tremendously successful, although pricing relies on throughput.

    Shared IT, payroll, procurement or estates often come with joint and several obligations. If one partner hits trouble, you start to see real governance friction.

    The practical fixes are contractual. Ringfence any arrears so they do not spill onto everyone else, and rebalance charges on a published, defensible formula.

    Illustrative hit to an average university elsewhere:

    • Frameworked spend: £131m (total non-staff) × 60% (frameworked, say) x 4.84% (cashable savings) x 10% (diminution) = £380k.
    • Shared services: impossible to quantify.

    What ministers can do without a podium

    I’ve modelled small changes to the bottom line (again, illustratively) – in this example one university going under could cost others £2.5m, or 50 per cent of the average university’s 2023–24 surplus. This number isn’t rigorous or comprehensive, but serves as an interesting thought experiment.

    The rational response is a resolution regime that protects students and research, temporary liquidity for solvent neighbours, clear transfer routes when the worst happens, and deployment of short, targeted grants for civic programmes.

    A single collapse could probably be absorbed; a string of them could set off an irreversible domino effect with far-reaching consequences. Ministers need to plan for this now – or else risk a very hefty civic bailout.

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  • The case for collaborative purchasing of digital assessment technology

    The case for collaborative purchasing of digital assessment technology

    Higher education in the UK has a solid background in leveraging scale in purchasing digital content and licenses through Jisc. But when it comes to purchasing specific technology platforms higher education institutions have tended to go their own way, using distinct specifications tailored to their specific needs.

    There are some benefits to this individualistic approach, otherwise it would not have become the status quo. But as the Universities UK taskforce on transformation and efficiency proclaims a “new era of collaboration” some of the long standing assumptions about what can work in a sharing economy are being dusted off and held up to the light to see if they still hold. Efficiency – including finding ways to realise new forms of value but with less overall resource input – is no longer a nice to have; it’s essential for the sector to remain sustainable.

    At Jisc, licensing manager Hannah Lawrence is thinking about the ways that the sector’s digital services agency can build on existing approaches to collective procurement towards a more systematic collaboration, specifically, in her case, exploring ideas around a collaborative route to procurement for technology that supports assessment and feedback. Digital assessment is a compelling area for possible collaboration, partly because the operational challenges are fairly consistent between institutions – such as exam security, scalability, and accessibility – but also because of the shared pedagogical challenge of designing robust assessments that take account of the opportunities and risks of generative AI technology.

    The potential value in collaboration isn’t just in cost savings – it’s also about working together to test and pilot approaches, and share insight and good practice. “Collaboration works best when it’s built on trust, not just transaction,” says Hannah. “We’re aiming to be transparent and open, respecting the diversity of the sector, and making collaboration sustainable by demonstrating real outcomes and upholding data handling standards and ethics.” Hannah predicts that it may take several years to develop an initial iteration of joint procurement mechanism, in collaboration with a selection of vendors, recognising that the approach could evolve over years to offer “best on class” products at a competitive price to institutions who participate in collective procurement approaches.

    Reviewing the SIKTuation

    One way of learning how to build this new collaborative approach is to look to international examples. In Norway, SIKT is the higher education sector’s shared services agency. SIKT started with developing a national student information system, and has subsequently rolled out, among other initiatives, national scientific and diploma archives, and a national higher education application system – and a national tender for digital assessment.

    In its first iteration, when the technology for digital assessment was still evolving, three different vendors were appointed, but in the most recent version, SIKT appointed one single vendor – UNIwise – as the preferred supplier for digital assessment for all of Norwegian higher education. Universities in Norway are not required to follow the SIKT framework, of course, but there are significant advantages to doing so.

    “Through collaboration we create a powerful lobby,” says Christian Moen Fjære, service manager at SIKT. “By procuring for 30,000 staff and 300,000 students we can have a stronger voice and influence with vendors on the product development roadmap – much more so than any individual university. We can also be collectively more effective in sharing insight across the network, like sample exam questions, for example.” SIKT does not hold views about how students should be taught, but as pedagogy and technology become increasingly intertwined, SIKT’s discussions with vendors are typically informed by pedagogical developments. Christian explains, “You need to know what you want pedagogically to create the specification for the technical solution – you need to think what is best for teaching and assessment and then we can think how to change software to reflect that.”

    For vendors, it’s obviously great to be able to sell your product at scale in this way but there’s more to it than that – serving a critical mass of buyers gives vendors the confidence to invest in developing their product, knowing it will meet the needs of their customers. Products evolve in response to long-term sector need, rather than short-term sales goals.

    SIKT can also flex its muscles in negotiating favourable terms with vendors, and use its expertise and experience to avoid pitfalls in negotiating contracts. A particularly pertinent example is on data sharing, both securing assurances of ethical and anonymous sharing of assessment data, and clarity about ultimate ownership of the data. Participants in the network can benefit from a shared data pool, but all need to be confident both that the data will be handled appropriately and that ultimately it belongs to them, not the vendor. “We have baked into the latest requirements the ability to claw back data – we didn’t have this before, stupid, right?” says Christian. “But you learn as the needs arise.”

    Difference and competition

    In the UK context, the sector needs reassurance that diversity will be accommodated – there’s a wariness of anything that looks like it might be a one-size-fits-all model. While the political culture in Norway is undoubtedly more collectivist than in the UK, Norwegian higher education institutions have distinct missions, and they still compete for prestige and to recruit the best students and staff.

    SIKT acknowledges these differences through a detailed consultation process in the creation of national tenders – a “pre-project” on the list of requirements for any technology platform, followed by formal consultation on the final list, overseen by a steering group with diverse sector representation. But at the end of the day to realise the value of joining up, there does need to be some preparedness to compromise, or to put it another way, to find and build on areas of similarity rather than over-refining on what can often be minor differences. Having a coordinating body like SIKT convene the project helps to navigate these issues. And, of course, some institutions simply decide to go another way, and pay more for a more tailored product. There is nothing stopping them from doing so.

    As far as SIKT is concerned, competition between institutions is best considered in the academic realm, in subjects and provision, as that is what benefits the student. For operations, collaboration is more likely to deliver the best results for both institutions and students. But SIKT remains agnostic about whether specific institutions have a different view. “We don’t at SIKT decide what counts as competitive or not,” says Christian. “Universities will decide for themselves whether they want to get involved in particular frameworks based on whether they see a competitive advantage or some other advantage from doing so.”

    The medium term horizon for the UK sector, based on current discussions, is a much more networked approach to the purchase and utilisation of technology to support learning and teaching – though it’s worth noting that there is nothing stopping consortia of institutions getting together to negotiate a shared set of requirements with a particular vendor pending the development of national frameworks. There’s no reason to think the learning curve even needs to be especially steep – while some of the technical elements could require a bit of thinking through, the sector has a longstanding commitment to sharing and collaboration on high quality teaching and learning, and to some extent what’s being talked about right now is mostly about joining the dots between one domain and another.

    This article is published in association with UNIwise. For further information about UNIwise and the opportunity to collaborate contact Tim Peers, Head of Partnerships.

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