MICHAEL KEATING. Should VET be contestable?

The introduction of contestability into training markets is often cited as a prime example of the failures of privatisation. However, the totality of the evidence is rarely examined in support of this allegation. This article aims to fill this gap. It finds that a contestable training market can fail if not properly regulated, but now that Australia’s training market is being properly regulated, the quality of training is being preserved, while competition is reducing costs and increasing choice and responsiveness to customer needs.

A recurring theme in many articles that appear on this blog is that privatisation has generally been bad. In support of this assertion reference is frequently made to what happened to vocational education and training (VET) after governments decided to fund private providers and so increase the competition experienced by the state provider – TAFE. For example, in a (mostly) thoughtful article that appeared recently on this blog (11 October), John Quiggin cited the “disaster of for-profit vocational education” as a prime example of the failure of privatisation; with apparently no further proof needed to substantiate his point.

Let me say at the outset of this article, I don’t doubt that there have been private providers that were able to abuse the system when it was first introduced. The important question however is whether the concept of public funding of private training providers was inherently misguided, or whether the initial system was badly designed and implemented. What is needed is a proper comprehensive evaluation of this shift in favour of a more contestable VET system before we can pronounce on whether it was a success, or not. In fact, there have been proper professional evaluations of the changes that introduced more contestability into VET funding, but the critics seem happy to ignore them. My intention here is therefore to summarise these evaluations and examine the available evidence as the basis for my conclusion that the introduction of contestability for the provision of VET can be beneficial if it is properly handled.

A short history of contestable funding arrangements in Australia

The idea of introducing contestable funding to create a training market was first agreed to by the Council of Australian Governments (COAG) under the leadership of the Keating Government in 1992. Initially contestability was based on competitive tendering where TAFE and private providers bid for the delivery of identified proportions of publicly funded training. The competitive tendering was often limited to growth funds, and these contracts with governments raised no real concerns; but the training market was more contestable.

From around 1998, user choice was introduced whereby employers and their apprentices and trainees could choose their training provider and negotiate key aspects of the training. This shift away from governments planning and purchasing training places was intended to make the system more responsive by creating direct relationships between clients and training organisations. The paucity of such relationships had been a major criticism of TAFE. The early evaluations of this shift to user choice were all broadly supportive (Bowman & McKenna, 2016:32). A later (2006) evaluation of competitive tendering and user choice found that for large and medium enterprises, the outcomes in relation to choice, diversity and responsiveness appeared to be positive, but the responsiveness to the needs of small enterprises and in thin markets was poor (Bowman & McKenna, 2016:33).

From around 2009 and over the next few years, another major type of contestable funding was introduced under the guise of a National Training Entitlement which guaranteed training places to young people and older people who had been retrenched, This entitlement was also backed by access to income contingent loans (VET FEE-HELP).

Victoria was the first jurisdiction to move in this direction, introducing a student training entitlement in 2009, and South Australia followed in 2012. In both states the funding for VET was increased very substantially, and it is arguable that many of the problems in Victoria resulted from the exceptionally rapid expansion of the training market and not the fact that there was such a market. The unintended consequences of this over-rapid expansion of training in Victoria in particular were:

  • Substantial budget over-runs as student demand outpaced the budget
  • The increases in training in some areas ran ahead of business skill needs
  • Concerns about the quality of training provided by what has been assessed as a small minority of providers.

South Australia did, however, learn from this Victorian experience of the problems associated with the introduction of a training entitlement, and as I will discuss below, mostly avoided them.

It is also important to note that public funding of private providers has a significantly longer history than the Victorian changes to an entitlement system that is so often cited as “the evidence” by those who oppose public funding of private VET providers. In addition, arguably Victoria’s problems of budget over-runs and excessive numbers of training places for some courses could have been avoided if business and government had retained more control over the allocation of these training places.

The question that I therefore now want to address is what is required to make contestable funding of a training market work in practice.

The provision of publicly funded education and training needs to be regulated

The most critical lesson from the introduction of public funding of private VET providers is that this ‘market’ needs to be regulated. This should hardly come as a surprise. Generally, it would be expected that there would be some level of regulation where public goods are being provided to consumers who are not always well able to judge value, and at a price that is less than the cost of provision. The Victorian public funding was only available to private provides who had been accredited, but subsequently the Victorian Auditor General found that the Victorian regulator could not reliably assure that it had effectively regulated VET providers (..). Furthermore, a large part of the payment to the provider was made when the student signed on, and not upon completion. Frankly this poor regulation was bound to lead to some rorting, and that is what happened.

But I would contend that this sort of rorting didn’t have to happen if the regulations covering the provision of public funding to the private providers had been better designed. In the case of South Australia, where at the time I was a member of the Training and Skills Commission (TASC) advising the SA Government, the introduction of public funding of private provision of VET services was much more successful. In South Australia, only private providers who had been assessed as meeting certain standards were accredited to receive public funding, and then only for some courses, where their offerings were judged to be satisfactory. This government control over the accredited trainers list meant that shonky trainers did not receive public funding. Indeed, an independent evaluation in 2015 found that the quality of training in South Australia appeared to have been maintained due to the monitoring and enforcement activities of the state government department responsible (Bowman & McKenna, 2016:38).

Furthermore, what is also interesting is that since the initial funding of private VET providers in South Australia the regulatory regime has been further tightened. In its 2014 Report, the Training and Skills Commission (TASC) advised the SA Government to adopt a “Capacity Management system that allocates set quotas of publicly funded training places (on a course by course basis) to a smaller number of high-quality Registered Training Providers” (my emphasis). To reduce the chances of skill miss-matches, the funds available for each course is based on independent advice from the TASC after consultation with industry, and the extent of the subsidy varies between different courses. In addition, the TASC suggested that “funding should be aligned not just to course delivery but also to pre-course assessment and post-course development programs that will help students gain employment”. Also in determining funding, preference is given to those providers who have established links with employers, and which have a good track record in terms of their students’ completion of training and their post-training employment.

What has been achieved by a regulated system which includes publicly funded private providers?

In South Australia following the introduction of a contestable VET market, the unit cost of training fell by more than 25 per cent in the first few years. Nor was this reduction in cost achieved by short-changing TAFE, with the public funding of TAFE per hour of training in 2013-14 still being around 2.5 times higher than for private registered training organisations. Thus, despite the claims by the critics, this reduction in costs was not achieved by simple cost-cutting. If cost-cutting had been the objective, a decline in quality would be expected, but judging by the rate of successful completions and subsequent employment the quality of VET training has been maintained, albeit at a lower cost.

For example, an analysis of national completion rates using data from the National Centre for Vocational Education and Research shows that the completion rates for private training providers is typically about 3-4 percentage points better than for TAFE at each level of qualification. While a comparison of the outcomes achieved by those trainees in TAFE and those trainees with private providers, who in both cases undertook their training for employment related reasons, we find that:

  • A slightly higher percentage of private providers’ trainees were subsequently successful in gaining employment;
  • The private providers also achieved a similar result in terms of the extent to which the training achieved what the trainees were after,
  • However, a slightly higher proportion of TAFE trainees were satisfied with the quality of their training.

Perhaps the proper end conclusion from this comparison is not whether TAFE or a private provider is better, but rather that there is not a significant difference between the two types of provider, and that the choice should depend upon what the trainee is most looking for in their individual case. In addition, it will always be important to maintain the TAFE system, if only because TAFE is often the sole provider in thin markets for some skills and in the regions.


In sum, an objective examination of the available evidence does not suggest that the public funding of VET through private providers has been the “disaster” that Quiggin and others have so often asserted. Instead, most measures show that there is little to choose between the quality of public and private provision where the training market is properly regulated. But experience also suggests that public funding can be rorted if there is inadequate regulation. However, with experience governments have found out how to regulate the training market so that quality is preserved, while competition can reduce costs and increase choice and responsiveness to customer needs.


Bowman, K., & McKenna, S., 2016, The Development of Australia’s national training system: a dynamic tension between consistency and flexibility, NCVER Occasional Paper, Australian Government Department of Education and Training.

Michael Keating, AC is a former Secretary of the Department of Employment and Industrial Relations, a member of the Boards of Skills Australia and its successor, the Australian Workforce and Productivity Agency, and was a member of the South Australian Training and Skills Commission. Each of these bodies advised governments on contestability in training markets.





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5 Responses to MICHAEL KEATING. Should VET be contestable?

  1. John Quiggin says:

    “with apparently no further proof needed to substantiate his point.”

    A but shouldn’t you have done some checking before suggesting a lack of research on my part.

    Googling “Quiggin + VET” would reveal that I have been writing for a long time on this topic, and predicted the disaster long before it happened.

    Googling “VET FEE-HELP disaster” would reveal that my conclusion is now so widely shared as not to require detailed justification each time I mention it. Even the Productivity Commission singled this out as a policy disaster.

    Coming to a more substantive point, it appears that most of the shonky operators (Aspire, Careers Australia etc) who have now collapsed had operations in South Australia. How were they taken into account in the analysis you cite?

  2. Geoff Edwards says:

    Consistent with Neil Hauxwell’s post, a central problem with all such privatisations is that competition is a one-trick pony. Competition by itself is a very poor organising principle on which to structure such a significant and complex sector as vocational education. Collaboration, compassion and coordination are also required. Regardless of the competence of private providers, the ability of TAFE to coordinate in the public interest has been hollowed out and system coherence has been lost.

    This is not to argue that all vocational education must be delivered by a central public authority. TAFE is perfectly capable of outsourcing particular courses to competent industry providers, and competition at this scale, managed by TAFE, could achieve (and has) achieved the benefits of tightening cost control without the loss of intelligence at the centre and with a far greater lower risk of rorting. But TAFE has been pushed aside, destabilised and demoralised.

    In this new system, trust has been scattered to the winds. Ironically, accountability has actually been centralised (back into central government) rather than decentralised into TAFE, striking another blow at the roots of our federation.

    With Wayne McMillan, part of the problem has been that the clamour for “deregulation” was based upon overblown claims of efficiency. Direct provision of a service can be far simpler and cheaper than regulating another party to provide it on your behalf. Higher costs of a public provider aren’t necessarily symptoms of a bloated bureaucracy that can be swept away by privatisation, but can reflect a higher level of public goods within the service.

    A common feature of the privatisation reforms – think electricity – has been that the reformers underestimated the need for and the cost of regulating the private providers. Where this miscalculation arises time and time again, one has to question the validity of the core organising principle.

  3. Neil Hauxwell says:

    Sometimes we can say with confidence that “Statistics are proof”, but not in this case. Mr Keating’s perspective as a senior bureaucrat in the VET reform processes mean that he can readily produce various sets of numbers to support his contention that the VET and TAFE “reforms”, that he has been part of, have not set- back Australian vocational education by a decade or more.

    True, his numbers show that in S.A, the cost of an hour of TAFE training is 2.5 that of a private provider. However, he wastes no ink in suggesting reasons for this. My observations (from Victoria) are that private providers prefer low-cost screen based learning . This leaves TAFE with responsibility for most “hands-on” industrial learning; the sort that requires a workshop full of expensive machine tools and all the OH&S equipment required to run them safely. And TAFE teachers cost more too – some still have full-time permanent jobs, as distinct from trainers in the gig economy

    True, there are small differences in completion rates between Private and TAFE providers, but then I wonder at the extent of “results driven management” that is applied in the private sector.

    Similarly, employment outcomes are slightly up for private trainers, but then a good few are the training arms of vertically integrated companies in the job placement services sector.

    I think that the fundament flaw that Mr. Keating and his fellow bureaucrats have made in their failed attempts at “Market Reforms” in TAFE, is to equate Vocational Education with the process of buying new undies. A good pair of undies can be readily defined by attribute- fabric, sewing, elastic durability, colour, style, and absence of suggestive logos. Simply devise a way of objectively measure each attribute , collate the info and its guaranteed that your mum will pick the cheapest and best for your next birthday.

    Sadly, Many items that should be on the shopping list for “Outcomes From Quality Vocational Education” are notoriously difficult to measure- Confidence, Adaptability, Research skills , Creativity. However, these abilities are arguably far more important to our economic future than “ the more easily verifiable industry skills, defined in the form- “produce a 12mm fillet weld using the MMAW process that is free of occlusions and has no undercut”

    Successive governments have spent a lot of money via Industry Training Advisory Boards etc in an attempt to compile a “Universal Training Needs List “for each of our major industries . The main outcome of these attempts has been that many of our industry training outcomes are poorly defined, thus allowing canny operators to get better completion rates by diluting course content.

    The regulation of the Vocational Training Market is problematic. Regulators mostly seem to be in the game of whack – a- mole; putting down a rort by patches of paperwork. The result is that many of the best TAFE teacher are moving on- away from morale sapping, ineffective “compliance” demands

    For Australia to have an effective vocational education system will require–
    • Easy access for people with any level of school education.
    • The ability to provide vocational education that closely matches local industry and community needs.
    • The capacity for people to leave and return to education as people’s personal situations change.
    • Adequate funding, bipartisan support and inter-governmental cooperation.

    Such a system must involve sharing resources and cooperative development. These are not the usual characteristics of the disconnected, competing business entities the have been created by Mr Keating and his marketeering cohort.

  4. Wayne McMillan says:

    Introducing contestability into VET markets can be helpful if it’s implemented properly. Contestability can, if properly implemented, drive innovation, efficiency, and
    improvement across the sector. But government cannot simply declare
    something contestable, open up the market, and hope that it works. It needs
    to design and administer the market more carefully, guided by the outcomes it
    seeks to achieve. In particular, where there are “thin markets” i.e. in locations in regional areas, governments need to take consideration of students that are disadvantaged.

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