Alice Thursfield, associate solicitor at Lester Aldridge, looks at how proposed changes to Ofsted inspections could affect the early years market

Many early years providers will be aware of the changes taking place within Ofsted as a consequence of ‘The Big Listen’ public consultation which asked for views on Ofsted’s work across a number of sectors. At the end of last year, Ofsted announced that it will stop using single[1]word judgments for children’s social care providers and early years settings. Inspections of state schools immediately stopped the use of single-word judgments in September last year, but the practice was maintained in the interim for early years settings.

Going forwards, it is intended that all Ofsted judgments will be replaced with a ‘report card’, which will give more detail on the performance of a setting across a range of different evaluation areas including achievement, leadership and governance, personal development and wellbeing. The report card will use a new five-point grading scale for each of the evaluation criteria.

Ofsted also seeks to place more emphasis on early years settings’ circumstances and local context. The toolkits aim to provide more clarity and detail about what will be considered during an inspection, to improve consistency across inspections of early years settings, and to assist providers with what is expected of them during an Ofsted inspection.

Ofsted launched a consultation into this new approach at the beginning of February and views are being sought from parents, carers, professionals and wider stakeholders. The consultation runs for 12 weeks from 3 February to 28 April.

Ofsted has stated that it will publish a report on the outcome of the consultation in the summer and will reflect on the feedback. The final agreed reforms will be piloted, and formally implemented in the autumn term this year.

Effect on the market

Given that Ofsted confirmed in a recent Select Committee appearance that a provider will not lose its existing rating, there will inevitably be a transitionary period where some providers will maintain their current single-word rating at the same time as the new report card system is being introduced. This may have an effect on the nuances of transactional due diligence work, the comprehensive investigation and analysis of a company’s financial, legal, operational, and other relevant aspects, conducted before a significant business transaction to assess potential risks and opportunities.

Specialist knowledge of the practical implications of those changes, will be critically important when nursery owners are looking at mergers and acquisitions because of the potential impact of the new rating mechanism – the nuance in the new score card ratings, and what that could mean for the value of a provider at sale.

Ofsted and the early years sector may be able to learn from the chaos that has been created in the adult health and social care sector by the roll out of the Care Quality Commission’s new single assessment framework. The new framework has had a detrimental effect on the meaningfulness and accuracy of ratings for adult social care providers. The head of the CQC recently admitted that care home ratings could no longer be trusted.

It is not in any way suggested that the same colossal problems will flow through to the Ofsted inspection changes. However, the very significant problems that the CQC has faced by changing its inspection framework so dramatically serves as a warning that specialist understanding of the market (including the changes and the impact and meaning of those changes to the risk of an early years setting) is crucial to the success of sales, purchase and investments within the sector.

Providers will also no doubt be aware of the contractual implications of the judgment changes. The Department for Education has developed and prescribes a model agreement for local authorities to use in their provider agreements with nurseries relating to free early years provision and childcare to ensure consistency. Many of these contracts will have specific quality clauses relating to the existing ‘Inadequate’, ‘Requires improvement to be good’, ‘Good’, ‘Outstanding’ ratings and, as we understand it, will also have to be updated in line with the proposals.

This could lead to some initial inconsistency and so specialist advice is recommended here where there are any contractual concerns or disputes with local authorities, the Department for Education or the Education and Skills Funding Agency (if applicable). It is of note that the Education and Skills Funding Agency closed in March, with its functions moving over to the Department for Education.