Examination of witnesses (Questions 80
- 95)
WEDNESDAY 25 MARCH 1998
MR MICHAEL
BICHARD and PROFESSOR
DAVID MELVILLE
80. It would have been much more exciting
if the answer had been different. Thank you very much,.
(Mr Bichard) There are two other things, one which
the FEFC has done and which the Government has done to tackle
the situation. One is that the FEFC decided that from August of
this year Council funding should not transfer, except for premises
and equipment, to the provider. The second thing which the Government
has done is to increase the employer's contribution by 20 million
which actually reduces the public funding from 75 to 50 per cent
which is a significant shift.
Mr Williams: Thank
you.
Mr Love
81. I promise, Chairman, that I shall not
mention my local education college in my comments although I do
have two local colleges not in the constituency that indeed have
significant funding problems. I do agree this is a nationwide
problem. I am interested in the relationship between the FEFC
and the colleges themselves. I cannot remember which of the two
of you said that colleges have to take their own decisions. This
was in relation to the adequacy of the courses. I think it was
Professor Melville who said that the level of courses had to be
sufficient and adequate—I think those were the words you
used—otherwise you would take action. Perhaps you can tell
us what action you are allowed to take?
(Professor Melville) As I indicated, this is to
do with provision. There have been a relatively small number of
cases where we have found this. For example, if we find that in
a particular area of the country a college claims it is not economically
viable to sustain a particular provision then we can provide the
college with supplementary funds in order for them to do that.
We have not found any cases where by working with the colleges
we have not been able to ensure the adequacy and sufficiency of
provision.
82. Am I clear, is it only in a case where
they want to get rid of a current course that you can take action
or if you come across a case where there should be a course provided
that has not been provided you can insist? What powers do you
have to ensure that course will be provided in that locality?
(Professor Melville) This is not a situation that
has arisen. I do not envisage that will be the case. If there
is demand from local students for the course colleges have put
courses on. I think the situations that have been referred to
in the report are where employers have a perceived demand for
more employees in this area and therefore there is not a sufficiently
rapid response. Certainly the Council can ensure that funds flow
very rapidly to particular colleges as that demand increases.
83. You mentioned that you had taken steps
in the past in some cases. Was that strictly by providing additional
funds or are there sanctions that you have available to you?
(Professor Melville) No, it was particularly in
a remote part of the country where there was a need for a small
level of provision that would not be economically viable.
84<fb. We were given the terms of reference
of both of you and it mentions in here that the Funding Council
uses a variety of mechanisms to monitor financial wellbeing, and
indeed you mentioned that in relation to stringent controls. Can
you just describe to us the mechanisms by which you, if you feel
that a particular institution is not performing financially or
educationally, not providing courses, have the ability to bring
them back on course?
(Professor Melville) First of all we have a very
regular and close review process. The Council, as you are probably
aware, has a regional structure and therefore within that regional
structure we have regional finance directors, property advisers,
education specialists augmented by inspectors and auditors who
know the colleges intimately and are regularly in contact visiting
the colleges. On a three times a year basis we assess financial
health. The first step we take is to ask the colleges to assess
their financial health against our criteria. We do that. We normally
come to a fairly rapid agreement with them that we are right.
We worry significantly about colleges that differ significantly
from us. On a regular basis we bring all the information twice
a year together on every college at the regional level. About
80 per cent of the colleges are in the category of not causing
concern; about 20 per cent are reviewed in further detail and,
if necessary, a meeting is called with the college management
to share the Council's concerns, often at the early stage if we
do see the danger signs.
85. I am sorry to interrupt you but as always
time is against us. Do you have any ability to direct in any circumstances
or is it a matter of negotiation?
(Professor Melville) It is carried out through
negotiation but, as I indicated to Mr Williams, at the point where
a college gets into serious trouble then we have that ability
to ensure that any extra funds we apply of course have conditions
applied to them.
86. Mr Bichard raised in the last answer
to Mr Williams that you had introduced what I would describe as
additional safeguards in relation to the franchising issue. Was
that because of concerns that had been raised up and down the
country? I am asking Professor Melville. Would it come up from
the ground floor level?
(Professor Melville) It was clearly in response
to the National Audit Office report that is referred to in the
footnote there. Because this is arm's length provision there is
a greater need for controls, financial, eligibility and particularly
quality of provision, and that is why we have inspected the provision.
We have in fact taken action in relation to colleges where we
have found as a result of the inspection that there are problems.
Clearly because franchising, and the report is very clear on that,
was responsible for 72 per cent of the growth that we saw——
87. Within a two year period?
(Professor Melville) Associated with franchising.
Clearly there was a need to look at this much more carefully and
we did so.
88. Can I move on to Mr Bichard. I want
to ask you a general question, again arising from your terms of
reference. Are you satisfied with the way in which the FEFC comply
with the conditions of grant, apply proper controls and distribute
funds in line with the policy framework? Are you satisfied? Have
you been satisfied over the last few years?
(Mr Bichard) We have been very satisfied. It is
not just that we have been satisfied but others who have looked
at the FEFC have been satisfied too. The NAO, for example, and
the Financial Management Scrutiny in 1995-96 carried out by Pannell
Kerr Foster, they were satisfied too. The FEFC have got a good
track record. However, we do not leave any of that to chance and
we have a rigorous regime in place to ensure that they stay up
to the mark.
89. Can I just ask you about franchising
agreements. In relation to those how did you come to the conclusion
that additional safeguards needed to be instituted in relation
to those?
(Mr Bichard) We took account of the report to
which Professor Melville has already referred but we needed to
get the balance right. There is a danger that this discussion
begins to paint franchising as an evil rather than as a good and
it can actually be of real benefit in bringing employers and colleges
much closer together. It gives colleges access sometimes to state
of the art equipment that they would not be able to access in
any other way. Because a lot of it is basic level training it
is getting people back into learning and training who would otherwise
remain excluded. We must not think of franchising as an evil but
nonetheless it does need to be managed properly and we think that
we have now done sufficient to take account of the recommendations
from the NAO and we and the FEFC will keep it under close monitoring.
90. Can I ask you one final question in
relation to FEFC monitoring of a whole series of things. This
report draws out the fact that growth was greater than expected,
that programme areas were not always developed as your targets
expected, geographical areas were not always covered. There is
a whole series of areas where monitoring was not exactly a failure,
and I take on board the point you made earlier about the variety
of courses and the number of people taking those courses, but
are you fully satisfied that the system of monitoring and control
at both FEFC level and at Department level is adequate to the
task?
(Mr Bichard) I explained earlier some of the steps
that we have taken to try and improve the monitoring, the forecasting.
No, I am not satisfied that we have got it absolutely right yet.
I believe that it is improving and improving quite quickly. I
think the individualised student records and the working groups
we have got in place are a great help. Perhaps I should at this
point, and I should perhaps have picked it up earlier, highlight
that there is not an error but there is a figure in the report
which has subsequently been found to need amendment. That is the
growth for 1996-97 which I think in the report is six per cent
and has turned out to be three per cent because when the report
was produced we did not have the end of year figures. That reduces
the overall growth over the period 1992-93 to 1996-97 from 30
per cent, which was the figure in the report, to 25.8 per cent,
26 per cent. The reason for that reduction from six to three per
cent in 1996-97 was that there was an increase in the number of
short courses, many of them as a result of franchising, and those
short courses, although they earned a considerable number of funding
units, did not translate into high levels of full-time equivalents.
Therefore, they dragged down the growth figure but achieved the
funding units. It actually means that the 25 per cent target which
had been set for 1998-99 has still been met two years earlier
than we expected but it has not been exceeded to the extent that
the report suggests. All of that nonetheless underlies the fact
that we do need to continue to give attention to the issue of
forecasting and projection. I think it is improving but it is
not yet good enough.
Mr Love: Thank you.
Chairman: Thank you,
Mr Love. I think Mr Clifton-Brown would like to ask one last question
so that he can champion the interests of the Cotswolds.
Mr Clifton-Brown
91. Yes. Mr Bichard, while we have been
sitting I have had the information that I requested from my own
local college, the Cirencester Tertiary College.
(Mr Bichard) I know it well.
92. If I can give you the figures to illustrate
a local problem and then ask you a national question. This is
a note from Nigel Robbins, the Principal, which shows that the
FEFC grant between 1993 and 1999 increased by 16.5 per cent whereas
he estimates that inflation in that period has increased by 17
per cent, so effectively he has had no real terms increase at
all over the last six years and yet the number of units that have
been agreed with the FEFC have increased by 42 per cent. That
is above the national average of 30 per cent. His conclusion in
this situation is "We cannot expand because we have no money.
We receive no capital grants to improve or expand our facilities".
Does this not effectively mean what is going to happen is that
we are going to ration future increases in further education funding
colleges, students, we are going to ration them by money?
(Mr Bichard) I have already said that the Government
will want to look at the situation when it knows the outcome of
the Comprehensive Spending Review and, therefore, the answer to
your question is we will have to wait and see. Professor Melville
may want to comment on Cirencester specifically. I do have to
make the point that over the period 1992-93 to 1996-97 we have
seen growth in this sector of 25.8 per cent and we have seen efficiency
gains of 12 per cent. Across the sector we do not have a picture
of low growth, we have a picture of a thriving sector that has
responded tremendously well to the demands upon it and has increased
its efficiency at the same time.
(Professor Melville) I think all I would add would
be a comment on the capital situation. Clearly capital has been
subsumed within the relevant grant so colleges are able to apply
the grant that we give to them for capital budgets and many colleges
do and of course apply for capital funding for specific projects.
Chairman
93. Thank you very much. It falls to me
to sweep up small parts of questions that are left unanswered
and you have been very thorough so there is only one rather narrow
question. Mr Williams asked you about your powers with respect
to those colleges that are under financial pressure. You answered
him that firstly the definition that you used was colleges that
were dependent either upon you yourselves or on the banks. I think
that was the term you used.
(Professor Melville) Yes.
94. When he asked about your powers you
said "those that are dependent on us we have lots of powers"
and you left out what the situation is when they are not dependent
on you but upon the bank. Does the same answer apply?
(Professor Melville) No. Broadly we are able to
apply conditions in return for the dependence of the colleges
upon us to borrow in those circumstances. If I can just clarify
powers in relation to what we are talking about. Clearly encouraging
colleges, exhorting colleges to improve their financial position,
giving them help, assistance, advice, is part of the process.
They are independent corporations, we cannot insist on that. What
we can insist on is when the college gets into a difficult situation
that they take a particular form of action to get out of that
situation when it starts to move into the point of threatening
the provision locally. I am not sure that I have fully answered
your question.
95. I think we have got it.
(Professor Melville) I can certainly give you
a note on that.[4]
Chairman: Okay. If
I may, just in winding up, thank you both for coming and giving
evidence today. Obviously there are some problems in this sector.
Can I say that both of you have given very thorough evidence,
virtually textbook evidence. Thank you both for your help and
may I commend you for the quality of evidence you have given.
Thank you very much indeed.
4 Note: See Evidence, Appendix 1, page 19 (PAC
247). Back
| 
