Select Committee on Education and Skills Memoranda

Memorandum submitted by the Higher Education Funding

Council for England (EU1)

The e-University project

Introduction: HEFCE's approach to supporting e-learning

1.  The e-University project is only a small part of HEFCE's strategic approach to e-learning. We have invested substantially in a world-class information and research network (SuperJanet). We fund the Joint Information Systems Committee (JISC) to provide the resources and research and consultancy support that underpin the use of new technologies. We have also invested substantially in quality enhancement, including support for the higher education sector to innovate in approaches to learning and teaching, such as use of communications and information technologies (C&IT).

The e-University project was part of this strategy. It focused on exploring wholly

2.  e-based methods of supporting the learning experience, in particular to meet the needs of global learners in an increasingly borderless education system.

3.  The SuperJanet network supports all higher education (HE) activity and has increasingly focused on the support needed for learning and teaching. It has recently been extended to the further education (FE) sector, which has provided opportunities to expand C&IT use in that sector, and to increase collaboration between HE and FE. JISC collects and disseminates digital resources, data and information that can contribute to both research and learning and teaching. As well as enriching campus-based learning and teaching, these resources can be used to support e-learning, and workplace, distance, blended and flexible learning. Working with practitioners from the HE and FE sectors, JISC identifies the types of research, consultancy and advice that can support innovation. It has recently embarked on a major programme on the technological infrastructure for e-learning-managed and virtual learning environments.

4.  HEFCE's Teaching Quality Enhancement Fund (TQEF) has provided an effective 'package' of support and encouragement for e-learning and other new approaches to the learning experience at multiple levels - for the individual through personal awards under the National Teaching Fellowship Scheme; for subject communities through the Learning and Teaching Support Network (LTSN); and for institutions through funding for the development of learning and teaching strategies.

5.  The LTSN has provided a focus for subject communities of practice to explore new approaches to learning and teaching. These include promoting the use of new technologies, providing online and offline resources, and giving awards for distinguished practitioners in

e-learning. We expect the LTSN - now incorporated into the new Higher Education Academy - to play an even greater role in supporting innovation in the future.

Set up of the e-University project

6.  The e-University project was launched in 2000 by David Blunkett, the then Secretary of State for Education. The project was initially taken forward by HEFCE acting in partnership with the UK HE sector and other funding bodies. We appointed a Steering Group involving senior representatives of the HE sector to oversee initial development. PricewaterhouseCoopers (PwC) were engaged to devise the business model for the venture, and we commissioned extensive marketing and technological analysis to inform and supplement the PwC work.

7.  Our original model was for a joint venture between a consortium of higher education institutions (HEIs) (supplying the learning programmes) and private sector partners (putting in the technology, marketing and business drive). However, PwC took the view that many HEIs would be involved in e-learning globally, and so it would be cost-effective to have a central vehicle accessible by all HEIs. They also thought that the vehicle should provide a total solution, bar the learning programmes, for wholly Internet-based e-learning. This was on the grounds that it would give economies of scale, but also that the venture would be at the leading edge in

demonstrating the possibilities of wholly e-based learning.

8.  PwC's resulting model, which was approved by the sector in consultation at the end of 2000, involved a Holding Company, owned collectively by the UK HE sector, and an Operating Company, formed through a joint venture between the Holding Company and the private sector. The Holding Company would license the brand to the Operating Company, and the Operating Company would conduct all activities. The Holding Company would oversee the value for money from the public investment and safeguard quality and standards.

9.  As a second stage in the project, in autumn 2000 we began the process of inviting the private sector to put forward their joint venture propositions. Given that the Operating Company would need to be commercial in character (to attract private sector partners and to operate in the global market), we appointed a small interim Management Team (Chief Executive, Commercial Director, and Technology and Programmes Director) with the expertise to conduct joint venture negotiations. This formed the embryo for the Operating Company.

10.  We also initiated the process of setting up the Holding Company, which would act for the HE sector in the joint venture, by inviting UK HEIs to become members and seeking nominees for the Holding Company Board. All but four UK HEIs agreed to become members of the Holding Company. In March 2001 the Rt Hon David Blunkett MP, as Secretary of State for Education and Employment, announced Sir Brian Fender as Chair of the Holding Company and other members of the UK-wide Board, who had been appointed by HEFCE and the sector's representative bodies - Universities UK and the Standing Conference of Principals (SCOP). The Government agreed to provide £62 million in the spending review that year for the project, for a collaborative venture between HEIs and the private sector.

11.  Detailed negotiations with joint venture partners continued over 2001. The original vision was to bring together a consortium of joint venture partners to put in the main functions of the business. However, in October all parties decided that an agreement should be concluded with Sun Microsystems to lock-in the technology solution for the business. Sun agreed to put in £4.8 million in licences, know-how and consultancy toward creation of the technology platform, but agreed to vest their shares in a charity (because they did not wish to hold shares on their books).

12.  The Operating Company was incorporated through agreements between that charity, the Holding Company and Sun in October 2001 as UK eUniversities Worldwide (UkeU). The Holding Company nominated three Directors to the Board on behalf of the HE sector. They in turn led on the appointment of Sir Anthony Cleaver as Chairman of the Board and other Non-Executive Directors with commercial expertise. The Board then appointed the Executive team, and John Beaumont joined as CEO in March 2002.

13.  The original vision for the venture was that the private sector would 'bid in' most of the main functions of the business (technology, sales and marketing - even senior management). A number of interesting marketing propositions were submitted by the private sector, but none of the proposals seemed likely to be compatible with the interests and concerns of the HE sector. (For example, a major publishing house would only invest and partner if it had a controlling share over the company and control over the academic quality arrangements.)

14.  It was a condition of our grant at the outset that the business should seek 50-50 public-private contributions, both to mitigate risk to the public purse but also to put commercial drive and accountability into the venture. The Board and Management of UKeU, which had considerable experience of raising private finance, accepted grant on the basis that they could achieve the public-private sector balance. They initially sought to achieve this by acquiring a marketing partner (efforts to acquire such a partner continued into spring 2002). However, once they could not agree favourable terms with a partner, they advised that they would achieve the balance through seeking investors once the venture had some 'proof of concept', that is after the launch in September 2003.

15.  Once the full Board of UKeU and the Senior Management Team were in place they then drove forward the full set-up of the business from spring 2002. At an early stage UKeU sought project managers to complete the technology platform, and a consortium led by Sun Microsystems won the contract after competitive tender. Earlier in the project we had identified some institutions to act as pilot programme providers, and the company worked with these as exemplars to test and build the platform. The first programmes were launched in March 2003. The full launch was in September 2003.

16.  We also supported a number of public good programmes linked to the venture. UKeU project -managed the eChina programme which links selected UK HEIs with Chinese HEIs to develop e-learning programmes, under the umbrella of our memorandum with the Chinese Government. UKeU also project -managed a research centre which involved joint activity with a number of HEIs to evaluate UKeU's experience and further e-learning more generally. We allocated some additional funded student numbers to HEIs to work with UKeU on the development of learning programmes to address widening participation and social inclusion.

Review of the venture

17.  The original model for the e-University put HEFCE at arm's length from the Operating Company. This was recommended in the PwC report and endorsed in consultation because:

a.  The venture needed to be formed through a strong partnership between the HE sector and any private sector partners, and hence funds were channelled through the Holding Company. The Holding Company could represent the interests of the sector, and particularly could oversee the academic standards and quality for the venture. (The legal arrangements establishing the venture set out how the UKeU brand should be managed, including arrangements to oversee the quality and standards of programmes.)

b.  The Operating Company would need to compete against private sector providers (for example in the US) and attract private capital, and hence would need to operate under commercial conditions. It was felt more appropriate to the nature and role of HEFCE that it should fund the venture indirectly through the Holding Company, rather than alongside the private sector directly into the Operating Company.

18.  Nevertheless, HEFCE was concerned to ensure that proper arrangements were in place to ensure the good use of public money. We concluded a Deed with the Holding Company, as well as detailed conditions of grant to regulate the use of public funds. Main conditions of grant were that the companies would need to submit a robust business proposition and achieve private matched funding. HEFCE also required that the Holding Company should operate under the conditions of the Combined Code on Corporate Governance and should put in place proper audit arrangements. The Holding Company was required to report annually on the venture, particularly focusing on value for money and quality and standards, and to provide exception reports. The Holding Company was then required to put in place 'back to back' arrangements with UKeU to ensure that that company met all these requirements. HEFCE was kept informed of developments in the two companies during the set-up period, but its formal monitoring role was at arm's length from UKeU via the Holding Company.

19.  We acknowledged and had flagged to major stakeholders (including Ministers) that the project was high risk, as it involved innovative technology, new product development and novel approaches to developing and delivering the learning experience for the HE sector (including commercial approaches). However, both the study that preceded the project ('The Business of Borderless Education', HEFCE, CVCP, SCOP 2000) and the PwC report stressed the strategic importance of investing in global delivery of e-learning. They argued for investment both on the grounds of encouraging the HE sector to explore the massive potential of the Internet, and on the grounds of global competition in e-learning delivery.

20.  The main ways in which HEFCE managed risk was to limit our investment in the project (to £55 million from the original £62 million provided by Government), and by paying great attention to the governance arrangements and set-up of the Boards and senior management of the companies. In order for the companies to be able to operate legally, we gave commitment to provide funding up to £55 million. However, we note above that we included conditions of grant that the companies had to satisfy us regarding the robustness of their business proposition, and to secure private matched funding. The earliest at which it was reasonable to conduct a review of the venture to judge performance against these conditions of grant was autumn 2003, when the venture had some business results. HEFCE informed the two companies at an early stage that a review would be needed at this point. We were fully aware that to meet the requirements of administrative law we needed to act fairly and reasonably, and to have an evidence-based and robust approach to the review.

21.  Our original intention had been to conduct a wide-ranging review of the project to assess how far it was meeting its original aims and objectives, commencing in November 2003 (when UKeU had informed us that they would provide their business plan revised in the light of launch results). However, we became concerned about the indications of business performance over the summer of 2003. In particular, student take-up in September was very disappointing with 898 students against a 6,500 target. We were also concerned that the company had provided no clear plans on private financing by then, and indeed the poor launch performance would be likely to delay private financing prospects further. We therefore decided in summer 2003 to focus and strengthen the review in the light of our concerns. We appointed PA Consulting to conduct the review, in conjunction with our legal advisers, Beachcroft Wansbroughs.

22.  We informed the two companies of the scope and nature of the review, which started in October 2003. PA Consulting's work focused on UKeU's revised business plan submitted in November 2003 and on a series of interviews with the companies and other stakeholders, including HEIs. The PA report was submitted to HEFCE at the end of December 2003. It raised issues of considerable concern. We sent the report to the two companies for comment immediately, noting that it suggested that they were in breach of conditions of grant. The two companies submitted responses to the review report. We then asked PA Consulting to provide a detailed commentary on all points of detail raised by UKeU, and to provide a statement on whether they stood by the conclusions of their report.

23.  PA Consulting produced both the detailed commentary and confirmation of their conclusions. While they acknowledged that the business plan might be delivered, and indeed might be exceeded, their judgement was that the balance of probabilities was that the plan would not be delivered. There were clearly a number of high risks in the plan, and the company did not give a very persuasive account of how its experience in the launch had helped it to reduce risks for the future. PA had examined the sensitivities of the plan and also concluded that the capital requirement to deliver it could be up to £92 million (although it could also be as low as £72 million). They also noted that the revised business plan did not include any firm plans for gaining private investment, but instead suggested in broad terms that a flotation of the company might be achieved in around 2006.

24.  The HEFCE Board considered the PA Consulting report, responses by the two companies and the PA rejoinder at its meeting on 25 February 2004. The Board concluded that the venture was in breach of the condition of grant that HEFCE would only fund against a robust business proposition. They were also of the view that the venture had breached the condition of grant on achieving private matched funding, in that the period proposed to achieve matching (by 2006) was probably unrealistic and, in any event, beyond the original understanding between the parties.

25.  Finally, the Board did not consider that a robust case for additional public funding could be made (given that the original way to manage risk in the venture was to limit exposure to £55 million). They thought that the market for 'pure' e-learning might take off in the longer term and that this was an exciting prospect, but that the opportunity cost of deflecting further funds to the e-University venture in the present HE sector funding climate was too high to be justifiable. They felt that investment in the business model for the e-University (a totally integrated proposition for delivery of e-learning) was also probably unduly risky now for the public purse - given funding pressures on teaching, the present state of capital and commercial markets, and present HE needs in relation to e-learning. In the circumstances, the Board concluded that funding the revised business plan was not justified.

Steps taken following the review

26.  We informed the Operating Company Board on 26 February 2004 of the HEFCE Board's decision. We added that we were prepared to consider funding a plan for winding down and restructuring the venture to maintain public good programmes and to capture any value for the HE sector. We also identified a consultant from Robson Rhodes that we had engaged to work on restructuring proposals.

27.  The Board of UKeU decided to step down in the light of the HEFCE's Board decision. The Holding Company appointed a new UkeU Board of distinguished HE figures to oversee the wind-down. HEFCE has continued to fund the company with a view to achieving the wind-down in order to:

·  minimise damage to HEIs and students involved in the venture

·  minimise damage to the brand image of UK higher education overseas, and to minimise damage to overseas partnerships represented in the venture

·  guard against damage to HEIs' interest in and enthusiasm for e-learning, particularly in the light of the Government's requirement for HEFCE to embed e-learning in HE in the next 10 years, and in the light of our forthcoming e-learning strategy

·  protect and maintain the public good aspects of the venture

·  preserve any other value in the venture for the HE sector that might be recoverable.

28.  UKeU has made the following progress on the wind-down:

a.  The sales and marketing and learning programmes functions of UKeU have been closed, and HEIs and overseas partners have been informed. The company has arranged for the transfer of overseas partnership and/or accreditation arrangements to HEIs wherever possible.

b.  The e-learning research centre will now be taken forward by the two HEIs originally involved (the Universities of Manchester and Southampton) working in partnership with the Higher Education Academy. The centre will evaluate lessons learned and disseminate experience from the e-University project for the HE sector more generally.

c.  The eChina Programme continues, with the programme management arrangements moved to Cambridge University. The programme and individual HEIs involved in it will be unaffected by the change.

d.  The technology platform is undergoing final modules testing and is expected to complete testing in mid-August.

e.  Staffing in UkeU has been reduced to 25 staff (from about 70), who are needed either for platform testing or the wind-down.

29.  Further information on the wind-down of the e-University covering commercial in confidence matters - including future arrangements for the technology platform, programmes and students - is provided in a separate letter to the Chairman of the Committee.

Next steps on e-learning

30.  The Government charged HEFCE in its recent Higher Education White Paper to embed e-learning in the HE sector over the next 10 years. We published a draft e-learning strategy for consultation in August 2003, in parallel with the Government's e-learning strategy. Responses to our consultation indicate that the HE sector has made progress in e-learning, but more needs to be done to fully embed it. In particular, although the possibilities of wholly e-based learning are important and need to be explored and researched, the HE sector is concerned to fully embed 'blended learning' - that is to exploit the possibilities of communications and information technologies appropriately and effectively in all forms of learning, including on campus.

31.  We are now working with the Department for Education and Skills, and particularly with our implementation partners JISC and the Higher Education Academy, to finalise the strategy and devise an action plan for its implementation. Evaluation of the lessons learnt from the e-University project will form part of the research component of our strategy. We plan to issue the strategy in the autumn. We envisage that our main objectives will be to support:

·  institutions in their chosen e-learning missions - global, national, regional and local - and their chosen partnerships

·  HEIs' strategic leadership and management of e-learning

·  innovation in approaches to the use of new technologies in the learning experience

·  understanding of the use of new technologies to contribute to social inclusion, progression and collaboration across all sectors of learning

·  the HE sector in securing the appropriate technological infrastructure for e-learning.

21 June 2004

previous page contents

House of Commons home page Parliament home page House of Lords home page search page enquiries index

© Parliamentary copyright 2004
Prepared 29 June 2004