Select Committee on Education and Skills Minutes of Evidence


Supplementary memorandum submitted by HEFCE

RESTRUCTURING AND COLLABORATION FUND

1.   Questions 5 and 6

  Funding for the eUniversity project came primarily from the £62 million provided by the Government specifically for the project in the HEFCE November 2000 grant letter. However, initial funding of £1.13 million was drawn from the HEFCE Restructuring and Collaboration Fund (R&CF) to pay for costs until April 2001 when the £62 million programme grant became available. This was funded from R&CF under the criterion of supporting major collaborative projects in the higher education (HE) sector. These funds paid for initial research studies (many of which are presently being prepared for dissemination as part of getting value for the higher education sector from the project), as well as the set up of the company (since an Interim Management Team for the Operating Company was put in place at the end of 2000).

BUSINESS MODELS AND BUSINESS PLANS

2.   Questions 10-13 & Question 98

  We agreed to provide further clarification about the business models and plans for the project.

  3.  The first stage of the eUniversity project was the development of a business model for the venture. This was produced by PricewaterhouseCoopers (PwC) and published by the HEFCE in October 2000. We attach the three published documents:

    —  eUniversity project: business model consultation document (October 2000, HEFCE 00/43).

    —  Business model for the eUniversity—report to the HEFCE by PricewaterhouseCoopers (October 2000, HEFCE 00/44a).

    —  Business model for the eUniversity: annexes—report to the HEFCE by PricewaterhouseCoopers (October 2000, HEFCE 00/44b).

  4.  The business model presented the main lines of how the venture would operate—ownership, funding, and main activities. The main difference between this model and the one originally conceived by the HEFCE was that the PwC model proposed that the venture should involve all United Kingdom higher education institutions, rather than a consortium as we had originally suggested.

  5.  A more detailed business plan was subsequently produced in August 2001 by the Interim Management Team for the eUniversity (headed by an interim Chief Executive Officer), who were supported by PwC in the detailed modelling work of the plan. We attach a copy of this plan. The plan was one of the bases of the legal documents that set up the eUniversity Operating Company (OpCo) in October 2001 (for example, the plan underpinned the share price offered at set up).

  6.  We understand that once the new Board and Management were in place in the eUniversity operating company (OpCo) they revisited this initial plan attached to the legal documents and adopted a revised version in April 2002. The April 2002 version informed the set up of the company over the period 2002-03.

  7.  We were informed by OpCo that they intended to review their business plan again in Autumn 2003 in the light of their launch in September 2003. We agreed that our review of the venture in Autumn 2003 should be based on the plan revised in the light of launch, since this would be the first time that the plan could reflect real performance in the market place. OpCo provided us with the new plan revised in the light of launch in November 2003, and it was this plan that was the subject of the PA Consulting review and of the HEFCE Board decision to cease funding against it in February 2004.

8.   Question 19

  We stated that the investment from Sun Microsystems Limited was £5.5 million. We understand that the correct figure is £5.6 million.

EUNIVERSITY EXPENDITURE AND RESIDUAL VALUE

Question 22

  We estimated that by the time we had achieved the wind-down of the eUniversity we would have spent around £30-£31 million. This has been calculated by estimating the overall expenditure on the project by the HEFCE minus our estimated residual value of this project. The details of the expenditure and residual value are set out in the table below.

Public Good Funding (£m)Value (£m)
eChina33
e-learning research centre1 1
Research studies and other publicly disseminated outputs to inform development of eLearning1 22
Advisers (legal and business) 1
Commercial
Technology Platform development14.5 1.4²
Learning programmes development10.9 11
Sales and Marketing (includes overseas) 4.20.4³
UKeU operating costs412.9
Total49.5 18.8

1  Research studies include: PricewaterhouseCoopers business model, CHEMS study on marketing and HE aspects of eLearning, technology studies (e-Tools, content and learning resources and disability and technology), additional PwC work on production process in eLearning. These studies are presently being edited into a web-publication overseen by the HE Academy/eLearning Research Centre, and will be disseminated to inform the strategic development of eLearning. This also includes HEFCE contribution to the set up of the UUK Borderless Education Observatory, which is now supporting HEIs, and on-going programme on developing guidance for the HE sector on IPRs in e-learning.

2  We have added an estimate of 10% of funds spent on platform as recoverable value, to reflect ownership of IPRs (still under negotiation) and the learning experience from platform development which will be evaluated and disseminated to inform eLearning development in HE sector.

3  We have added estimate of 10% of funds spent on Sales and marketing to reflect captured value from overseas partnerships initiated and overseas accreditation arrangements now transferred to HEIs.

4  Payroll, Fujitsu, finance leases, premises, and other.

CHIEF EXECUTIVE OFFICER (MR JOHN BEAUMONT)

9.   Questions 29 and 95

  From the information provided in the eUniversities Worldwide Limited Report and Financial Statements for the year ended 31 March 2003, we understand that the remuneration of John Beaumont in 2002-03 was £226,373 inclusive of benefits and performance related bonus.

OPCO BONUS SCHEME

10.   Question 80

  We understand that the bonus scheme that operated within OpCo provided for between 0% to 100% of a maximum 50% of an individual's annual salary based on performance review. We attach a copy of the UK eUniversities Worldwide Limited Report and Financial Statements for the year ended 31 March 2003. This report provides information about the remuneration of the directors and includes performance related bonus payments. We have knowledge of the bonus scheme operated by OpCo for the period 2003-04 but have not included the data on payments to individual staff with this supplementary evidence as this is not publicly available information.

RISK REGISTER

11.   Question 107

  We attach a copy of the Risk Register submitted to the Department for Education and Skills (DfES) in July 2001 at the set up of OpCo.[14] We had regular review meetings with the Department to discuss progress on the project (roughly every six months), which included consideration by the Department of our risk register. We also had discussions with the eUniversity about its own risk register and its plans for delivery against milestones.

HEFCE CONSULTATION WITH THE HIGHER EDUCATION SECTOR

12.   Question 112

  We consulted with the higher education institutions at a number of points in the eUniversity project:

    (a)    At the outset of the project in February 2000. We attach a copy of the circular letter HEFCE 04/00 published on 14 February 2000.[15] We received 85 responses from higher education institutions, and six from further education institutions. Around half of responses outlined activities relevant to the e-University going on in the institution (and a few directly expressed interest to become core or programme partners, either individually or in partnerships). Overall, the announcement of the project was broadly welcomed. The main debate on the proposed model for the e-University was the balance that should be struck between collaboration and competition. The majority of respondents wanted to see a reasonably inclusive model.

    (b)    In October 2000 (HEFCE 00/43 attached) specifically on the PwC model (publications HEFCE 00/44a and HEFCE 00/44b attached). We received 77 responses with 57 from higher education institutions (although the other 20 responses included responses from consortia of higher education institutions, many formed in 2000, such as Worldwide Universities Network). The e-University project generally, and the PwC Business Model specifically, attracted considerable support. 74% of HEIs expressed their general support and commended the main aspects of the model. In addition, a number of higher education consortia expressed interest to work closely with the e-University. The majority of institutions commended the change in the model to a more inclusive approach. However, a few were concerned that there would be branding challenges in an e-University that worked with a wide range of higher education institutions.

    (c)  We invited UK higher education institutions to become members of the Holding Company (HoldCo) in Spring 2001. All but four UK Higher Education Institutions (HEIs) registered as members.

    (d)  Around 70 English higher education institutions submitted proposals to the eUniversity to develop e-learning programmes over the course of the project.

    (e)  At the start of restructuring and wind-down, OpCo had contracts and other relationships with around 30 higher education institutions.

HOLDCO AND OPCO BOARD APPOINTMENTS

13.   Questions 116 to 120

  The Board of the Holding Company is appointed as follows: six Directors by Universities UK (UUK); four Directors by HEFCE in consultation with the other UK funding bodies; and two by the Standing Conference of Principals (SCOP). The Chairman of the Board is appointed out of the Board membership by the Board. The present membership of the Holding Company Board is:

Sir Brian Fender (Chairman)—Chairman BTG plc, formerly Chief Executive HEFCE

Professor Bob Boucher—Vice-Chancellor, University of Sheffield

Sir Colin Campbell—Vice-Chancellor, University of Nottingham (resigned 9 June 2004)

Sir Ron Cooke—formerly Vice-Chancellor, University of York

Professor Gary Crossley—Principal, Central School of Speech and Drama

Mr Walter Greaves—Chairman of Council, Brunel University

Professor Gerry McKenna—Vice-Chancellor, University of Ulster

Mr Alfred Morris—Vice-Chancellor, University of West of England

Professor Tim O'Shea—Principal and Vice-Chancellor, University of Edinburgh

Professor Kevin Thompson—Principal, Dartington College of Arts

Sir Adrian Webb—Vice-Chancellor, University of Glamorgan

Professor Geoff Whitty—Director, Institute of Education

  14.  Directorial appointments were confirmed by UUK, HEFCE and SCOP in spring 2001. The Board then met in shadow form from April 2001 prior to full incorporation in June 2001.

  15.  Up to February 2004, the Board of the Operating Company was appointed:

    (a)  Three Directors were nominated by the Holding Company: Professor John Bull (former Vice-Chancellor of University of Plymouth), Professor David Wallace (Vice-Chancellor of Loughborough University) and Professor Sir Alan Wilson (then Vice-Chancellor of University of Leeds). Sir Alan Wilson resigned on 30 September 2003.

    (b)  The original legal arrangement for OpCo was that three Directors should be appointed by the private sector partners to the venture. OpCo did not attract private sector partners at the outset, and therefore Directors with commercial and other private sector expertise were appointed by the shareholders—the Holding Company, Guillemont Trust (holding shares in respect of Sun Microsystems Limited contributions) and Croft Nominees (escrow agents holding shares in respect of Sun Microsystems Limited contributions prior to milestones delivery by Sun Microsystems Limited).

    (c)  The Chairman of Opco, Sir Anthony Cleaver, was appointed by the Board. Three Executive Directors were also appointed to the Board by the Board: Chief Executive Officer (CEO)— Mr John Beaumont; Finance Director—Ms Elizabeth Selzer; Learning Programmes Director—Professor John Slater, who resigned on 27 September 2002 and was replaced by Professor Dave Unwin from 1 October 2002.

  16.  After February 2004, the articles of OpCo were changed by agreement of the shareholders and a smaller Board was formed appointed by the shareholders. The present Board is: Mr Eddie Newcomb (Chairman) (formerly Registrar of the University of Manchester), Mr Bob Stubbs (Deputy Executive Chairman) (Robson Rhodes Consultants), Sir Ron Cooke (former Vice-Chancellor of the University of York and Chairman of the Joint Information Systems Committee of the UK funding bodies), Professor Gerry McKenna (Vice-Chancellor of the University of Ulster) and Professor Geoff Peters (Open University).

BOARD MEMBERS OF HOLDCO AND OPCO

HOLDCO BOARD
NameDate appointedDate resigned
Sir Brian Fender (Chair)25 June 2001
Professor Bob Boucher29 June 2001
Mrs Sandra Burslem29 June 2001 16 September 2003
Professor Sir Colin Campbell29 June 2001 9 June 2004
Professor Sir Ron Cooke29 June 2001
Professor Gary Crossley29 June 2001
Mr Walter Greaves29 June 2001
Professor Gerry McKenna29 June 2001
Mr Alfred Morris29 June 2001
Professor Sir Gareth Roberts29 June 2001 31 August 2002
Professor Tim O'Shea29 June 2001
Mrs Dorma Urwin29 June 2001 5 December 2002
Sir Adrian Webb24 September 2002
Professor Kevin Thompson1 May 2003
Professor Geoff Whitty16 September 2003


Appointed by HEFCE

  Fender, Boucher, Roberts, Greaves, Webb.

Appointed by UUK

  Burslem, Campbell, Cooke, McKenna, Morris, O'Shea, Whitty

Appointed by SCOP

  Crossley, Urwin, Thompson.

OPCO BOARD
NameDate appointedDate resigned
Sir Anthony Cleaver1 December 2001 27 February 2004
Professor John Bull**4 October 2001 27 February 2004
Professor David Wallace**4 October 2001 27 February 2004
Professor Sir Alan Wilson**4 October 2001 30 September 2003
Mr Julian Gizzi*19 October 2001 25 March 2002
Mr Stephen Hocking*19 October 2001 25 January 2002
Mr Laurence Markham*19 October 2001 25 January 2002
Mr Richard Hooper25 January 2002 27 February 2004
Ms Elizabeth Selzer25 January 2002 27 February 2004
Mr Keith Bedell-Pearce25 January 2002 27 February 2004
Professor John Slater21 February 2002 27 September 2002
Mr John Beaumont4 March 2002 27 February 2004
Mr Rob Rowley25 March 2002 27 February 2004
Professor David Unwin1 October 2002 27 February 2004
Mr Eddie Newcomb (Chair)**25 March 2004
Professor Geoff Peters**25 March 2004
Professor Gerry McKenna**25 March 2004
Sir Ron Cooke**25 March 2004
Mr Bob Stubbs25 March 2004
* from Beachcroft Wansbroughs appointed for set-up period.

** appointed by HoldCo

REMUNERATION COMMITTEE

17.   Question 127

  We understand that the membership of the OpCo Remuneration Committee, drawn from the Non-Executive Directors of the OpCo Board, was until February 2004: Mr Richard Hooper (Chairman), Sir Alan Wilson (until his resignation from the OpCo Board in September 2003) and Mr Keith Bedell-Pearce. After February 2004, the new OpCo Board did not delegate decisions on remuneration.

18.   Question 134

  There were two OpCo directors (not at OpCo Board level) responsible for sales and marketing: Mr Nigel Bannister as director of Sales and Marketing who we understand concentrated on the retail market; Mr Michael Smith as director of business development who we understand concentrated on the corporate eLearning market.

  We understand that a bonus payment of 3% (based on 50% of his salary) was made to Mr Bannister in the period 2003-04 on the basis of his performance. We understand that no bonus payment was made to Mr Smith who left the employment of OpCo.

6 July 2004





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