Memorandum 5
Submission from the 157 Group
FURTHER EDUCATION
CAPITAL FUNDING
INQUIRY
Summary
1.
— This inquiry is of critical importance
to FE Colleges who have been placed in an untenable situation
which is affecting learners, communities and the reputation of
the sector as a whole.— Sir Andrew Foster's Report has
been widely welcomed by the sector. However key issues of funding
availability, transparency and proportionality need further exploration.
— The LSC has contributed significantly
in encouraging FE Colleges above their comfort and risk records.
There is an urgent need to review LSC financial management and
to provide the sector as a whole with a clear breakdown of financial
allocations thus far.
— No further public money should be
wasted. This means urgently reviewing agreed contractual arrangements
and honouring them as a priority.
— FE colleges should not be left "out
of pocket", and should be encouraged and rewarded to find
alternative routes to transform their own estate and "par
down" agreed plans to remove immediate pressure from the
central fund.
— The principle of "proportionality"
must be central in any agreed way forward.
The 157 Group
2. The 157 Group is a membership organisation
representing 26 of the largest successful Further Education Colleges
in the Learning and Skills Sector. The group was formed in 2006
in response to Sir Andrew Foster's report on the Future of FE
Colleges, where he argued that Principals of large successful
colleges, where the capacity exists, should play a greater role
in policy making and improving the reputation of the sector. The
Group has now established itself as a significant and influential
voice. We seek to influence policy development in education and
related policy areas, act as a peer reference network and support
the sector as a whole in quality improvement. The strength and
expertise of our providers gives us a particular insight on sector
developments, reinforced by our focus on ensuring that decision
makers hear directly the voice of the front line senior practitioner.
We do not see ourselves as a traditional "lobbying body"
but rather an advice and opinion service.
Context
3. The 157 Group are pleased that the IUSS Select
Committee has chosen to scrutinise Further Education Capital Funding,
currently an issue of critical importance to the Further Education
(FE) sector. It is important, first and foremost, to state clearly
that the Building Colleges for the Future (BCF) programme was
extremely warmly welcomed across the FE sector. In recent years
the extensive funding provided through the programme has allowed
the transformation of large amounts of the FE estate, with the
result that significant parts of our sector now have world class
buildings to support already excellent provision. It is therefore
more than unfortunate that the unprecedented level of investment
in our sector has been overshadowed by recent events.
4. The 157 Group was pleased to contribute to
Sir Andrew Foster's Review on Capital. We welcomed the final report
and agree that swift and appropriate action, which is both transparent
and agreed by the sector, is now the key challenge at hand. We
do not therefore wish to use this evidence to conduct a "post
mortem" into the events of the last few months. Rather we
see this as an opportunity to progress the capital issue, and
consequently will use this submission to raise the key immediate
priorities, often financial, of our members and share the 157
proposed future criteria for prioritisation. A summary of 157
member individual capital situations is available to the committee
upon request.
5. Whilst we wish to be part of a positive
dialogue on the future of capital funding, it is worth noting
for the record that the recent well publicised failings of the
Learning and Skills Council (LSC) in financial management, communication
and transparency have placed numerous providers in an untenable
situation, and we call upon government and its national agencies
to review the relationship between the central LSC office, local
LSC offices and DIUS to ensure that such a situation cannot be
repeated in future, regardless of government reorganisation.
6. As a group 157 have reached agreement
on a set of overarching criteria on which any prioritisation should
be based. Whilst we welcome the announcement on Capital funds
in the 2009 Budget we continue to seek clarification on how much
of the commitment is "new money" and how much will be
needed to fulfil the commitment to the eight projects that have
been given the go ahead. It is difficult to engage the sector
in a discussion on prioritisation without providing a breakdown
of the total resources available.
7. Our welcome to the capital funds announced
in the budget comes with a significant caveat. The £750
million fund allocated to future development projects equates
to a tiny proportion of the £5 billion ongoing FE capital
bids; figures which do little to still divisions over the future
funding of FE and concerns that as colleges are caught between
two funding departments, as a result of the Machinery of Government
changes, funding pots may be protectively guarded locally and
nationally, with the college sector effectively "falling
through the cracks". We would urge that serious consideration
is given to the proposition of creating an overarching capital
plan for education, particularly in the context of a Post MOG
landscape.
8. Many FE Colleges have been placed in
an impossible position by the miscalculation of funding availability.
Significant resources have been spent upon detailed project plans
and initiation, whilst large elements of the current estate have
been left to deteriorate in the expectation of investment. Colleges
now have fewer resources to undertake improvement works themselves
and are having to fund the servicing of large loans from the efficiency
savings arising from only partial redevelopment of their estates.
Both these all too real scenarios are having a negative impact
upon current learners, potential recruitment and staff. The role
of LSC local offices in requiring colleges to develop extensive
redevelopment plans has pushed many providers beyond their normal
risk boundaries with moderate and timely plans being expanded
into large scale, extensive rebuilds.
9. It is absolutely critical that a collectively
agreed resolution is identified and that confidence in a new process
of prioritisation and fund management is built across the sectors
component parts—individual providers, national agencies
and government departments. It should not be underestimated how
much recent press coverage has affected the reputation of the
sector in the view of potential learners, employers and the broader
public, potentially damaging our ability to respond to individuals
and employers at this extremely critical time. It is therefore
essential that we rebuild the reputation of our facilities and
consequently our offer.
10. To some extent every individual college
scenario is a "special case" worthy of individual consideration.
We note the pragmatic approach of the LSC and their consultants
to focus on shovel ready projects to prioritise the current funding
and the more measured approach for other projects that may have
a high benefit to their communities but are at an earlier stage
in the development. The real concern is that currently there is
no foreseeable funding for these projects in FE whilst BSF projects
will continue.
Key financial issues
11. 157 would stress the importance of applying
common sense to the financial challenge ahead. On reflection it
is clear that the financial planning of the LSC in relation to
capital was fundamentally flawed. It seems now inconceivable that
an original funding allocation of £2.7billion could be divided
and indeed effectively promised to such a large number of major
capital projects. A matter of utmost priority must be stronger
financial scrutiny. We would suggest that the LSC needs to review
its internal finance capability and ensure that expert personal
are in place to oversee and regulate these critical funds.
12. 157, alongside others in the sector, believe
that it is absolutely critical that where clear contractual arrangements
between providers and contractors exist they are speedily met
to prevent further significant amounts of public money being diverted
from their original purpose into the hands of lawyers and project
managers. At a time of economic downturn the wasting of valuable
resources in an attempt to extricate providers from good faith
contracts cannot be justified. Whilst 157 centrally and our members
have pressed on this issue we are still seeking clarity as to
how these issues will be resolved.
13. We would like to see DIUS commit to
restoring the status quo ante. That is releasing funds
to providers to cover the costs they have incurred, in many cases
running into millions of pounds, at the encouragement of the LSC,
up until this stage. At no stage were individual colleges given
access to overall capital data and consequently spent money in
good faith on officers' "promise". Morally therefore
providers should be compensated in a transparent and equitable
manner. The situation has affected the sector in its entirety
and we know that in some cases providers are now close to insolvency.
We would of course expect the test of reasonableness to be applied
to the risk decisions taken by individual college corporations.
The 157 group would want recognition for those colleges who through
sound financial management and limited risk taking are seeking
support. Equally recognising the size of the challenge some providers
are seeking support for creative solutions to improve their own
estate and minimise the sector's challenge as a whole.
14. Where appropriate, providers should
be allowed to develop elements of their estate using independently
raised funding with the assurance government would recognise the
significance of such a commitment and acknowledge these in future
spending commitments. Such a way forward would lighten the pressure
of a backlog of capital projects and, in the act of contracting
and building, stimulate the economy in and of itself.
15. The quality of existing estate is a
matter of key financial concern. Many "Category B" buildings
have been planned for demolition as part of large scale rebuilding
plans; these plans must be reviewed in light of the needs of providers
with buildings that are both unsuitable and potentially unsafe.
Transparency and proportionality
16. Few within the sector would disagree
that the capital process thus far has been far from transparent.
Despite wide ranging press coverage and a change in LSC leadership,
confusion is still abundant. For example, within the membership
of 157, providers have been given varying messages on when feedback
on status will be given. A centrally agreed and consistently locally
delivered communication strategy must be a priority. Time is also
of critical importance. Given the resource investment by colleges
and already substantial delays, a quick approval of projects is
necessary to prevent planning work, plans and agreements becoming
outdated and obsolete.
17. 157 members are frustrated that capital financial
data has not been forthcoming. The sector has still not been able
to see full lists of spend per capital funding round. It is our
assertion that we must understand spending patterns this far in
order to move forward. That is, we must get our history right
before we decide what the future should be. We call for a definitive
statement of spend thus far year by year and future commitments
as already agreed. Providing such information would be a valuable
step in rebuilding the sectors "ownership" of capital
funding.
18. Going forward it is clear that there
is a need for a principle of proportionality. 157 members strongly
argue that projects should match institution size, supported by
the expectation that colleges contribute funds to the project
based on realistic and sustainable affordability criteria, to
the project themselves. Such a policy would equate to managed
risk and the better distribution of funding. We are concerned
that one response to the challenge may be to spread remaining
capital funds thinly across the sector, assisting a large number
of providers with a small improvement programme. It is crucial
that institutions needs are assessed independently and that those
colleges which have a large estate are not effectively discriminated
against in order to generate a simplistic news headline of assisting
a large number of providers in an often insignificant way. Additionally
any new criteria should recognise the efforts by colleges to actively
reduce the size of schemes and limit their agreed plans to alleviate
funding pressure.
19. The "first come, first served"
approach as identified by Foster must not be replicated. Transparency
and sector divided prioritisation criteria are therefore key.
157 have begun to scope such criteria. We are keen to work with
partners to co-create and move the situation forward.
157 PROPOSED CRITERIA
Overarching Criteria
Once the extent of the government's commitment
to BCF is clarified, we propose the following overarching criteria
to prioritise college capital applications to ensure that the
investment goes to the right colleges for the right reasons.
2.1 Primacy should be given to the quality of
the Educational Case
A strongly evidenced Educational Case, which
will deliver for communities, learners and employers, must be
the key criterion in approving investment, eg:
— projects with an emphasis on 14-19
growth and contribution to key Government targets relating to
ROCPA, reduction in NEETs, Foundation Learning Tier development
and introduction of Diplomas, etc;— projects that will
have a major impact on educational disadvantage, social inclusion
and community cohesion;
— projects which are connected to the successful
development of other educational sectors and local and regional
economic and social development;
— projects that will promote collaboration
and sharing across public services, eg with schools, universities,
and community and public facilities, etc.
Acceptance of the centrality of the Educational
Case does not mean that the Property Case is not relevant, as
eg:
— there are many colleges where essential
works are a priority to deal with old and unfit buildings that
often have serious health and safety issues; and
— account should be taken of plans
for innovative, leading edge buildings which facilitate 21st century
learning (ie innovative delivery of integrated learning, skills
and related employment services) and score highly in terms of
sustainability and environmental impact.
Such property factors should, however, have
a secondary impact on the approval process. It is undoubtedly
the case that many existing applications have been delayed, disrupted,
and made much more expensive by the Property Case being seen as
paramount by the LSC
2.2 There must be clear proportionality in the disbursement
of capital funds. Large, successful colleges delivering to many
thousands of young people, adults and employers should receive
capital support in proportion to their size, impact and contribution
to meeting national education and training targets. There is clear
evidence from the projects already approved, and through those
currently in the pipeline, that proportionality has not been sufficiently
recognised as a key criterion, with many smaller institutions
receiving disproportionate amounts of investment. The financial
scope of capital projects should be clearly related to the size
of a college's revenue budget.
In this context, two other factors are also
significant:
— Sixth Form College applications,
given the effect of The Apprenticeships, Skills, Children and
Learning Bill 2008-09, should be transferred to the BSF Programme
and resources should also be transferred from BSF to BCF to take
account of the costs of Sixth Form College projects already approved
under BCF.
— If capital funds for BCF do become scarce,
then the extension of the programme to non-college and private
sector providers is extremely problematic.
2.3 The sharing of financial risk and the impact
on College financial health must both be taken into account in
the revised LSC model.
— The Secretary of State has said in
Parliament that many colleges have been "encouraged"
by the LSC to invest significant revenue funding in preparing
their capital strategies and projects. It has been estimated that
in 2008 alone colleges collectively spent over £100 million
on the set-up costs of their capital projects, a figure in excess
of the combined surpluses of the same colleges. The total revenue
at risk is probably well in excess of £200 million (with
members of the 157 Group alone risking upwards of £100 million).
Unless some means is found of appropriate reimbursement from the
LSC/DIUS, there is a huge risk to the financial stability of many
colleges who are well managed and successful institutions. Legal
action may be inevitable if college corporations/boards are to
fulfil their fiduciary responsibilities.
Extending the building and loan period will
put further pressure on colleges for whom the LSC have already
identified maximum safe borrowing limits. It will also require
a bigger contribution from financial institutions already struggling
to respond to market demands and will lead to serious financial
issues for some colleges.
2.4 An explicit, criteria driven and open allocation
system where decisions are transparent and clearly communicated
must be the corner stone of the revised LSC methodology. Much
of the difficulties and disaffection that colleges feel with the
current system is directly related to poor communications and
a reluctance to share the basis of application approvals openly
with the sector. We would also comment that the Capital support
fund should only be used for supporting capital projects. Exceptional
support for other purposes should have its own transparent and
separate fund.
May 2009
| 
