Memorandum 6
Submission from the Learning and Skills
Council (LSC)
1. INTRODUCTION
This memorandum refers to the FE capital programme,
the events relating to its funding and administration up until
the Foster review and the steps now in place to continue the programme.
2. BACKGROUND
2.1 The purpose of the FE capital programme
is to support the refurbishment and renewal of the FE college
estate. The LSC is responsible for the administration of this
programme.
2.2 During 2008 it became clear there was an unsustainable
rise in demand from colleges for capital funding. In December
2008 the decision was taken to defer all approvals of capital
projects until detailed work had been undertaken with colleges
to establish a fuller understanding of the situation.
2.3 On 23 March Mark Haysom resigned as Chief
Executive of the LSC. Geoffrey Russell was immediately appointed
as acting Chief Executive with the immediate task to increase
the certainty and clarity around the capital programme.
2.4. Geoffrey Russell appointed an external
team from Grant Thornton to review the financial data held by
the LSC about capital projects. He also appointed a new Director
of National Projects to take responsibility for the capital programme
and to work with a new sub group of the Council charged with overseeing
the programme.
3. THE FOSTER
REVIEW
3.1 When concerns were raised about the future
of the funding project the chair of the LSC and the Secretary
of State, DIUS, jointly commissioned Sir Andrew Foster to conduct
an independent review. Sir Andrew was asked to consider the causes
of the increased demand for funding, LSC's internal processes
and the lessons to be learnt for the future.
3.2 Sir Andrew Foster reported his findings on April
1st. He concluded with eight recommendations:
3.3 Recommendation 1 called for immediate "agreement
on how the present demand-led approach can be supplanted by a
needs-based approach with explicit priorities and choice criteria."
The LSC support the move to a needs-based approach. We have now
worked with stakeholders to develop new criteria and designed
a process by which future bids for capital funding will be prioritised.
We expect the first stage of the prioritisation process to be
finished by the end of June in order for the LSC to approve a
small group of college projects to proceed this summer. Further
information about this process can be found in section 5.
3.4 Recommendation 2 called for "an early
and open process of engagement and consultation between DIUS,
the LSC and the college sector." Since the report the LSC
have already started a consultation process including the use
of a reference panel of college principals and representative
college groups convened by the AoC and we are also consulting
widely with Regional Development Agencies and local authorities.
3.5 Recommendation 3 called for processes to
be "grounded in fully accurate and detailed information about
capital schemes in the pipeline." He also suggested "there
should also be a preliminary mapping of potential needs indicators
to assist the discussion process." The LSC now has detailed
information on all existing capital schemes and those in the pipeline.
We have engaged Grant Thornton to independently verify the accuracy
of the information currently held. We have also worked with specialist
advisers who will independently apply the agreed criteria to projects
in the pipeline to provide confidence that the resulting proposals
will be fairly determined.
3.6 Recommendation 4 focused on a realistic
assessment being required of individual colleges that have incurred
expenditure, with high expectations, but have no guarantee of
final approval for their proposals." An initial assessment
of costs already incurred by colleges with Approval in Principal
has been carried out. LSC regional finance teams are working with
these colleges to establish their financial position and to address
any cash flow issues. The LSC has given a commitment that no college
will become insolvent as a result of capital project delays. The
LSC and DIUS are developing a policy position on how to deal with
the legitimate costs incurred by colleges where their project
may not now proceed in the near future.
3.7 Recommendation 5 stated that in "order
to achieve speedy implementation, it will be essential to have
a blended approach of open consultation with the sector, matched
by a small dedicated project management group which drives a highly
organised programme across LSC and DIUS levels." In response
a joint project team involving LSC and DIUS staff was set up with
David Hughes appointed to take personal responsibility for LSC's
capital programme, with the additional support of a senior finance
director within the LSC. The LSC will be making further changes
to the way the capital programme is managed which will help in
this transition year from the LSC to the SFA and YPLA. We hope
to be able to announce these changes, along with wider management
arrangements shortly.
3.8 Recommendation 6 involved talks being held
with HM Treasury. The Budget on April 22nd saw an announcement
of further funding for capital projects.
3.9 Recommendation 7 called for "future
development to take place in the context of a comprehensive and
competent financial strategy that supports needs-related planning."
The LSC is working with DIUS, colleges and stakeholders to assess
the priority needs for the future. This assessment will provide,
by Spring 2010, clarity on future needs and funding requirements.
On this basis, a new financial strategy will be developed for
the SFA, YPLA and local authorities to take forward in the discussions
for the next spending review.
3.10 Recommendation 8 asked for "active
consideration to be given to the future working arrangements of
the Skills Funding Agency and the Young People's Learning Agency."
Discussions are underway with DIUS, DCSF and local authority representatives
about the future arrangements for capital in the Skills Funding
Agency and the Young Peoples Learning Agency. The new arrangements
include regulation and oversight of capital by DIUS and DCSF,
a new financial strategy and best practice procurement methods.
4. BUDGET 2009
4.1 The Budget announced additional capital
funding of £300m in the current CSR period. This will allow
the LSC to give approval to a limited number of projects starting
in 2009-10. Recognising the long-term nature of capital projects,
the Government is planning to continue FE capital investment programme
in future years, with a planning assumption of £300 million
a year from 2011-12 to 2013-14 to be confirmed at the next Spending
Review. This provides a provisional £1.2 billion in total
to 2013-14. Following the Budget announcement the LSC has written
to all College Principals detailing the new funding and how this
will be allocated.
4.2 Although such commitments into the next spending
round are provisional, this is welcome news and should allow us
to develop around £750 million of new schemes. We feel there
are three main areas of interest to the Select Committee moving
forward.
4.2.1 How we intend to use the needs based criteria
in relation to the additional £300 million in 2009-10 and
2010-11 to identify those with the most urgent and greatest need
projects, as well as the approach we intend colleges to take in
prioritising projects for the next spending review period.
4.2.2 How we support colleges which have incurred
costs in developing their project proposal and in anticipation
of their project being approved.
4.2.3 How we ensure we deliver greater value
for money on capital projects.
5. NEXT STEPS:
PRIORITISING PROJECTS
5.1 To maintain objectivity we have appointed
PricewaterhouseCoopers (PwC) to assist in the drafting of the
LSC's project selection criteria, as well as in the development
of a scoring framework and assessment process which we hope to
use for the first time in helping the Council select a group of
projects at its meeting on 3 June 2009.
5.2 The Foster report made it clear that the criteria
should be needs-based and set in the wider context of learning
and skills. The LSC has therefore put together draft criteria
to reflect that recommendation.
5.3 The LSC proposes the following criteria
are used to prioritise projects. We will be as inclusive as possible
in consulting on this, but have very tight timescales to meet
in order to deal with these urgent issues; our aim is to finalise
by 15 May in order to have new projects selected at the 3 June
National Council meeting.
5.4 A key part of the consultation, based on
the recommendations in the Foster report, has been discussions
with a panel of college Principals convened with the support of
the Association of Colleges. This panel met on 29th April and
provided important input. We are also consulting with the Local
Government Association and the Regional Development Agencies.
5.5 The first stage of prioritisation is readiness,
Colleges with project applications awaiting in-principle or detailed
approval will be asked if they consider their projects can commence
on site within three months or so. To meet this timetable we have
appointed property consultants Lambert Smith Hampton (LSH), to
review all of the capital applications currently extant. Their
first priority is to identify those projects that are ready to
be on site and building this summer. Projects which pass through
the readiness gateway will then be assessed against the other
criteria.
5.6 Criteria. We propose that once readiness
is agreed the following criteria are used to prioritise projects:
— Education and skills impact—this
criterion assesses the extent to which the project addresses current
and future education and skills need and supports industrial activism.
— Contribution to local economic and
regeneration priorities—this criterion considers the wider
economic and regeneration impact of the project.
— Co-dependency with third parties—this
criterion looks at the practical implications of not proceeding
with the project and the leverage ratios involved.
— Condition of estate—this criterion
evaluates the condition of the existing estate and the impact
on learners and the extent to which they are addressed by the
project.
— Value for money—this criterion
assesses the extent to which the project demonstrates that it
has gone through a process to maximise value for money.
5.7 It is clear that the urgent and greatest
need projects will not include the majority of college projects
which either have Application in Principle approval, or have been
seeking such approval. We will therefore have a separate process
for these and other new proposals from colleges which will provide
us with a new needs-based priority list of projects. That priority
list will be used to approve projects as and when funding becomes
available in the next spending review period. We expect this prioritisation
process to be based on the same criteria set out above.
5.8 We propose a swift, streamlined and transparent
selection process for the first round of project prioritisation.
This process needs to be completed quickly so that projects can
start on site as soon as possible.
6. NEXT STEPS:
INCURRED COSTS
6.1 The LSC recognises that colleges with projects
that cannot go forward now for funding in this year or next may
have to write off some development expenditures in their accounts.
The LSC will work with each college with the help of independent
property consultants to assess how the longer term value of expenditures
can be maximised, as well as to understand the nature and extent
of any liabilities. Through its normal financial intervention
process, the LSC will ensure that no college is unable to meet
its financial obligations as a result of decisions on capital
projects.
6.2 Once we have a full analysis of the costs incurred
and their nature, we will be able to identify those cases where
a contribution to such costs from the LSC may be justified. The
LSC has advised colleges that they should continue to avoid committing
any further expenditure on the development of projects where there
has not been full approval to go forward.
7. NEXT STEPS:
ACHIEVING GREATER
VALUE FOR
MONEY
7.1 As with the urgent and greatest need projects,
there is no doubt that there has to be a new focus on achieving
value for money as we go forward with this programme. The expectation
is that all colleges will consider the scale, scope and costs
of their projects very carefully; with limited funds we will want
to ensure that we maximise the impact for learners, employers
and communities in every project we approve.
7.2 We have instructed Lambert Smith Hampton to review
all of the projects in the pipeline that are now unlikely to proceed
for the time being so that we can review their scope, scale and
timing. We want to have the best possible information to hand
to inform the comprehensive spending review next year when there
may be a further chance to seek additional funds.
7.3 These college-by-college reviews will include
detailed analysis of spending on project costs. This will be an
extensive process, as there are potentially more than 150 projects
to be considered. The process will include colleges completing
a self-assessment questionnaire. Through bringing in consultants
we aim to complete the work as quickly and as objectively as possible.
In the taxpayers' interest, we will also be very hard nosed in
driving for much better value for money.
May 2009
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