Examination of Witnesses (Questions 120-139)
MR MARTIN
DOEL, MR
GRAHAM MOORE
AND DR
JOHN BLAKE
20 MAY 2009
Q120 Mr Boswell: Even right up to
the summer of last year?
Mr Doel: Those conversations were
still going on and that was the National Capital Team coming round
to say, "No, it is not sensible for you to leave part of
your estate untouched, you should be coming up with a plan to
refurbish the whole of the estate." That may have been through
phased development. The other phenomenon which is worth bearing
in mind is the connection to merger activity. Several merger proposals
would have gone through last year which would have associated
capital expenditure in relation to their merger proposals and
on those capital expenditure programmes we had several letters
to that effect noting the requirement for capital support in order
to see through the merger. Those were about providing modern,
high-quality buildings, fit for the 21st century and there are
statements to those types of effect. The final thing I would say
is a term which has been bandied around a good deal during this
period—and I understand it and I was there—is that
this was a "once-in-a-generation rebuild", a "once-in-a-generation
opportunity". I have to say in that period I did raise with
the LSC in the middle of last summer the fact that I was not seeing
a once-in-a-generation maintenance programme to go with this once-in-a-generation
rebuild of the estate. That was the only exchange I had with the
LSC about infrastructure matters ahead of September.
Q121 Dr Iddon: Sir Andrew Foster
has used the expression there was a "champagne moment"
culture and certainly the figures that you have just given, Dr
Blake, £8 million for a modest bid up to £175 million,
would astonish anybody. Can you explain what they were encouraging
you to jump to at £175 million? What were you bidding for
at £8 million that you really needed and what were they preparing
to deliver for you at £175 million?
Dr Blake: £8 million was
just to replace the worst piece of accommodation at the college,
which is a sixth form college called Park College, and the process
was essentially to say that this aspirational culture leading
to world-class buildings, as Martin was saying, meant that all
of our campuses and all of our accommodation stock should be replaced
or renewed, and that is how you eventually get to £175 million.
Q122 Dr Iddon: How many colleges
would that be?
Dr Blake: That is three sixth
form colleges and three parts of the college that deal with 19-plus
activity.
Q123 Dr Iddon: It has already been
intimated this morning that people realised with the astonishing
bids that were being encouraged by the LSC that things could not
go on in this way. Do you think the college movement had some
responsibility for saying to the LSC, "We are in dreamland
here"? Did anybody flag this up as a serious issue?
Mr Moore: Can I say that the issue
I think is transparency. If this information had been published
and was freely available then there could have been an informed
dialogue between the Government, the LSC and colleges. As it was
it was all on a one-to-one basis. You were encouraged to think
about your needs for your college in your community and you were
not encouraged to think about the totality of the picture nationwide.
What would you do with colleges around you being encouraged to
improve? You would want to make certain that you had the best
facilities for your students in your community, so your focus
as a college was very much what is the educational case—and
we did have to make a strong educational case—what was that
going to cost, what would we like to do. Most of those bids were
bigger than I think they should have been if we had taken account
of the constraints that the budget was placing on us and our expectations
for the future. If the expectations for the future were that money
would continue to flow then this was a good idea.
Q124 Dr Iddon: Many colleges had
proceeded before they got approval in detail and incurred quite
considerable costs. Why did they not wait?
Mr Moore: I think it is very important
to understand if you want to get to approval in principle you
have to have plans at stage C. You have to engage a professional
team of architects, civil engineers and so on to get to that point.
If you get approval in principle you then have to spend a large
tranche of money to get to approval in detail because this is
a fully costed contract where if you get the money you sign the
contract and you start work the following day, the "shovel-ready"
concept which we hear about. That is not done cheaply. In our
case it would cost about £5 million. We had spent £2.7
million when we were told to stop and other colleges were in the
same situation. Some colleges might have decided to demolish certain
life-expired properties in preparation for that work. Their corporations
would have known that that was at risk and they would have decided
within their budget whether or not they could afford to take that
risk. I do not think any corporations felt that they were taking
significant risk, in fact it was a requirement: if you wanted
to get AiD and you got AiP you could do nothing but spend that
money. That was absolutely essential.
Q125 Dr Iddon: Perhaps in coming
in, Martin, you can give some estimate of how much money has been,
I guess, wasted in some cases by having to stall so many schemes?
How much money have we incurred that might have to be incurred
again?
Mr Doel: Certainly in the sector,
and this is self-reported to us, we estimate that £220 million
will have been expended by colleges on capital programmes. If
those programmes go forward and that expenditure is capitalised
then clearly that money is used. Some part of that, though, if
we do not move forward on all those programmes, will be sunk costs.
Q126 Mr Boswell: Can we just unpack
what that is. Is that largely the kinds of costs that Graham was
talking about, the pre-contract costs for the professionals, consultants
and so forth, or in certain cases is it actually for example demolition
and building costs?
Mr Doel: In some cases it will
be things like land purchases, it will be planning permissions
which have limited periods of times, and prefunding. What I would
say in terms of the programme as a whole is one of the keys of
success in delivering projects at the individual project level
on time and to budget has been the fact that money has been committed
forward to the tune of somewhere around 15% ,in order to establish
cost certainty and delivery. That in itself put colleges in a
risky position but on the individual projects did allow them to
deliver on time and to spec. It will be a combination of professional
fees, plans and enabling works. Also I think you need to take
account of the fact that in some of these programmes they are
multi-phased developments so therefore the programme was rolling.
They were split into those phases, successive AiPs and AiDs, so
it made sense to continue these things.
Q127 Mr Boswell: So you had some
upfront expenditure?
Mr Doel: Yes, that is right.
Q128 Mr Boswell: As we have opened
this issue, it is obviously very important to the inquiry, can
I ask you a little bit more how this dialogue is now going on
with the LSC and DIUS. I do not think anyone is canvassing for
legal action if we can avoid it but is this something that the
sector is taking on and having a dialogue on? Is it a matter of
negotiation with individual colleges to resolve their issues?
To put it crudely, are there writs flying around or is there a
hope that there will be an understanding to resolve and, if possible,
recover or meet some of these costs?
Mr Doel: We are waiting for greater
clarity as to what will be allowed as recoverable costs for colleges.
There has not been clear guidance on what will be recoverable
for those colleges.
Q129 Mr Boswell: Is that in contrast
to the future scoping of the capital?
Mr Doel: The LSC are currently
in the process of understanding what costs colleges have committed
and what they would consider to have been reasonable in that process
up until January.
Q130 Mr Boswell: Have they admitted
"liability" at least in terms of reasonable costs?
Mr Doel: They have acknowledged
that there is a fees remission scheme that they would observe
but where the additional costs and where the balance of remission
lies, if you like, we have yet to see. That will be one of the
key elements after the forthcoming Council meeting where they
may announce further expenditure for some colleges. The key point
for us will be what clarity colleges will have on the funds returned
to them and how that will be treated on their balance sheets in
order that they can begin to work out their own responses to the
situation that they find themselves in and having that clarity
going forward.
Q131 Mr Boswell: Two very quick and
technical issues. One is delivery: is anybody not being taught
who would have expected to have been because facilities have been
removed in anticipation? That is question one. The other one for
time I will do together: is there a possibility that some of this
cost recovery that we have just been talking about will come out
of the pot of money that was announced in the Budget?
Mr Doel: On the first, I am not
aware in this academic year of anyone who is not receiving training
or education who would have aspired to have received it. Next
year will be more difficult in terms of the plans that colleges
will have made in order to expand their provision to meet growing
needs, and therefore the hiatus may put a ceiling on their ability
to respond, but in most cases colleges are very resilient and
responsive and will do the very best to support the communities
within which they work. In terms of the allocation of the funds
for fees remission and costs, I would have to say that not withstanding
there has been greater involvement in the sector representative
bodies in the LSC's considerations in this matter, which has been
very welcome indeed, I do not have the clarity on what funds would
be available in order to remit fees and whether or not that will
be part of the extra funds granted within the Budget or part of
the LSC's normal running. It is just not capable of being known
at this stage.
Q132 Mr Marsden: Graham and John,
can I just come back to you on this business of how the whole
thing was scaled up and how you were encouraged in a once-in-a-lifetime
opportunity, et cetera. Did either of you when that was being
communicated to you by LSC officials have it put in the context
of your region in the sense of, "It is £500 million
going in to our region; you could put a bid in for 70," or
whatever? I just want to know whether was any regional context
put on this.
Mr Moore: I think there was an
attempt to do regional planning but that fell by the wayside as
the quantity of bids increased.
Q133 Mr Marsden: No-one ever came
to you and said, "You had better put this in because there
is only so much money available in our region"?
Mr Moore: I was aware that they
built up a regional picture from the individual colleges but it
was not the other way round.
Q134 Mr Marsden: I am sorry to press
you but you never got any figures?
Mr Moore: We did not.
Q135 Mr Marsden: Was that true of
you as well, John?
Dr Blake: We were never aware
of any co-ordinated approach like that.
Mr Moore: Chairman, I am very
conscious that we are running out of time and there are one or
two points that we would like to make if possible which look forward
because we have been spending all the time looking backwards.
Chairman: We are coming on to that. We
have plenty of time, do not worry!
Q136 Mr Boswell: Just to go back
on a point on the structural issue rather than the cost issue.
From something Graham said a little bit ago, and the exact words
may have escaped me at the time, what I am not clear about is,
first of all, whether a concerted dialogue, whether it be on capital
or maintenance or tuition costs or current costs, was ever really
conducted between the colleges and the LSC, because the inference
was that there was no sort of mechanism whereby this could be
brokered early on. That is question one. Then there is also an
issue which concerned us last week on which we heard evidence,
the question about whether the underlying agenda of the wind-up
of LSC in 2010 was in a sense playing into this? My question to
put it simply is: has there been a face-to-face relationship?
If there had been, was there a change in that relationship and,
if so, was that change in the relationship occasioned by the fact
that the LSC was no longer continuing but was a body in the process
of winding down and dissolution?
Mr Doel: Having looked at the
evidence of other people to this Committee, and also the Foster
Report, even if there had been transparency last year, I am not
persuaded that the LSC had the processes and procedures in place
to understand where the cash flow was and they were not managing
the matter in an effective manner.
Q137 Mr Boswell: Although they are
the largest spender?
Mr Doel: I do not think it was
managed in an effective manner such that they would be able to
communicate a comprehensible picture to the colleges. Point one.
In terms of the winding up of the LSC and in terms of attention
being elsewhere, which I think was advanced by some as a significant
factor in this, I would put it as a contributory factor. If the
risk management processes, cash flow management processes and
oversight processes were in place management would have had no
alternative but to give attention to what was one of the largest
programmes running within the LSC. The failures of the processes
in place played into the communications problem, which then played
into the inability to communicate the situation to colleges. Having
said that, I am still concerned about the lack of transparency
and the way the LSC does its business. If I give you an example
in that regard. HEFCE publishes within a very short period after
each of its Council meetings the full minutes of those meetings
in consideration to the sector that they support and fund. The
LSC does not. The minutes of the Council meeting in December were
only released after a Freedom of Information Act request. I have
requested a copy of the minutes of the meeting of the National
Council in March and have yet to see the full minutes of that
Council meeting despite having requested them. In that regard,
even though that is slightly in rear view mirror terms, that speaks
to a way in which business is done which is not helpful at all.
I do believe the way in which the LSC is now conducting its business
is changing in that regard, but it does speak of a lack of transparency
in the way that they do their business.
Q138 Chairman: Can I pick up on that,
Graham, and really pick up the point that you were trying to make
earlier. The Capital Reference Group met on 29 April to actually
plan the use of the current remaining capital and also the additional
resources which were being put in by the Budget, the extra £300
million. Given the comments that Martin has made and looking forward
now are you content that that Capital Reference Group has actually
(a) prioritised and (b) given the sector the sorts of assurance
it needs in order to be able to now deliver what after all is
a pretty exciting overall programme of refurbishment and redevelopment
of the FE estate?
Mr Moore: As John is our representative
on that group—
Q139 Chairman: John, I should have
asked the question of you, it was very remiss of me.
Dr Blake: We have only had one
meeting. That is the first thing to say.
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