Speech at the Westminster Education Forum – 04/02/2010

‘Spend, spend, spend - the mismanagement of the Learning and Skills Council's capital programme in further education colleges’

The Building Colleges for the Future programme was a launched in a blaze of glory in 2008 as a flagship endeavour for the Department of Innovation, Universities and Skills (as it was then) and the Learning and Skills Council.

For FE this was the biggest investment EVER made in the sector.

John Denham hailed it as an opportunity to ensure that ‘learning is delivered in inspirational, innovative and sustainable environments equipped with industry-standard facilities’

And lauded its success with 700 projects agreed at 330 colleges.

It is clear that something went terribly wrong, and the Select Committee of which I was then Chairman, the Innovation, Universities, Science and Skills Committee, set out to find out what.

We were prompted to do so following a plea from the 157 Group strongly supported by the AOC.

We did not want to re-run the Foster Inquiry but examine what went wrong, where accountability fell, and what was being done to restore the sector’s confidence in the scheme.

We were inundated with written submissions and took oral evidence from the key players.:

From DIUS:
Rt Hon John Denham MP, Secretary of State for Innovation, Universities and Skills, and Stephen Marston, Director General, Universities and Skills, DIUS.

From the LSC:
Mark Haysom CBE, Former Chief Executive of the Learning and Skills Council
Chris Banks CBE, Chairman; Learning and Skills Council
Geoff Russell, Acting Chief Executive; Learning and Skills Council
David Hughes, National Projects Director, Learning Skills Council.

And from the colleges:
Martin Doel, Chief Executive, Assoc. of Colleges;
Graham Moore, Principal, Stoke College, and Chair of the 157 Group;
Dr John Blake, Sussex Downs College.

And what the committee found was really quite troubling…

The witnesses revealed that LSC senior management failed to consult regional directors often enough about programme finances and the then Chief Executive

and Chairman had no process for regular review of the programme’s future direction.

The LSC’s risk management process failed to identify potential major problems and DIUS did not acknowledge poor risk management at the LSC in its 2008 Annual Report ‘risk table’.

And the National Audit Office failed to sufficiently highlight the problem in their 2008 report Renewing the Physical Infrastructure of English Further Education Colleges

Perhaps most worryingly of all, the problems to come were forecast with unnerving accuracy in an internal review commission by the LSC itself in December 2007. It said:

‘From 2010 to 2013 however, if current policies did not change and the tempo of capital projects is maintained, the demand for capital grant payments moves in 2010-11 up to £450 million above the funds available for FE projects… the current payment profile of projects is unaffordable’ - 2009 Foster Review, The Capital Affordability Review

Crucial warning signs were not recognised and difficult decisions about how to rank projects were deferred. Both the LSC and DIUS failed to consider the long-term implications of what they were doing. There was a total failure to pick up messages from the sector or apply common sense about the scale of commitments being made.

Far from trying to damp down increasing demand in 2008 the LSC had been encouraging it. The LSC disputes individual colleges’ claims that they were encouraged to – using a term a witness told the Committee – “big up” their projects.

But the Committee was told by one college principal that a project which had initially been going to cost £8 million was transformed into one costing £175 million.

The extent to which LSC regional staff were actively involved in “bigging up” projects is still a matter of dispute between the colleges and the LSC, but the Select Committee decided that the LSC's language - particularly the use of phrases like "once in a generation opportunity" and even in January 2009: “there is a strong association between new buildings and high achievement” - was building up a 'bid now, and bid big' culture among colleges, which contributed to the funding crisis.

The Committee ultimately concluded that ‘It is, above all, a sorry story of management within the LSC compounded by failures of government oversight within DIUS which is likely to cost hundreds of millions of pounds.’

The Committee published our report, ‘spend, spend, spend - the mismanagement of the Learning and Skills Council's capital programme in further education colleges’ on 6th July 2009.

The problems with the Building Colleges for the Future Programme were clearly far-reaching, and had a dramatic impact upon colleges, and potentially their students, across the country.

About 150 colleges that drew up schemes under BCF have little hope of seeing any Government money in the near future.
We recommended:
All national capital programmes should have an agreed in-built mechanism for prioritisation from the start, even if they initially under-spend.

A review takes place across the whole of Government of the operation of Non-Departmental Public Bodies

DBIS and the LSC must ensure that the arrangements for compensation for colleges’ sunk costs are settled urgently

A small amount of government funding must be made available to support colleges who wish to raise alternative finance for their projects, and the potential to involve HEFCE and local authority funding investigated

Colleges must be assisted to share best practice and contacts or reduce costs through shared use or redesign.

The new BIS committee must maintain scrutiny of how LSC deals with Train to Gain and Adult Apprenticeship funding.

The committee called for a review the way all such quangos operate, so that such a situation could not happen again.

On the 14th October 2009 the Government issued its response to our report accepting its main thrust and admitting mistakes had been made.

Admitted to a complete failure in communication between DIUS and LSC, with little consideration for long-term consequences.

Called for a more stringent set of decision making criteria that included national and regional priorities, as well as the educational case and value for money.

Conceded that ‘the fact the LSC's weak risk management system was being addressed as these events were unfolding, and that even as a result of this the capital programme was not identified as a major potential problem is astounding’.

The Government also criticised the National Audit Office’s 2008 report; stating that if it had been ‘more hard-hitting’ the spending gaps could have been averted.

The Government entirely disagreed with the Select Committee’s belief that colleges would not have "bigged up" their projects without direct encouragement from regional officers or national directors at the LSC.

However, they admitted that the use of phrases such as "once-in-a-generation opportunity" and "a strong association between new buildings and high achievement" were irresponsible and bound to build up excess demand that could not be satisfied.

They conceded that, with funding opportunities scarce, a number of worthy cases would miss out, citing that only 13 out of 180 projects submitted to the LSC would go to the next stage of consideration. These colleges were told to “substantially reduce the cost and scope of their projects and review other sources of funding".

For the others there is "no prospect of getting their projects funded this CSR.”
The Government were quick to mention policy decisions which meant that the LSC would reimburse all costs it had committed to under its fee support arrangement. In addition, it stated that: ‘the LSC will ensure that no college will be allowed to become insolvent as a result of decisions taken on the capital programme’.

Whilst the LSC’s decision to reimburse all costs committed to under its fee support arrangements should be welcomed, this simply does not go far enough.

The LSC decision to insist on fully-costed and ready to go schemes before final approval required colleges to incur heavy expenditures between ‘Approval in Principal’ and ‘Approval in Detail’ stages.

None of this has been reimbursed for the non selected projects. This has left colleges with significant financial burdens that are not faced by schools potentially delivering equivalent post-16 provision.

What is clear is that the major focus now must be upon supporting all colleges to find a positive way forward in developing their ‘Capital Strategies plan B’. Addressing issues such as VAT and guaranteeing three year revenue flows for colleges would significantly help in securing alternative capital funding streams.

By April, the LSC will have disappeared and FE will be the responsibility of local authorities and a new Skills Funding Agency.

In the meantime, colleges that show they are "financially weak" as a result of costs incurred drawing up schemes may receive some help from the LSC.

There will, however, be no across-the-board refunds.

It is crucial that in the future organisational confusion on such a scale must be prevented at all costs as the number of bodies accountable increases from three (LSC, DIUS, DCSF) to five (Department for Business, Innovation and Skills, DCSF, Local authorities, Skills Funding Agency, Young People's Learning Agency).

The lessons we learn from this fiasco must not be lost in this transition, or in the possible transition to a new Government following the general election.

Despite the struggle for resources, and difficulties caused by upheaval surrounding the building programme, the UK’s FE colleges continue to provide a world-class service.

We must not forget that, despite the problems of the College Capital Programme tens of thousands of students are now receiving their education in world class facilities as a result of this investment.

Ends.