Page last updated at 16:04 GMT, Tuesday, 28 July 2009 17:04 UK

College rebuilding 2.7bn in red

building site
MPs say several rebuilding projects face "considerable uncertainty"

A string of colleges face serious financial difficulties because of a mismanaged national rebuilding scheme, an MPs' report says.

The Learning and Skills Council, which oversaw the scheme, allocated £2.7bn more than it could afford to rebuild England's further education colleges.

The Public Accounts Committee said this had left projects beset with "considerable uncertainty".

The government said mistakes had been made but the way forward was clear.

The committee based its report on evidence given to the Commons innovation, universities, science and skills committee, which earlier this month condemned the "catastrophic mismanagement" of the scheme by the Learning and Skills Council (LSC)

'Inadequate financial health'

The PAC report gives the detail of exactly how much money was involved in the troubled scheme to rebuild or refurbish England's further education estate.

It accuses the LSC of over-stimulating the demand for funding and mismanaging the approval process, so much so that 79 projects were approved that it could not afford.

It also says that the then Department for Innovation, Universities and Skills should have realised that the LSC - which is in the process of being disbanded - was mismanaging the scheme at an earlier stage.

As a result, some 23 colleges have long term debts exceeding 40% of their annual income - the level generally agreed to be stable.

And 13 of those are now deemed to be at risk because of "inadequate financial health", with many having to stump up millions of pounds to win LSC funding.

However, regulations governing college funding mean that the LSC cannot allow these colleges to become insolvent.

PAC chairman Edward Leigh said: "The future of the programme is now beset with considerable uncertainty which must be dispelled as soon as possible.

"Some colleges are heavily committed to projects on which they have incurred costs. Some straight talking is needed from the council so that colleges in this position are aware of the difficult decisions they will have to take."

He added: "There remains a risk that some colleges are taking on more debt than they can reasonably service.

"The council must keep under close review the financial health of the further education sector, especially in the current economic downturn."

The LSC must assist any colleges placed in financial difficulty as a result of preparing, in all good faith and with due diligence, for a building project
Martin Doel
Association of Colleges chief executive

Skills Minister Pat McFadden said that since the college building programme began in 2001 it had rebuilt or renewed over half the further education estate.

"The report recognises its achievements: schemes have provided good value for money, are of high quality and have brought real benefits for learners.

"Ministers have acknowledged the mistakes that were made and have already made improvements to ensure rigorous management going forward, based on the recommendations of our own independent review."

He added that there had been open consultation with the college sector and colleges now had clarity about how the programme was being taken forward.

Alternative funding

LSC chairman Chris Banks said it had commissioned an independent review of the problems.

"We have acted swiftly and with determination to implement the recommendations from the review, which have been designed to get the programme back on track, to the extent that available budgets allow.

"That includes a robust prioritisation of projects for the next phase of the programme."

Chief executive Geoff Russell added: "We are confident that we have understood the lessons from the past and have adapted our working practices to the current funding environment.

"We are working together with the sector to explore alternative financing options to support more college projects to be built."

But the Association of Colleges said the LSC had a clear duty to ensure - for the good of the millions of students that colleges served - that the sector remained financially healthy and stable.

Association chief executive Martin Doel said: "As such, it must assist any colleges placed in financial difficulty as a result of preparing, in all good faith and with due diligence, for a building project.

"In addition, to avoid a repetition of problems on this scale there will need to be effective scrutiny by government of the successors to the LSC.

"New agencies should not lead to new complexities and new problems."

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