Why FE college groups could be heading for catastrophe

Over the past decade, the spread of multi-academy trusts has transformed the school landscape. Colleges, meanwhile, are still constrained by legal structures designed more than a quarter of a century ago. These pose challenges for accountability and transparency – and fears are growing that the unintended consequences could lead to a catastrophic failure in the sector. Stephen Exley reports
26th July 2019, 12:03am
Could Colleges Be Heading For Catastrophe?
Stephen Exley

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Why FE college groups could be heading for catastrophe

https://www.tes.com/magazine/archived/why-fe-college-groups-could-be-heading-catastrophe

A class of students is sitting an exam. Naturally, some will do better than others. But what if they were all guaranteed to end up with the same grade? And what if this grade were based on the mark achieved by the lowest-performing individual?

Most people would be likely to conclude that this was a deeply unfair system. Why should an individual not be recognised for their own hard work? Why should everyone in the class end up with the same mark just because they share the same teacher when, in, fact they are all performing at different levels? And why should everyone see their performance dragged down by the weakest link in the chain?

Now, instead of a class full of students, picture a group of colleges. The individual institutions are all different: they operate in different locations, serving different cohorts of learners, and are run by different teams of staff. They work together in some areas, and share some senior managers. But in practice - to an extent, at least - they remain separate entities. Inevitably, their performance differs across curriculum areas.

In spite of this, however, they are destined to end up with a single performance indicator. Whether it's a qualification achievement rate, Ofsted grade, student satisfaction score or financial health rating, all the colleges are recorded as having the same outcome. And, inevitably, this overall performance is held back by the limiting factor of the weakest member in the group.

Dangers of groupthink

As with the classroom scenario sketched out above, many people would conclude that this is unfair and fails to accurately reflect variations in performance at different colleges. But this isn't a hypothetical scenario. This is the situation faced day in, day out by college groups.

Yes, they are free to merge, with a number of different models in use across England. But they still operate under the structures created during incorporation, ushered in by the Further and Higher Education Act 1992. And there is a key principle that must underpin any kind of merger or group: ultimately, it will be a single incorporated college, with a single central governing body under which all the constituent parts must sit.

Contrast this with the multi-academy trust (MAT) model, which has transformed the schools sector since 2010. Huge chains of academies have been established across England. The biggest, United Learning, currently operates 63 schools, spread from Bognor Regis to Carlisle; in 2017-18, it reported a combined income of £288 million.

And plenty more are close behind: there are five MATs with more than 50 schools, 20 MATs with 30 or more - and almost 170 MATs made up of 10 or more schools. But there is a crucial difference. While the central trust sets the overall strategy and is responsible for improving overall standards, each school retains its autonomy. Each school's exam results are published separately and each one is graded separately by Ofsted.

You might reasonably ask: does this technicality really matter? Plenty of colleges have merged, often with little drama: there are currently 251 further education and sixth-form colleges in England, compared with almost 450 in 1993. Many of them still have the same name on the entrance sign as before they merged. Plenty of students, maybe even some staff, may be unaware of the legal structure in which their college sits - that the institution they attend is, legally speaking, no more than a brand name.

So, why is this important? For many working in college groups of different shapes and sizes, it comes down to two key issues: fairness and accountability. Fairness, in that a college could have its performance dragged down - or, conversely, pulled up - by a separate institution. And in some cases, by an institution at the other end of the country. Accountability, in that this makes it difficult if not impossible for parents and students to get a clear sense of how well the campus at the end of their road is actually performing compared with the other colleges in its group.

But there's another - and potentially far more troubling - consequence of colleges being tied to legal structures established more than a quarter of a century ago, and it comes down to risk. In this context, a problem shared is a problem multiplied. Any issues in terms of finance, governance or standards are not limited to the institution in which they originated. The danger is that, as a result of the limiting structures in place for college corporations, and without an effective mechanism for protecting the autonomy of institutions, problems that originate on a single campus could end up jeopardising huge swathes of provision elsewhere.

And, in spite of concerns about college group structures, they are continuing to grow. According to figures compiled by the Association of Colleges, there were a record number of college mergers in 2017, with 29 colleges joining forces at the height of the area review process - the highest number since 1993. In 2018, there were 12 more.

As a result of the urge to merge, 2017-18 was the first year in which there were three college groups with an overall income of more than £100 million.

Risking the next Carillion?

The biggest of these was the LTE Group, with an income of £183 million. For its chief executive, John Thornhill, the threat facing college groups is clear.

"The sector is becoming more complicated as the number of providers drops, but the scale and scope of providers becomes more complex and larger," he says. "People are going to need some answers and solutions. If we don't [get them], I'm pretty resigned that, in the next three or four years, we'll have a major public sector version of Carillion on our hands."

Using the C-word is enough to bring insolvency experts out in a cold sweat. In January 2018, the UK's second-largest construction company collapsed under the weight of £1.5 billion of debts, taking 20,000 UK jobs and hundreds of contracts with it. Surely a catastrophe of this kind is unthinkable in a publicly funded sector with an established accountability regime behind it?

Thornhill begs to differ. And he should know what he is talking about. In any one year, the LTE Group educates more than 95,000 learners and employs more than 4,200 people working across more than 100 delivery locations spread around the home nations.

The group's central base is in Manchester, as is its best-known constituent part, the Manchester College. But a trawl through the jobs advertised on the group's website highlights the widely spread geography of the operation - there are vacancies from Liverpool to London, from Rochdale to Rochester. The group also includes: a higher education wing, UCEN Manchester; prison education specialist Novus; corporate training provider MOL; and Total People, which focuses on apprenticeships and work-based learning.

Thornhill has spent the past three years working to address what he believes is the biggest problem facing the FE sector today: the need for the first overhaul of rules round college group structures in almost three decades. So far, such warnings have fallen on deaf ears. The Department for Education has, to date, been unwilling to budge. But there are some signs that things could be about to change.

In January, a new college insolvency regime came into effect. The intention was clear: rather than being kept afloat by multimillion-pound bailouts, struggling colleges would, for the first time, face the prospect of being placed into education administration and, ultimately, being shut down altogether.

'Catastrophic' consequences

Many in the sector hoped this threat would never have to be acted upon. Then, on 22 May, everything changed. In a hearing room at the High Court, in front of just 13 onlookers (including this writer), a judge approved a petition by the DfE to make Hadlow College the first to go through the college insolvency regime.

The Kent institution is currently being run by administrators; within a matter of months, its provision is expected to be transferred to other local colleges.

For the first time, the prospect of a college going out of business feels very real. For Thornhill, the worry is that, should one part of a college group hit financial trouble, this could quickly spread to the others.

"Currently, a college can't own another college in a legal sense," he explains. "So, what you end up with is these huge, amorphous organisations that are effectively six or seven colleges in their own right, but the legal entity and the accountability and the decision-making are at the group level.

"The issues and the problems could be created by a subsidiary that isn't effectively [in legal terms] a subsidiary."

Thornhill cites the example of a college being found to have breached General Data Protection Regulation (GDPR) rules. Offences such as not processing data correctly or not having a designated data protection officer can bring a fine of 2 per cent of turnover.

For a college with a £30 million turnover, the fine would be £600,000. But if the college were part of a group the size of LTE, it would equate to more than £3.6 million.

"When several colleges merge into one new entity, this signals a different accountability landscape," Thornhill explains. "A college group merged from several colleges could quickly have the same issue and be exposed by legislation that is invented elsewhere for good reason, but could have catastrophic impacts at very local levels."

The challenges of operating in groups can sometimes be not just hypothetical but practical. Another leading figure who has experienced this is Andy Forbes. After serving as principal of two stand-alone institutions - Hertford Regional College and the College of Haringey, Enfield and North East London (CONEL) - he more recently served in a wider group structure after CONEL joined the Capital City Colleges Group (CCCG).

Forbes held the role of principal of the group's City and Islington College until earlier this month. CCCG was made up of three colleges with separate "college education boards" but one overall governing body, and with a single set of funding contracts, all inspected under the group umbrella by Ofsted.

In any college group, Forbes says, offering autonomy at a campus level would be a challenge. "In practice, it's extremely difficult to manage any degree of devolution because there just aren't the mechanisms there.

"Decisions that would, in a single college, be straightforward can take weeks and months while the individual college negotiates how they would work. If college A decides to do basket weaving level 3, is it allowed to do that or do we have to go through a process of looking at what the impact's going to be on college B or college C? What if college C objects but colleges A and B want to go ahead with it? It becomes impossible. Even very simple and straightforward things can become complicated because it's not clear how the decision-making works.

"Weeks pass while we wrangle about things of the most simple kind. In a MAT, the schools operate autonomously. They can be inspected autonomously. They have subsidiary funding agreements, and the trust oversees improvement and strategy. That seems to work pretty well, particularly where you're not too geographically spread.

"The obvious structure that would work [for colleges] would be something similar to a MAT set-up. It works in quite a lot of examples as far as I can see. But to do that, you'd need primary legislation. The 1992 legislation makes it impossible."

'Halfway house'

On this, Thornhill is in agreement: the legal structures of incorporation are inadequate for the FE sector that has evolved since then, and the substantial changes needed to facilitate the creation of the equivalent of MATs for colleges would require new legislation. But he does advocate a "halfway house", which he believes could be used in the meantime.

Section 28 of the Further and Higher Education Act 1992 allows for a college to be designated as an autonomous institution - even if it were to sit underneath another legal, incorporated entity - at the discretion of the education secretary. These powers were used twice in 2018: first to facilitate a merger between Bolton College and the University of Bolton, and second, when Lambeth College joined the London South Bank University "family".

As far as Thornhill is concerned, there is no reason why these powers couldn't be used to designate a college that was part of a larger college group, granting it more autonomy than would be allowed at present.

To date, the DfE has shied away from doing this. But two factors could give grounds for optimism that changes are afoot.

First, Hadlow College being placed into insolvency has acted as a reality check and a clear signal that institutional failure is a very real danger.

Second, the publication in May of the government-commissioned review of post-18 education and funding - widely known as the Augar review - put the issue of college reorganisation back on the agenda. In rural areas, it proposed that smaller colleges "should be strongly encouraged to form or join groups in order to ensure sustainable quality provision in the long term".

We have, of course, been here before. The area reviews of college provision, carried out between 2015 and 2017, were intended to result in "financially viable, sustainable, resilient and efficient" institutions. The fact that this still hasn't been accomplished - and yet another round of reorganisation has been mooted less than two years on - demonstrates that this ambition is far from straightforward to achieve.

A key factor behind this, for Forbes, is the failure to create a legal structure for college groups that fits the sprawling institutions which have started to emerge. "If ministers want to do that," he says, "they are going to have to address this issue."

And if they don't, the prospect of colleges having their own "Carillion moment" will continue to loom ever larger.

Stephen Exley is FE editor for Tes.

He tweets @stephenexley

This article originally appeared in the 26 July 2019 issue under the headline "A curb on the urge to merge"

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