Sweeping reforms to careers service funding are soon to be unveiled by Education Secretary David Blunkett in an effort to drive up standards.

He is expected to replace competitive tendering - introduced by the Tories to boost standards while cutting costs - with a licensing system which would carry Government guarantees of cash to run the service.

Under competitive tendering the cheapest bid usually won the contract, although quality was considered. It was used by the Tories to bring market forces into the public sector. But a recent damning report on the careers service from the National Audit Office highlighted weaknesses in the competitive approach.

The Government has yet to decide on an alternative system for funding and management but licensing for careers services is the front-runner. Under a licensing system career companies would bid for contracts on the basis of quality of service rather than its cost.

Although the Department for Education and Employment has not yet declared its hand there is a “strong likelihood” of a switch to licensing when the current round of contracts begin to expire in 2000, according to Tony Watts, director of the National Institute of Careers Education and Counselling. It is the option favoured by the NAO following consultation with careers organisations.

The existing training and enterprise council model could form the basis for a new system under which the DFEE would offer rolling funding agreements to licensed companies providing a satisfactory service. It is unlikely that tendering would be phased out altogether.

Delia Keville, of careers guidance-provider Nord Anglia, emphasised the importance of giving services that fail the opportunity to recover and re-apply for licensed status.

Mr Watts felt that “sustaining a competitive market for a statutory service had proved expensive and encouraged a competitive culture which had damaged important collaboration between services”.

The first three rounds of contracting out careers services cost Pounds 6 million. Mr Watts was looking towards the Scottish model where services have entered into greater partnership with schools and colleges, making them more prominent at local level.

Competitive tendering began in 1994, and essentially took the careers service out of local authority control. The LEAs competed with the private sector for careers service contracts.

Three-year contracts were issued initially but then these were increased to five years for the second and third rounds of tendering in 1995 and 1996. Although the performance of providers has been declared generally satisfactory the Conservative government’s aim to improve efficiency and effectiveness had only been partially realised.

At a recent National Association for Careers Services dinner Mr Blunkett stressed the need for more flexibility to reach specific targets. The NAO had found tendering was too restrictive, as services could not respond appropriately to local needs.

Stevie Martin, vice-president of the Institute of Careers Guidance, this week criticised the laborious process of contracting out for diverting attention away from service quality and clients’ interests .

She gave a cautious welcome to the prospect of licensing, stressing that all careers organisations should be consulted.

A licensing system is likely to meet with widespread approval within the industry, because it would address the concerns raised in the NAO report.

The key issue is the criteria that services would be required to meet to obtain a licence.

Jonah Watts, of the Council for British Teachers, said licensing would undoubtedly improve the service as long as the licences were set at an appropriate level. Nord Anglia is “very hopeful of it because it would also provide extra security and enable services to plan long-term”.