The Scottish Further Education Unit will have to begin moving towards "greater financial independence" by next year which means it will largely have to sell its services in the hope this will eventually replace the Government's pound;700,000 grant, almost half of its budget.
The decision on the unit was taken by Henry McLeish, the enterprise and lifelong learning minister, following the report of a policy and financial management review last year which recommended a shake-up of the organisation.
The minister has also accepted the report's suggestion that the SFEU should no longer be a non-departmental public body (NDPB, or quango).
A spokesman for the minister said the expectation is that the SFEU should be "totally self-financing" within about four years. The unit could still win Government contracts for specific pieces of work thereafter, but there would be no grant-in-aid.
Mr McLeish said the unit would remain as a limited company with charitable status. "Although the SFEU will cease to be an NDPB, the FE colleges can look forward to being supported by a dedicated body, more attuned to the sector's needs, with a central emphasis on support for curriculum development and continuing professional development."
He promised the unit would be given support "through this period of change towards greater financial independence, but also greater accountability to the colleges it serves."
Michael Leech, chairman of SFEU's board of management, gave a broad welcome to the deciion and to what he believed was the minister's acknowledgement of the unit's important role in keeping staff up to date. More than 4,000 FE staff had attended SFEU events last year.
"We have been given a solid indication that we have a future in partnership with the Scottish Executive, the funding council and the colleges," Mr Leech said. "We all need each other."
He said he could not envisage key developments such as Higher Still, revised higher national units, the Scottish University for Industry, the National Grid for Learning and widening access being successfully implemented without the help of SFEU. "It's a question of moving from a grant-aided system to a contractual relationship," Mr Leech added.
Mr McLeish has been persuaded, despite criticisms from the unit last year, that it should concentrate on curriculum development and the needs of staff. The review stated that this would make the SFEU "more focused, more responsive and more accountable to colleges". The Government believes colleges have now built up sufficient expertise to deliver some of the other services provided by the unit.
Although Mr McLeish said there had been a "clear consensus" following the consultation on the review, the response from 87 per cent of colleges was that the agency should continue in its present form and with its present functions which was also the view of 93 per cent of others who were consulted.
But the review team's conclusion was that "there are doubts over whether the SFEU is sufficiently in touch with colleges' needs and uncertainty about the process in which SFEU attempts to identify those needs."
The unions have been cool towards the SFEU, believing that it serves a largely managerial agenda.