Ed Weeple, the head of the further and higher education branch at the Scottish Office, says he is becoming convinced that the original target of introducing a new system by 1998-99 was "daunting".
Mr Weeple, who chairs the Scottish Office review group on FE funding, was speaking at the annual conference of the Association of Scottish Colleges in Dunkeld last week.
Rae Angus, the principal at Aberdeen College and a critic of the safety net system which protects some colleges at risk from the Government's distribution of FE funding, urged the Scottish Office to ditch the existing formula which was "past its sell-by date".
He said steps would have to be taken in the next financial year to shield colleges from mounting financial pressures if the funding review could not come up with an alternative system in time.
But Mr Weeple said that it would be difficult to adopt an interim position based on an ad hoc settlement for 1998-99, which would be even more arbitrary. "At least at the moment, you all know the rules you are working to," he added.
Mr Weeple suggested that the Government's grant to colleges could be linked to student quality and output. He said that there had been a 42 per cent increase in the number of students on non-certificate courses between 1994-95 and 1995-96; such students represente d a quarter of all student activity in the colleges as measured by the existing formula of SUM counts (student units of measurement). English colleges received no payment for these students, he added.
But he was warned off any changes in funding which might hit non-vocational students and which might be at odds with the Government's policy on lifelong learning. The principals and chairmen were reassured later to hear education minister Brian Wilson stress that "the challenge is to get the students through the door in the first place".
Joyce Johnston, the principal of Fife College who worked formerly in the Scottish Office's FE funding unit, told Mr Weeple that she was "flabbergasted" by his figures and said that she did not believe them.
Ms Johnston said any system which linked funding to quality and outputs could hit students regarded by colleges as "risky", and might undermine the credibility of Scottish Vocational Qualifications if, as happened with National Vocational Qualifications south of the border, staff felt under pressure to pass more students. Mr Weeple said that the Scottish Office had to justify spending #163;250 million on FE so it was necessary to have measurable standards of quality.
Iain Ovens, principal of Dundee College, said that large companies such as IBM and Scottish Power are opting for non-vocational courses to persuade more of their staff to take up learning opportunities.
Mr Weeple ran into more flak when he suggested the Scottish funding system might be replaced by the "core plus margin" approach taken in England. This would distribute the bulk of college cash much in the way it was done now, but reflecting colleges' success in attracting students over a longer period than simply one year. A 10 per cent element, amounting to #163;25m on present funding levels, would be retained for colleges to bid against Government priorities.
But Michael Leech, principal of Stevenson College in Edinburgh, warned that the English FE Funding Council was currently reviewing its system. "We shouldn't rush in when they may want to change it," he said. Ray Murray, principal of Thurso College, said his counterparts in England were "in great distress" at their funding system.
Ms Johnston advocated moving away from the current "mechanistic and reactive" model of FE funding to one under which colleges would submit their development plans as the basis of their bid for funds. "But that requires someone to take decisions," she said.
Jim Thomson, the chairman of Clackmannan College board, agreed that "the key need is to plan coherently on a much longer-term strategy for what it is we are supposed to achieve. Otherwise, it's not a case of going round in circles but rather a screw mechanism of going round and round but down and down at the same time".
College principals' main demand is for a funding system that is "transparent", which means that all the available money should be put into the pot for distribution. That would mean the grant no longer being top-sliced to protect vulnerable colleges and an end to specific funding such as that for the Scottish Further Education Unit.
But Mr Weeple suggested that a transparent system with no "hands-on activity" or strategic intervention by ministers would not fit easily with current Government policy. "It means the methodology would have to deliver absolutely everything," he said. The additional costs facing the island colleges is one element which a funding formula has to be capable of meeting.
Mr Weeple paid tribute to the funding system for its success in delivering growth and forcing colleges to align their costs while maintaining the viability of individual colleges. But it had become "too volatile and unpredictable" leading to too much competition for funding and growth.
The aim of the review is "to find a balance between the need to have a strategic approach without losing the sense of liberation which colleges have enjoyed since incorporation," Mr Weeple said.