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Just in case

The legislators are jamming enough into the new FE Bill to cover everycontingency. Julian Gravatt explains why

Preparing government legislation is a complex business. It is like packing for a long holiday: you don't know exactly what you'll need so you take extra things. Just in case. You may use them - the raincoat or the blockbuster novel - but you might not. If you were packing for five to ten years - as the Learning and Skills legislators are - you'd include absolutely everything.

Having spent the autumn filling it to the brim, the politicians and civil servants are now justifying what they want. Think of this as a heavy duty customs check. It is carried out several times (different reading stages), by two types of officials (the Lords and the Commons) and involves lots of suggestions for change (amendments). Governments are skilled at passing these checks and ensuring they have documents and explanations for every item. Sometime around July, the luggage will be released for use. Time for that holiday!

The Bill started its way through Parliament in January and has already faced some detailed scrutiny, particularly over the powers taken by the Government to achieve its aims and the relationship between different organisations. In the committee stage, ministers have already made it clear that the important players will be themselves, the board members of the new skills councils and Ofsted, the schools inspection service and, next year, FE's too. You can check the details of the debate on the parliamentary website.* Colleges are a fairly silent partner in these exchanges because the Bill is focused on the controls rather than the controlled. They retain the powers and duties that they were given in the 1992 Further and Higher Education Act.

With one major exception. At the back of the Bill, an obscure schedule removes the power that colleges have to create companies for the purpose of delivering education and training. Such companies are part of the financial undergrowth of further education and are not much understood. Most lecturers would probably associate them with money-making and deduce some dirty deeds in the management corridors. This sort of thinking may have infected civil servants because, so far, there has been little justification for the change.

The latest government line is that colleges should not delegate responsibility for education and training to third parties, particularly not where public funds are involved. Civil servants may also want to deal with some critical Public Accounts Committee reports on College companies and anticipate further questions. Yet, apart from a circular from the Further Education Funding Council in 1999, there has been no research and little guidance on college companies. This cannot help anyone understand why a college would bother to set one up. So why do they?

They have existed since 1985 when an Education Act gave local government powers to establish them. Because they were part of councils, colleges were unable to make their own contracts. A company structure made it possible for this to happen. Incorporation in 1992 changed the law and the rules and resulted in an increase in companies for all sort of purposes. The 1999 FEFC calculation was that 202 colleges had companies. There are three main reasons: VAT, enterprise and risk management in joint ventures.

Value-addedtax is an important motivator because colleges pay the tax but generally cannot charge it. They buy supplies, which include VAT, and sell education, which is exempt. VAT adds 17.5 per cent to costs so there are incentives to reduce this bill. Companies have helped colleges minimise VAT. They have been used to pre-pay energy bills, to manage contracts and to organise commercial work that is chargeable. These schemes will continue for as long as colleges straddle important divisions (between profit and not for profit and between education and business) but they are hardly a justification for the power to form companies.

This comes from the second purpose, which is enterprise, the primary motivation for companies in the time before incorporation (college independence). There is plenty of university experience to draw on in using company structures to maximise external income from research and consultancy and to motivate staff. Funding cuts, regulation and the pressure to increase teaching hours have all reduced the scope for college companies focused on enterprise.

Curiously the biggest block might be the FEFC's responsive funding system. This has allowed colleges to claim public funds for courses that might otherwise have been privately financed. A surprising outcome of the Nineties is the growing split between publicly funded college work and a niche private sector. Colleges should not be complacent about the size of this competition. In just one area, commercial information technology training, the Skills Task Force estimates there is a market worth pound;550 million. This is not the only area where nimble footed private companies make significant profits from courses where colleges once barely recovered costs.

Risk management is the textbook motive for setting up a subsidiary company. British Airways established one for the London Eye because it wanted to contain the risks of this project within the big wheel. Colleges do likewise when making deals with outside companies. Gateshead College's famous Learning World in the Metrocentre is organised through a college company. Maybe there should be more such risk-managing ventures.

Colleges are involved in dozens of partnerships, most of which have only a short written agreement to sustain them. Few colleges have the money to check all these agreements with lawyers, yet the risks and scale of such partnerships might warrant something more than a contract. Setting up a company entails legal and regulatory costs, but these will probably be small compared to the costs that arise when things go wrong. If policy-makers want colleges to be more creative in their partnerships with the private sector then the freedom to form joint venture companies - for education, training and everything else - might well be very necessary.

This brings us back to the duration of the Bill. Ministers have estimated five to ten years, but this is optimistic. There's a revolution in technology and public attitudes that is sweeping away old-style models for selling banking, travel, goods and music. Further education might be a few years off the wave but it is likely to come. And, when it does, the ability to move fast and to change direction may well be more important than the ability to work to a plan.

Julian Gravatt is registrar of Lewisham College, south-east London


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