MPs have backed colleges' claims for millions of pounds in compensation over the collapse of the capital building programme, in what they called the most damning report on mismanagement ever seen.
The Commons innovation, universities, science and skills committee said ministers' and officials' pledge that no college would be allowed to go bankrupt did not go far enough, concluding that colleges had been urged to put forward ever bigger claims for capital funding as the money ran out.
The MPs said colleges that had approval in principle should be reimbursed for money spent on acquiring land, demolishing buildings or professional fees, given that some may not receive the funding to go ahead for decades.
However, the Learning and Skills Council has told college leaders - more than 60 of whom have been left without capital funding, despite approval in principle - that there will be no compensation except where the funding body is legally obliged to give it.
Phil Willis, the committee chair, said: "We have seen that through catastrophic mismanagement this programme has come to a halt and many colleges in the poorest parts of the country are not being rebuilt. It may be decades before we see the investment that is necessary.
"I don't think there has ever been a report which has been so damning of management, not only in the LSC, but also the failure of the Department of Innovation, Universities and Skills (Dius) to have proper risk management, proper scrutiny of a billion-pound programme destined to have a significant impact on the Government's skills agenda."
The failure of the demand-led model without sufficient control over spending had implications for programmes such as Train to Gain and apprenticeships, the MPs said, as they called for the Government to clarify its funding policy.
Geoff Russell, the LSC's new chief executive, in his evidence backed prioritising capital projects in the most needy areas. MPs said that the eventual decision to prioritise "shovel-ready" projects, rather than those most in need of new buildings, for the final tranche of funding was wrong.
Chris Banks, the LSC chairman, who did not to resign, unlike Mark Haysom, the former chief executive, was singled out for criticism. The committee said Mr Banks had failed in his role of oversight and scrutiny.
The MPs also said Mr Haysom and Ian Watmore, the former Dius permanent secretary, should have admitted to the public accounts committee in November that the capital building programme was headed for an overspend.
Despite a warning at that month's LSC council meeting, Mr Haysom had told the committee: "I think at the moment we are content, given the scale and nature of the project, that we are in good shape."
Ministers were absolved of responsibility, with the committee concluding that they could not have known about the problems until action was taken in December. But John Denham, the former skills secretary, admitted in his evidence that quangos were often set up to distance ministers from problems and protect them from "political flak".
Mr Willis said: "This was like the emperor's new clothes. It was a flagship policy. College after college was getting rebuilt; we were getting iconic buildings. These were good news stories. No one wanted to tell the emperor that his clothes weren't there."
Kevin Brennan, the FE minister, described the building programme as excellent, albeit one compromised by poor management.
"Ministers have acknowledged the mistakes that were made and have already made improvements to ensure rigorous management going forward, based on the recommendations of our own independent review," he said.
Dius had begun - and the Department for Business, Innovation and Skills will complete - a review of its oversight of quangos, he said.