The proposal went to a meeting of the Scottish Further Education Funding Council this week. Colleges will be given fuller details in August.

This is the first time any part of the education sector has been given such exceptional treatment, revealed to the parliamentary audit committee last week by Roger McClure, chief executive of the Scottish Further Education Funding Council. He said the move had the support of the Scottish Executive.

The committee was hearing evidence from the key players about the report by the Auditor General for Scotland on the financial problems facing Inverness, Lews Castle and West Lothian colleges (TESS last week). West Lothian has major difficulties because its new pound;21m campus was funded by an early version of the private finance initiative (PFI) which Sue Pinder, the principal, told the committee it can no longer afford.

Ms Pinder insisted to the committee that the college is efficiently run and has cut staff costs. But it faces a “parlous” situation on property costs, which eat up 35 per cent of its expenditure, compared to an FE average of 9 per cent.

Mr McClure’s revelation was prompted in part by the West Lothian experience. He said the funding council and the college were “at an advanced stage” of renegotiating the PFI contract, the details of which could not be revealed because of commercial confidentiality. But he said that none of the college’s special funding support, some of which is due to end in 2007, will be reduced until the matter is fully resolved.

Ms Pinder said she hoped to reach agreement on these negotiations by the end of September.

Mr McClure said the funding council had done some work on the appropriateness of PFI in the FE sector, and he continued: “The key benefit of PFI has been assumed to be that, if a private contractor runs the facilities and makes efficiencies in the running costs, that will offset the extra profit element, and so on, that is built into the contract. As it happens, there is not much scope for that in FE colleges.”

The SFEFC, he said, will tell colleges that “unless a project is pretty substantial, there will no longer be a requirement to go all the way through the PFI calculations, which can be very onerous and long-winded, only to find that it is not really a viable deal for a relatively small project.”

When pressed on what he meant by “relatively small”, Mr McClure replied:

“If the project costs in the region of pound;20m to pound;30m, PFI is not really worth considering, but there might be gains for projects of pound;30m to pound;50m and upwards.” There may be exceptions in one or two cases.

Eddie Frizzell, head of the Executive’s lifelong learning department, confirmed to the audit committee that it agreed with the funding council’s decision. “There has been quite a lot of learning about PFI during the past five to 10 years, and policy in that respect has been modified,” he said.

Mr McClure said the difference between colleges and schools is that local authorities can bundle up their schools into one large scheme which could produce a big facilities management project. “That approach is not as easy in FE, particularly when each college is an independent autonomous institution,” he said.

The type of PFI contract into which West Lothian college has been locked, signed in 1999, is regarded as inappropriate today. Ms Pinder described the situation - using a phrase from her native Yorkshire - as “a pig’s arse ” in an interview with The TESS in 2003.

The college’s current contract has seen it lease all of its 23-acre site, which it owns, to the PFI provider for 99 years, well beyond the 25-year period of the contract. The college can only buy the buildings back at the end of the contract at the market price. It was supposed to be able to afford the PFI deal due to growth in student numbers, but this did not materialise because of a change in policy away from excessive competition for students between colleges.