A plan to part-privatise a college for the first time, putting it under the control of a for-profit company, has fallen through. City College Birmingham has turned down a deal proposed by Chris Banks - the former Coca-Cola executive who served as chairman of the Learning and Skills Council - and is expected to choose a traditional merger instead.

In July, the college corporation agreed that the public-private partnership was its favoured option, but it has now been dropped. City College Birmingham and South Birmingham College corporations were due to formally vote for a merger this week. Mr Banks, who founded the Independent College Partnership as a company to invest in and help manage colleges, said that several others are still considering his proposal and that he expects the first “independent college” to be established within six to 12 months.

TES understands that the deal only fell through because, as a novel form of partnership in FE, it was taking a long time to finalise the details. City College Birmingham’s financial problems are too urgent, making the tried-and-tested option more appealing. “Our governors didn’t feel it was right for us this time,” said principal Stuart Cutforth about the private-sector deal. “But we thought it was a fantastic offer to bring more private investment into the college and we see it as an innovative solution to the problems of FE.”

Some among City College Birmingham’s leadership believe it has turned the corner over the last two years, from an inadequate Ofsted inspection and multi-million-pound deficits to a satisfactory rating. They further argue that it is only at risk because of cuts in future years, but in 200910 it was still #163;15 million in debt. Last year it lost more than #163;1 million and this year it is predicted to lose another million: the director of finance told governors this summer that she needed a letter of support from the Skills Funding Agency to prevent auditors from saying the college was at risk of going bust.

The private-sector plan still being offered to “several” other colleges, which Mr Banks declined to name, would involve each college retaining its corporation. The corporation would keep ownership of assets such as the campus and buildings - heading off fears that private involvement would result in asset-stripping - and would contract the Independent College Partnership to run the college. The partnership would become the staff’s employer and would be able to retain a portion of the surplus as profit.

The partnership is keen to avoid being seen as a commercial interloper, however. “Investors do need to make a return on the investment that they make. But the focus will be absolutely on delivering high-quality, outstanding learning and teaching. What we are proposing here chimes really well with the direction that the Department for Business, Innovation and Skills has set out,” Mr Banks said.

He highlighted the partnership’s plan to be “partly mutualised”, drawing comparisons with the worker-owned John Lewis Partnership. However, it is not clear that employees will have as much of a say in the running of the Independent College Partnership as they do in John Lewis, where they effectively elect half the board. Mr Banks said the details of employee representation were still to be worked out. While employees could receive bonuses based on the college’s surplus, Mr Banks said he would want to encourage reinvestment in education.

The identities of the investors, who will have a claim to the colleges’ surpluses for a fixed number of years, are undisclosed. And the commercial experts the partnership hopes will provide private-sector acumen for the benefit of colleges are yet to be appointed.

The independent colleges plan matches the desire of FE minister John Hayes to see new models of operation for colleges. But the University and College Union (UCU) is likely to oppose public funds being used for private profit. The union has already campaigned against the expansion of for-profit universities, arguing that the US experience, where the government has investigated deceptive recruitment practices and poor standards, should serve as a warning.

“Colleges should exist to serve their local communities, not to make a fast buck for private investors,” said UCU general secretary Sally Hunt. “For-profit education providers have been involved in a string of scandals in the US and I fail to see the logic in repeating the experiment here. Introducing the for-profit motive into further education would be bad for staff and students alike, with shareholders and investors rather than educators calling the shots.”

PROFIT MOTIVE

How a public-private partnership would work:

- The Independent College Partnership has been set up as a private company to offer capital and management expertise to colleges.

- The college corporation remains intact and maintains ownership of the campus, but contracts the company to manage the college and employ the staff, in return for a capital injection.

- When the college makes a surplus, part of it will be owed to the company.

- The deal will involve some element of mutualisation, which would allow staff to have some say in decision-making and perhaps a share in the surpluses.

- Colleges expressing an interest are said to range from those in need of help getting out of financial distress to those that want to take advantage of new ways of working.