Principals launched a staunch defence of controversial franchised courses this week as a government-appointed working group began a root-and-branch review.

They urged ministers to keep an open mind about college courses run by outside bodies amid fears that a knee-jerk reaction to funding cuts would spell the end of many hard-won links with industry.

Education minister James Paice ordered the review, which will report by the end of next month, in the wake of the crisis over college expansion cash.

Much of the unprecedented expansion that provoked the affair has been through franchises - better known, in the jargon, as “outward collaborative provision”.

David Eade, principal of Barnsley College and a leading advocate of franchising, said: “The Government has, unfortunately, swallowed a line that says this is about training Tesco till operators and putting money into the hands of a few rich industrialists. That’s miles away from the truth.

“People have accused colleges involved in outward collaborative provision of scamming, and I take great exception to this.”

Franchises, under which colleges contract courses to private training bodies, employers or community groups, have attracted enormous controversy.

Criticism ranges from claims that they can been attacked for giving unfair subsidies to employers, to charges that some courses are inappropriate.

Now the newly formed working group of college principals, training and enterprise council figures and government officials is expected to focus on whether to fund franchise courses at a fixed special rate, whether to demand increased contributions from firms involved in workplace training, and whether to fund courses based outside colleges’ normal catchment areas.

Colleges are already being asked to comment on some possible reforms of the franchise system as the Further Education Funding Council grapples with the effects of the decision to halt open-ended funding for college expansion.

Principals involved in franchising argue they are providing innovation and growth, and should not be tied to a rigid local framework.

Mr Eade said franchising had created innovative links with employers, and brought thousands of people into training for the first time.

“I hope there will be no knee-jerk reaction,” he said. “I’m concerned that this working party is going to come up with ways to stop colleges being flexible.

“The hard research from the FEFC shows that the students involved in outward collaborative provision are coming from groups that have never previously participated in FE and training. Some 51 per cent is at foundation or level one, compared with 21 per cent for traditional further education.”

David Bunch, principal of North Derbyshire College, accepted that there might be reform of funding for workplace training.

But he called for a much closer analysis of the type of work carried out under franchises, arguing that deals with the private sector were a cost-effective way of colleges buying in high-quality expertise without huge investment in full-time staff.

Ken Ruddiman, principal of Sheffield College, warned: “I think there’s a fear that all the funding will be vetted by training and enterprise councils and that they are trying to make the TECs a control mechanism. The TECs do not have the capacity.”

He remained cautiously optimistic, however, about the outcome of the review.

Bill Hill, principal of St Austell’s College, defended franchises that provided courses at great distances from colleges, as well as vocational leisure industry-based courses such as his college’s scuba-diving franchises.

But he said: “I think the fact that the Department for Education and Employment has decided to set up a working party with FE principals means it will help the civil servants to be better briefed about the reality of what we are doing.”