Standards Fund money previously came in 17 funding streams, providing an administrative headache for colleges, with pots of money being left unclaimed.
As well as reducing paperwork, the Department for Education and Skills intends that the changes will ease access to Standards Fund money.
In future, under proposals being finalised by the Learning and Skills Council, the cash will be divided into three clearly-defined areas - a local fund, an investment fund and a national priorities fund.
The local fund, for each of the 47 local LSCs in England, will go to providers who have improved their quality. LSC officials are working on how to distribute the cash between the local organisations.
The Investment Fund targets post-inspection improvement plans, the development of centres of excellence, and providers who are trying to improve in significant areas of weakness.
The National Priorities Fund will include grants to help institutions develop standards of governance, support black and other ethnic- minority managers, improve basic skills, and disseminate good practice.
"The national LSC has not yet settled on a formula for the distribution of the fund to its 47 local arms and further guidance will also be provided to local LSCs on its allocation," said Paul Convery, of the Centre for Social Inclusion. "Briefings will be organised shortly and LSC staff will meet providers to discuss funding allocations."
Mr Convery, who advises on the development of the Standards Fund, said the bidding process will be replaced with a more broadly-planned approach to distributing the money.
"Unlike previous years," he said, "there will not be a bidding process. Instead, decisions will be taken on the basis of the development plans drafted by providers."
Avril Willis, LSC quality director, said: "We have listened to the FE sector. The new pound;185m Standards Fund has been redesigned to meet colleges' and providers' wishes for a reduction in bureaucracy and abolition of ring-fencing."
The Association of Colleges has warned that any new Standards Fund money for private providers, while welcome, should not be at the expense of college budgets.