In a move likely to be repeated by other LSCs, Sussex has cut the number of companies it pays to provide work-based learning from 75 to 23. Eight FE colleges also hold contracts for this work.
Henry Ball, LSC executive director in Sussex, said much of the training it had inherited was of unacceptable quality and many providers were financially insecure.
"They posed a serious risk to us as a public-sector contracting body," he said.
Among those to be shown the door are 24 employers who were paid to train staff in the workplace. "Hardly any had systems in place that would satisfy an inspection by the Adult Learning Inspectorate," said Mr Ball.
Despite the rationalisation, numbers in work-based learning in Sussex rose this year by 6 per cent to just over 2,500. Trainees at firms that lost contracts were switched to other providers.
Mr Ball said most trainers had responded "amicably", although some had been angry. Some small firms that offer quality training are being sub-contracted by colleges and other providers so that they can continue to run programmes.
The reduction in private trainers is part of a plan to create strategic alliances between colleges and preferred companies across Sussex. The alliances will be responsible for advising the LSC on whom it should contract with in each of six planning areas.
Keith Conniford, chair of the Sussex Council of Training Providers, said trainers understood the logic of the LSC's move. While one or two were "quite upset" to lose contracts, others were pleased to be rid of the red tape associated with public funding.
"Where providers have difficulty driving up quality, they need to look at collaboration," he said. "It's a controversial change and there are bound to be casualties, but we are looking at it with cautious optimism."
A report by the ALI, published last summer, found that 60 per cent of work-based learning is inadequate. Nearly half of the other 46 LSCs in England have shown interest in the Sussex model. Many LSCs in London and the South-east are expected to attend an exploratory meeting in the capital in the coming months.