A college is set to make the first legal challenge against the Learning and Skills Councils' refusal to pay millions of pounds in compensation over its troubled capital funding programme.
Grimsby Institute of Further and Higher Education is seeking a judicial review of the funding body's decision to use its final pound;300 million of capital to fund new projects rather than compensating colleges that might now have to wait many years for funding.
Lawyers said a successful case could pave the way for a flood of claims from colleges, totalling millions of pounds.
Daniel Khan, principal of Grimsby Institute, said the college spent pound;3.7m in doing work required by the LSC after receiving approval in principle for rebuilding its campus.
He said: "It's a very significant amount for a college like ours, and the LSC is just washing its hands of it. They have taken a Pontius Pilate attitude."
Professor Khan said the college intends to pursue a judicial review to seek compensation, as well as making a complaint to the Parliamentary Ombudsman, who investigates a range of public bodies.
Geoff Russell, LSC chief executive, told colleges earlier this month that there would be no compensation beyond what the funding body was legally obliged to provide.
Paul Pharaoh, a partner with the law firm Martineau, said a claimant in a judicial review would either have to prove the LSC made a decision which no reasonable person could make - a difficult test - or that the college had a "reasonable expectation" of receiving the funds.
He said: "That would mean that a college was encouraged by the LSC to suppose that the money it spent to get to the next stage would be recompensed and this reasonable expectation was dashed."
Mr Pharaoh said the case could have implications for more than 60 colleges which received approval in principal and between them spent more than pound;200m on professional fees, temporary accommodation and, in some cases, demolishing buildings.
"Each will depend on its own merits but it seems very much that the issues in other colleges are very similar," Mr Pharaoh said.
He said there was no guarantee of recovering all the money spent even if the college wins its case, since judges have discretion over the size of any compensation.
The college claim will have been boosted by last week's innovation, universities, science and skills select committee report, which concluded that colleges "bigged up" the cost of their projects only because they were directly encouraged by the funding body. MPs said colleges should be compensated.
However, David Hughes, the LSC's director of national projects, told FE Focus earlier this year that the extra pound;300m received from the Treasury had been given on condition it was spent on new buildings, meaning it could not have been used for compensation.
The LSC said it would respond to Mr Khan's letter threatening legal action, but declined to comment on the case.
Mr Russell said that the LSC is currently meeting fee support claims for expenditure incurred up to the end of December 2008, the month in which the LSC's capital programme was suspended.