Franchise less and risk being taken to task over funding

28th March 1997 at 00:00
Franchising, or outward collaborative provision, to give it its politically-correct title, is the single most important issue facing the Further Education Funding Council as it deliberates on next year's funding methodology. Unfortunately the issue is usually portrayed as a question of whether it is a good or bad activity for colleges to be involved in.

This line of debate inevitably leads the participants into a jungle of value judgments and ends up as a heated exchange about what types of further education are worthy of funding and which outlawed.

Given the widely differing missions of colleges and the rich variety of provision in further education, any debate on franchising conducted on this basis is incapable of resolution.

It serves only to divide the sector and, even more importantly, obscures the real issue, which is that the funding methodology is increasingly dominated by the "franchising effect" which exercises considerable influence on the strategic direction colleges are taking.

A sensible debate must begin with a recognition that it is the funding methodology and not the ingenuity of colleges which has driven the rapid growth in franchising.

A favourable climate for growth has been created because: the average cost of franchising is considerably less than that for in-college provision; the more cheaply delivered franchise units could be sold back to the funding council at higher rates in subsequent years through the bidding process; and the existence of the super demand-led element (super DLE) ensured that franchised growth was financially risk-free, providing that a college did not pay more than Pounds 6.50 per unit.

This attractive incentive package is further enhanced by FEFC's emphasis on a college's average level of funding (ALF).

This means that colleges with low ALFs receive higher percentage allocations under the bidding process and a higher percentage FEFC contribution to their building projects.

Taken together the incentive to franchise is so great that any principal not undertaking it could be held to have been negligent by failing to maximise their college's FEFC income. In the initial years of the FEFC these incentives could have been seen as appropriate as the sector struggled with the twin objectives of lower operating costs and growth.

The question now is whether incentives are so great they are causing an undesirable distortion in institutional behaviour.

Some feel that franchising is a passing problem and the tightening of contract and quality controls, coupled with low or nil growth and the ending of super DLE, will lead to its demise. However, evidence of college behaviour suggests that unless these changes are coupled with major modifications in the funding methodology, the outcome is likely to be an increase rather than a decline in franchised activity.

Colleges facing reduced funding and convergence of ALFs will conclude that the easiest road to salvation is franchising.

Expensive in-college provision replaced by cheaper franchised units is the obvious way to balance income and expenditure.

The reduction in growth targets and the ending of super DLE are therefore likely to speed up, rather than retard, this process of substitution.

Should the FEFC Council wish to encourage substitution, then they need make no changes to the funding methodology. If, however, uncontrolled growth in franchising is considered undesirable, significant changes must be made to reduce the incentive to substitute.

There are a number of ways to achieve this. These include reduced weightings for work carried out in a third party's premises, and restrictions on the type and nature of courses FEFC will fund.

These approaches are conceptually and practically difficult to administer and their impact on college behaviour almost impossible to model in advance.

Such difficulties would make it very hard to design a methodology which would have predictable outcomes.

An alternative approach would require the council to split the amount to be allocated annually between in-college and franchised provision. The former element would be allocated using the present approach based on core and bid components.

This would mean that college bids and convergence would be driven by ALFs calculated without the distorting effect of franchised units. Individual college allocations for franchising could be determined annually on the basis of their bids.

It must be acknowledged that this approach has dangers. The major one is that a future government may decide that franchised activity should either be directly funded, taking out the college middleman, or that element of the FEFC's budget should be allocated to another body, such as TECs.

Present discussions in Government circles indicate that this approach is already being considered and it may be that the identification of the franchised element will not materially affect the outcome of this debate.

The decision facing the FEFC on franchising is a vital one for the sector. The consequences of getting it wrong are potentially extremely serious, leading to a situation in which franchised activity displaces traditional provision at an increasing rate.

Without significant changes in the funding methodology, each college will be faced with the choice of investing in high cost in-college provision or buying the equivalent number of units from a third party for a fraction of that cost.

In such circumstances the council must not be surprised if colleges opt for substitution.

Brian Styles is principal of the City of Bristol College.

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