Principals enter the kingdom of market forces
Companies will be offered Pounds 300 million of work at a national conference organised by the Further Education Funding Council.
Principals have been told money for the repair or purchase of new premises will have to come from the private sector as they struggle on with dilapidated buildings pushed to bursting point as growth targets are met.
Under the Private Funding Initiative, designed in 1992 to cut state funding by farming it out to the private sector, colleges can seek loans for development schemes from private lenders.
The initiative is already being challenged as "a major headache". Some college heads say they are resigned to their role as financial managers and are looking to PFI as an unwelcome but inevitable means to finance improvements.
Ben Bennett, principal of Aylesbury College, Buckinghamshire, said: "I cannot see a scenario where the Government will have large capital sums to give to colleges.
"We have to realise this is the real world, think of our future, and make the best of it."
Mr Bennett, who needed to develop the library for an extended curriculum, started assessing the value of the college buildings as assets against which to borrow.
The pending arrival of 14 rented Portakabins to accommodate increased student numbers at Bournville College, Birmingham, has made the prospect of private funding an attractive, if disagreeable option for the principal, Patricia Twyman.
"Ideally we would rather not borrow. I don't like the concept of debt, " she said. "But we have met all our growth targets and renting extra space amounts to dead money. I would rather have a new building and pay it off."
Having to make financial decisions has forced many college heads to become more business-minded. Peter Harris, principal of Barton Peveril College in Hampshire, said the sports hall the college needs will have to pay for itself, but still doubts how attracted private business will be to invest.
"There is not great enthusiasm here for PFI," he said. "You can spend ages trying to find ways of putting your case for investment, without getting much out of it at the end."
Private investors will have the chance to consider Pounds 400 million worth of contracts put forward by a third of the country's colleges at the forthcoming conference, at which the Education and Employment Secretary, Gillian Shephard, will speak and the concept of PFI will be more fully explained. The DFEE has approved Pounds 100 million of FEFC funds to be used to reimburse expenditure or help repay loans and the council expects the first projects to start early next year.
John Parnham, principal of Orpington College, Kent, said: "Banks either refused our request for a Pounds 1.25 million loan or made impossible bureaucratic demands."
Many college heads remain anxious that not having enough of their own funds or assets will make possible business partners reluctant to be involved. At a PFI seminar in May merchant banks spoke as if there were hundreds of investors willing to lend money, says Peter Martin, vice principal of Chippenham Technical College in Wiltshire. The concept of PFI remains "entirely unproven", has not been thought through and is merely an extension of the Government's privatisation of school services like cleaning and catering, he says.
"What they haven't addressed is that we pay VAT on these services and as quasi-charitable organisations, cannot claim it back."
The success of the idea will be judged after the conference, Mr Martin says. "Then we will see if the private sector will invest or whether we will be forced to mortgage the family silver."
Private funds for Pounds 30 million worth of new premises will be considered cautiously by Keith Wymer, principal of Bilston Community College in the West Midlands, which expects to almost double in size to 50,000 students by the year 2000.
"I am in favour of increased access to funds but only if it does not erode money available from the Government," he says.
Mr Wymer says financial restrictions should be minimal now college heads do the equivalent of running a business. "Since we have been privatised I am not prepared to work with my hands tied behind my back. We are in a competitive market and should like it or lump it."
Peter Ryley, director of resources at Crawley College, says there is nothing wrong with using private money. Crawley is becoming more commercially-orientated he says, but warns colleges not used to dealing in finance to think carefully about any venture or partnership.
"There could be risks for the unwary. Unless you have previous experience dealing with large- scale financing, you could get into a sticky position. We have all seen how companies got burnt by the banks."
Promoting PFI to education is the Government's attempt to solve the wider problem of how to pay for public expenditure in the future, says Andrew Thomson, head of East Norfolk Sixth Form College.
"PFI might be a way of coping with some of the rising costs and stresses, " he says. "But whether it solves the underlying problem, only time will tell. "
The future, argues Philip Head, head of property at the FEFC, is what private funding is all about. "We feel there is quite a marketing job to be done on behalf of the FE sector," he says.
A PFI exhibition in London from October 25 to 26 will give investors and colleges the chance to meet, and Mr Head is confident many partnerships will emerge.
"We want to ensure colleges are getting the best value for money," he said. "PFI is merely the application of common sense."