Private cash plan comes under fire

19th July 1996 at 01:00
A flagship scheme is proving too costly. Lucy Ward and Elaine Carlton report.

A flagship Government scheme to pump private capital into the public sector is costing colleges tens of thousands of pounds, consuming hours of managers' time and causing needless delays, principals say.

College managers this week joined the growing band of critics of the Private Finance Initiative, which has also come under fire from industry leaders. Ministers acknowledge the scheme has stalled.

Some of the complaints come from colleges selected for so-called pathfinder projects - 10 schemes intended to act as pioneers.

Under PFI, private developers fund and take on some of the risk of building facilities such as new gyms or accommodation blocks in return for an operating fee or the chance to make profits from the facility. Formerly, colleges would have just borrowed cash to build.

The initiative was formally launched in further education last autumn, but no contract has yet been signed. Many fear that college projects will prove too small or unprofitable to attract investors.

Pathfinder colleges revealed this week they had spent as much as Pounds 50,000 each testing the feasibility of PFI and still did not know if their schemes would win backing.

Some said the procedure - recruiting external consultants to gauge viability and advertising for bids in an European journal - caused delays which led disenchanted backers to pull out.

Meanwhile Darlington College of Technology, a non-pathfinder which says it has all but secured the cash for its Pounds 6 million new campus project from the European regional development fund and other sources, claims the scheme will be delayed by at least a year for PFI testing.

But despite warnings from the Confederation for British Industry last week that unselective testing of projects for PFI feasibility risks wasting resources and effort, there is no sign that ministers plan to change the policy.

The TES has learned that the requirement on colleges seeking capital loans from the Further Education Funding Council to PFI-test their schemes is to be extended to those who merely want permission to borrow cash elsewhere.

However, the FEFC says it will only require colleges to carry out testing appropriate to the scale of the project. Funding chiefs have agreed with the Treasury that testing should be mandatory only for schemes worth more than Pounds 5m. They say PFI-testing helps colleges ensure value for money.

The council is known to be reshuffling its budgets and seeking extra Government cash to pump into its PFI unit - evidence that the pathfinder colleges have needed costly hand-holding to get projects moving. The FEFC is also to offer colleges up to Pounds 50,000 from a Pounds 1m fund to offset testing costs.

Tony Pitcher, principal of South East Essex College, one of the pathfinder institutions, said he could see significant benefits from transferring the risk of building a new Pounds 21m site to a private developer, but had found progress slow.

The financial markets were "nervous" and one potential funder had withdrawn, he said. Though the FEFC had provided substantial support, the process had been "very difficult and frustrating as unexpected difficulties and delays kept coming up". The project had so far cost Pounds 50,000.

At Carlisle College, which is planning a new Pounds 2m teaching block and fitness centre, principal Julian Venables said the PFI process was "much more burdensome than dealing with a bank". He echoed other principals' concerns that the testing process requires colleges to leave bidders maximum flexibility over the detail of schemes, diminishing their own influence.

Non-pathfinder colleges were more critical. The principal of one northern college said his management team had moved swiftly to add its rebuilding project to a register of schemes drawn up last autumn to attract backers. Despite spending Pounds 100,000 on consultancy fees and devoting up to a quarter of senior management time to the project since October, there had been "no tangible result".

Darlington College's ambitious proposed Pounds 6m site at Catterick Garrison could have been open next year but for delays caused by compulsory PFI testing, according to principal Peter Shuker. He said: "The process is just too bureaucratic. We are having to spend Pounds 50,000 and I can't really see what we are getting for that money other than to prove that for us PFI won't work."

Some pathfinder colleges have enjoyed smoother progress with projects. The principals of West Cumbria and Waltham Forest colleges acknowledged the process was time-consuming but believed it would achieve the best solution to funding capital schemes.

Philip Head, head of the FEFC PFI unit, said colleges were told to carry out a feasibility study to weed out those clearly unsuitable for PFI. After that, there was no obligation to opt for a full PFI arrangement.

Funding chiefs point out that, though colleges may be feeling the pain of PFI now, they were no better off before the launch of the scheme because limited FEFC capital cash was only available for health and safety work or major projects started before incorporation.

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