Seize the day or you could be heading for disaster

29th July 2016 at 00:00

This government has embarked on a mission to transform the further education sector, driven principally by funding cuts, apprenticeship reforms and area reviews. The pressure to significantly improve the health of this sector is exacerbated by the reduction in the 16-18 population, inherent ambiguity surrounding government policy and further uncertainty following the Brexit decision.

The programme to transform the FE sector is necessary. However, I am concerned about the underlying practical elements that will be essential to successfully make this vision a reality.

The overall aim of this initiative is double-faceted: improving the financial health of UK colleges while ensuring that local education and economic needs are met. But what does this transformation actually mean for the management teams expected to deliver it, and do they have the skills for the challenge?

Managing the complex stakeholder matrix is absolutely crucial to success. In particular, lender appetite has changed, leaving a sense of unease regarding financial exposure. Continued lender support remains critical and, to secure this, it is essential that a clear and fully costed business plan is delivered, which not only encompasses a realistic merger timetable but also provides clarity on how any merger is likely to impact on the financial stakeholders.

A credible forward plan is vital not only for incumbent lenders considering their ongoing position but also for applications to the recently formed transaction unit. While restructuring is beneficial in the medium to long term, it will attract short-term costs, which may not necessarily be fundable through existing lending facilities.

The guidance on applications to the facility emphasises the one-off nature of the restructuring of the FE sector, and makes it abundantly clear that no further exceptional funding support will be available. Basically, colleges have one shot at it. The other point to note is that this is not a “fund”, rather a lending facility. Repayment is generally expected on commercial terms, with interest and supported by security.

As with traditional lenders, applications will be subject to a stringent approval process. Hence the importance of a credible and robust plan. Management teams must recognise that it is not only critical to have clarity around the numbers but also imperative for stakeholders to be satisfied that the management team has the appropriate skill set to actually deliver the transformation.

Frequently, management teams are facing this type of challenge for the first time. Merging and integrating institutions, as with businesses more generally, requires specialist skills and experience that do not naturally form in the day job.

Doing nothing is a recipe for disaster – a danger made clear by the fact that an insolvency process is currently being drafted to deal with failing colleges. The draft consultation states that the insolvency regime is being designed in a way that will protect learners from disruption to their courses, help the rehabilitation of a college (where possible) and provide an orderly wind-up procedure if a college becomes insolvent.

The new legislation is expected to be presented in Parliament towards the end of the area review process next year, but would not actually come into force until later. On a positive note, amid the turmoil in the sector, there is some scope to seek financial help to support the unavoidable restructuring.

But whatever situation a college is in, taking action now and embarking on the road to transformation will afford time to agree a managed and considered way forward, and avoid the firefighting and crisis that some colleges are sadly already facing.

Jo Wright is managing director of consultancy De Novo Advisory

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