It was meant to be a £4bn refuge from recession

Even before you reach the front door of Brooklands college, it’s clear that the building is on the way to falling down. The red bricks of the handsome Victorian frontage have been prised apart by ivy, and small piles of rubble have collected behind a safety barrier, from which hangs a red sign directing visitors away from the entrance.

Following it brings you to the back of the college, where it is revealed that the front is a facade for a dilapidated sixties building with leaking windows. Next to that stands a 20ft-high grey wall of prefabricated cabins, where the college’s lecturers are briefing the bricklayers, carpenters and hairdressers of tomorrow. Their principal is Colin Staff, who explains in a voice pitched below the hearing of passing students that the temporary buildings are costing him up to £80,000 a month. “The staff are actually quite pleased with them – they’re clean and they don’t leak like the old building. But they’ll get scruffy quickly. It’s hardly a long-term solution.”

Colin Staff

The danger is that they will become just that. Or, at least, that they will for the next three years, by which time planning permission will have run out and they will have to be torn down, leaving the college with 25 years’ worth of bank loan repayments and no new home to show for them.

Brooklands was planning to demolish and replace its buildings in the small Surrey town of Ashford, but it has been forced to put its renewal on hold for lack of funds. It is not alone. Altogether, 79 colleges in England received initial approval to carry out building work worth £4bn, including £2.7bn of funding, and proceeded to detailed design; some were on site before they were forced to suspend work. Another 65 had drawn up plans worth £3bn and had got as far as appointing architects and consultants before the axe fell.

The body responsible for approving and funding the plans is the Learning and Skills Council (LSC). This is the quango set up in 2001 to run the government’s programme to renew England’s stock of further education (FE) colleges. Unfortunately, it seems to have blown the test in fairly spectacular style.

Building first revealed the delays to the LSC programme on 16 January this year. A fortnight later the government appointed troubleshooter Sir Andrew Foster to undertake an independent review of the programme. That review, which confirmed management failings at the LSC, was published as Building went to press on Wednesday afternoon. The industry had hoped that its publication would mean most projects would be able to pick up where they had left off. Last week, however, the LSC privately admitted to the UK Contractors Group that, even if more money were found, the programme was in such a mess that nothing would happen until September at the earliest, with most schemes facing a two-year delay.

It would be hard to exaggerate the damage that this has already caused. The central thrust of the government’s efforts to offset the collapse in private sector demand has been to accelerate public spending, and one of the main elements of that was investment in the construction of educational buildings. As a result of the LSC’s failure, colleges will be forced to stand down their supply chains, which could cost as many as 40,000 jobs.

Between April 2006 and March 2007, the LSC’s average contribution per college trebled. The message was clear: the bigger the project, the greater the reward

Mark Haysom, the LSC’s chief executive, resigned last Monday, saying he did not need to wait for publication of the Foster review “to confirm what I now know: that there have been failures in the way the LSC managed the programme”. What follows is Building’s own investigation into how the LSC managed to exceed its £2.3bn budget by more than 150%. We reveal how officials pushed colleges to put forward impossible projects, how the body continued to approve applications even after it knew its budget had been blown, and how, even when it had privately acknowledged the need to suspend projects, it kept colleges in the dark for months – thereby wasting millions of pounds of its and other people’s money.

How the crisis started

A principal factor behind the LSC’s overspend was the organisation’s – and the government’s – demand that colleges “think big”. The LSC’s 2007 capital prospectus shows that when the renewal of the FE estate was in gestation between April 2001 and April 2006, the average cost per project approved was £7.32m. The LSC’s contribution to these averaged out at £2.85m a scheme, with the colleges expected to fund the remainder. But between April 2006 and March 2007, the average cost more than doubled to £15.8m, and the LSC’s average contribution trebled to £8.32m. The message was clear: the bigger the project, the greater the reward. In the following two years, nothing succeeded like excess. The 79 projects that were approved then put on hold had an average build cost of £51m – the biggest, Grimsby college, was worth £146m. One official, who was involved in advising the LSC but wishes to remain anonymous, sayshe saw one college turn a simple renewal into an urban regeneration plan after the LSC said it needed to be “more aspirational”. The project cost was £200m.

The LSC’s attitude was epitomised by its attitude towards Brooklands college’s £97m scheme. “At one stage our project was already at about £80m,” says Staff, “and as part of it we were planning to convert an old building into a centre for construction,” he says. “When we took it to the LSC, they wanted to know why we weren’t giving construction a new centre. We told them it would cost another £3m, and they just told us to go ahead.”

The who-dares-wins ethos was communicated by the LSC’s lowest level, the regional officials. They were the first ports of call for colleges seeking funding. Under the LSC’s structure, its local representatives worked up proposals with colleges and their supply chains, and then brought them to a national capital committee for endorsement. This committee had the authority to approve projects up to £30m; for anything larger had to be ratified by the highest echelon, the LSC’s national council.

The way the system worked in practice is shown by the minutes from capital committee meetings, which were held once a month throughout 2008. They reveal the lack of communication and co-ordination between the LSC’s layers.

The first problem was that during the meetings the capital committee discussed only the projects that regional representatives sent them for approval; they were not aware of the others that regions were still working on. This meant that it had no overall picture of how great the demand was for its money.

The second problem was that, until October or November, the regional officials did not have to have a system for prioritising bids. This meant that spending could not be structured in a rational way. By contrast, the Building Schools for the Future secondary school programme divided its bids into waves on the basis of how badly schools were needed and how well the plans had been drawn up. Each wave could then be timetabled and matched with the money available.

We were told to be ready to go ahead the day we got approval in detail. They wanted us to have our contractors ready and our temporary buildings in place, and all demolition done

Colin Staff, principal, Brooklands College

As the capital committee waited for the regional officials to work out a way of deciding priority it continued to approve proposals and while it did so there is no evidence that regions were asked to supply updates on the overall value of the projects they were considering.

An additional complication was supplied by the government, which decided in November 2007 to divide the LSC’s funding for capital projects in two: one to be used on general FE and the other for youths between the age of 16 and 19. This meant that the LSC suddenly found itself with much less money for general education than it had bargained for.

The chaotic governance of the programme was reflected in the LSC’s inconsistent approach to procurement policy after the 2007 Comprehensive Spending Review, which is when the programme began in earnest. It developed plans to set up a contractor framework, but then abandoned this in April 2008 on the grounds that it was deferring at least until the autumn in the hope of attracting more bidders as the recession increased firms’ desire to bid – and lowered their prices. This was despite the fact that, as it had not gone to market with the deal, it had no real idea how many firms would apply. Meanwhile, its consultants framework, established in February 2008, was delayed while the LSC considered challenges from firms such as Gardiner & Theobald, which had not made the cut despite already working on LSC projects.

Spiralling out of control

All of the above begs an obvious question: how did the LSC fail to realise that it was losing control over the programme to such an extent? Well, actually, it did.

The minutes show that the head of its college building programme raised a warning as early as February 2008, a year before the difficulties became public knowledge. Phil Head, director of property and infrastructure services, told a capital committee meeting on 27 February that he was “minded to close the list of projects to come to the next two meetings as they were in danger of becoming unmanageable”, which indicates that the LSC’s bureaucracy was struggling to cope with the volume of bids it was getting. Two months later he also raised concerns over the level of scrutiny being applied to the cost of projects in the regions.

Despite this, the issue was apparently not taken forward to the national council, and there appears to have been little effort to clarify what the LSC’s budgetary position was until September, when the capital committee began receiving forward plans from the regional tier. At this point, the minutes record a “potential overspend … as the first regional capital strategy returns indicate a significant increase in forecast projects and a peaking of requirements around 2010-11”.

The capital committee’s members, including Head and his deputy Alastair Grindley, the capital programme manager, then started debating potential solutions. One possibility considered was to extend payments over five years rather than three for larger projects. The minutes, compiled by LSC official Peter Sanders, also say that it had been been agreed that a “prioritisation and resequencing of projects” should happen across the regions, and that proposals needed to be subjected to greater scrutiny.

We all manage our businesses on the basis of what work is coming up. About £2bn worth of work buys a lot of livelihoods

Paul Dollin, Atkins

Remarkably, it seems that despite this dawning realisation that something was badly wrong the committee still did not appreciate just how wrong: in the same meeting it went on to recommend approval in principle for projects worth £488.7m, subject to national council approval. It endorsed a further £515m in October, and £371.5m in November – making a total of £1.4bn before the project was quietly halted in December.

Equally remarkably, the first record of the problems being relayed to the national council is in November, when it approved the capital committee’s recommendations from September but deferred all others “due to concerns about long-term affordability”. Michael Gove, the shadow education secretary, claims that government officials were present at that meeting.

A costly secret

Throughout the period between September and January, the LSC was still urging consultants and contractors to press on with plans and to start on site. This gave firms the reassurance they needed to plough resources into projects they believed were certain to go ahead. Paul Dollin, a managing director of Atkins, says: “From a supply-chain point of view we all manage our businesses on the basis of what work is coming up. We would have had 250 people working on college jobs at their peak, and there could well be redundancies as a result. It will be the same for other firms. About £2bn worth of work buys a lot of livelihoods.”

The LSC is arguing that colleges should not have started on site before receiving approval in detail from the national council. But those involved with the projects say this was not the message they were given from the organisation. “We were told to be ready to go ahead the day we got approval in detail,” says Staff. “They wanted us to have our contractors ready and our temporary buildings in place, and all demolition done.”

A similar tale is told at Leadbitter’s Abingdon & Witney college project, another of those on hold; here the college was urged to demolish existing buildings and decant students into temporary accommodation last September.

Colleges and their supply chains are furious that, even after it became aware of the need for a funding moratorium, the LSC was slow to tell its clients. Staff only found out that Brooklands was being placed on hold when he was told of delays by the head of another college. “I found out completely by accident. I came back after Christmas and got a phone call from another principal who said that the LSC had stopped all projects on 17 December. It took another week and a half to get confirmation from them. It’s been part of the problem all the way through – the communication between colleges, the LSC and government departments has been abysmal.”

John Frankiewicz, chief executive of Willmott Dixon, offers further proof of this. His company was working on the £50m Colchester Institute when schemes were put on hold in January – but the contractor was not informed there was a risk the project would not continue; instead it was led to believe the delay was to enable a funding review and should be used to cut costs.

“We thought clients were trying to get the benefit of a better price. We did another pricing exercise, which took some time, only to now be in a state of limbo, with work suspended and no knowledge if the project will or won’t proceed. The industry bears a lot of the cost for that, and our staff could have been doing other things. It’s been hard for the site team to take.”

With 144 projects standing still indefinitely while the government talks about protecting jobs and skills, few would disagree.