Report 99/36

Higher education in further education colleges

Guidance for colleges on funding options

Executive summary

Purpose

1. This publication sets out the options for further education colleges (FECs) to obtain funding from the Higher Education Funding Council for England (HEFCE) for their higher education programmes. It explains how we will incorporate within HEFCE funding methods the HE provided by FECs, in a way which will best support quality and standards.

Key points

2. There are two existing funding options available to FECs:

1. Indirect funding (commonly known as ‘franchising’) through a higher education institution (HEI).
2. Direct funding from the HEFCE to an individual college.

3. We are also willing to consider proposals for funding HE through consortia of neighbouring FECs and HEIs.

4. Our primary concern is to ensure a high quality of HE experience for the students on all the programmes we fund, irrespective of provider and location. Colleges will be able to choose the funding option which best suits their circumstances. But in making their choices, we look to colleges to consider carefully whether some form of collaboration or partnership with an HEI or other FECs would help them secure high quality and standards. We also expect that existing franchising relationships will continue unless there is good reason to change them.

Action required

5. Colleges are asked to notify their HEFCE higher education adviser of their proposed HE funding option by Friday 10 September 1999. We will then discuss those proposals and their implications, as necessary, with colleges. A full list of HEFCE contacts, telephone numbers and e-mail addresses can be found in the ‘About Us’ section of the HEFCE web site at http://www.hefce.ac.uk.

Introduction

6. This publication gives guidance to FECs on:

1. The options for receiving funding for their higher education programmes from the HEFCE.
2. The implications of those options.
3. The procedures for colleges to notify their proposed funding route to the HEFCE.

7. The objective is to incorporate within HEFCE funding methods the main categories of higher education provided by FECs, and to do so in a way which:

1. Best supports the achievement of high quality and standards.
2. Provides stability for students, FECs, and other partners (particularly HEIs involved in indirect funding partnerships).
3. Promotes the policy of widening student access and participation.

Background

8. The National Committee of Inquiry into Higher Education (the Dearing Committee) recommended that the HEFCE should become responsible for funding all categories of publicly-funded higher education in England, irrespective of the type of institution providing them. The Government accepted this recommendation. As a result, for the funding year 1999-2000, responsibility is being transferred from the Further Education Funding Council (FEFC) to the HEFCE for funding all first degree, postgraduate, Higher National Diploma and Certificate (HNC and HND), Diploma of Higher Education, and Certificate of Education courses.

9. We have long funded some HE work in FECs. But the recent transfer of funding has caused us to review the principles on which we fund this provision. We have considered particularly the differences between funding institutions whose entire or primary focus is HE, and funding small proportions of HE work in institutions whose primary focus is FE.

10. To help us establish the best way forward, we issued a consultation paper in November 1998 (HEFCE 98/59 ‘Funding higher education in further education colleges’). The responses are summarised in Annex A. We held a series of regional seminars for all HEFCE-funded FECs in October; and a seminar with those HEIs which have most indirectly funded provision. All that evidence has been taken into account in preparing this document.

11. The consultation paper made proposals for promoting effective indirect funding relationships (often called ‘franchising’). We have prepared a draft code of practice setting out the principles and expectations which should underpin such relationships. The draft is being issued for consultation in parallel with this document.

Principles

Range of funding routes

12. We proposed in the consultation document that different options should be available for funding HE in FECs. This was generally endorsed by respondents, and we confirm it as our policy. Colleges vary so much in the scale and nature of their HE provision, in their mission and aspirations, and in their traditions of partnership with HEIs, that they could not be accommodated within a single funding route.

Comparability of student experience

13. However, the quality of the student experience should not vary. The content, method and approach of programmes may differ: FECs, for example, tend to adopt a more supportive and intensive teaching style than many HEIs. Such differences are legitimate and desirable, in order to reflect the different needs, abilities and circumstances of students. But we shall be incorporating all directly-funded HE provided by FECs into our funding method over a migration period, so that they receive similar funding to HEIs for provision of similar cost. Our expectation is that colleges will deliver the same quality and standards of higher education as HEIs.

14. To provide that assurance, we believe it will generally be appropriate for colleges to work in partnership with others. This is not necessarily the case: many colleges have demonstrated that they can successfully provide high quality HE by themselves, for example in specialist colleges or through HND or HNC courses which build on, and allow progression from, a well-established portfolio of FE courses in the same subject area. Such partnerships may also be unnecessary for those FECs with a large volume of HE programmes. But we believe it can be harder to safeguard the quality of the student experience where there is a small volume of HE provision in a college whose focus and mission is oriented towards FE. That HE provision may become isolated because it is neither securely rooted in the college’s core FE work nor linked through partnerships to the wider HE community.

15. In looking to future development, our over-riding concern will be to promote high quality and standards in all the provision we fund, and to encourage partnerships and collaboration between FECs and HEIs which contribute towards that objective. In doing so, we shall take account of the experience in Wales, and the arrangements there for developing higher education in FECs. These are summarised in Annex B.

16. All HEFCE-funded HE in FECs will be quality-assured through the Quality Assurance Agency for Higher Education (QAA). This will ensure that the same expectations about HE quality and standards apply across the board in external review of both HEIs and FECs. We are working with the QAA to develop a review programme for HE in FECs which will give appropriate coverage of provision and assurances as to its quality and standards. Whichever funding route colleges choose, they may find it helpful to collaborate with an HEI specifically in developing their quality assurance arrangements.

Parity of funding

17. There should be a level playing field between the different funding options. Once any migration has been completed, no option should be more or less advantageous overall to colleges than another (after taking account of the value of the services and support provided by an HEI in a franchising partnership as well as the direct flow of funds to the college).

Minimising turbulence

18. In implementing the new funding arrangements, we should avoid turbulence or disruption for students. The funding options must not accidentally create incentives to change funding routes that are currently working satisfactorily. Development over time is inevitable and desirable, but it should be planned, and should take place in an informed and considered way. This applies particularly to existing franchising arrangements, which we would expect to continue wherever they are operating effectively.

Full funding for students

19. However the HE is provided, FECs will not be able to expand their HE on a marginal-cost fees only basis. It is a fundamental principle of our funding method that, in order to safeguard the quality of the student experience, similar provision is funded at similar rates. Any new HE programmes which colleges provide must be fully funded, either through the HEFCE funding method or through full-cost fees. Where provision is franchised, it is for the HEI and the FEC to work out between them what part of the HEFCE funding the HEI may retain in respect of the support it provides. This is discussed further in the proposed code of practice on franchising.

Appropriate location for HE provision

20. The consultation paper proposed that we should continue to support sub-degree and degree level provision where it is appropriate, and not prescribe the level of provision according to the nature of the institution. Responses to the consultation supported this, but many sought clarification of what is meant by ‘appropriate’.

21. This is always going to be a matter of judgement, dependent on the circumstances. It has most significance in relation to the allocation of additional HE student numbers through the annual bidding round. The considerations which are likely to inform future rounds include:

1. We shall expect to see evidence of demand for the type and level of provision proposed, taking into account similar provision already offered in the bidder’s area.
2. We shall expect colleges to explain how the new provision relates to their existing portfolio. A degree course which builds on established strength in the same subject area at sub-degree level will be more plausible than one which bears no relation to the college’s existing programmes.
3. Where the college already has a franchising relationship with an HEI, there should be a presumption in favour of developing new provision through that relationship, particularly where the new provision is in the same or related subject areas. In other cases, we will look to colleges to consider what forms of collaboration could help avoid the risk of small programmes operating in isolation.

22. Against this background, the following section discusses the funding options available to colleges.

Funding option 1: indirect funding partnerships (franchises)

23. FECs will be able to receive their funding indirectly through a partnership with an HEI that sub-contracts the HE provision for delivery by the college. These arrangements are commonly called ‘franchises’.

24. In summary, the method that would apply is as follows:

1. The procedures for calculating, allocating, and accounting for grant will be the same as those currently operating for indirectly funded HE in FECs.
2. All the HEFCE funding flows through the partner HEI; none of it goes directly to the FEC.
3. The HEI, and not the college, takes responsibility for accounting to the HEFCE for the use of the funds, and is therefore responsible for all the administrative, data collection, audit and other requirements which apply to its own directly-provided HE programmes.

25. The implications of this funding option are:

1. The HEI will be expected to observe the terms of the HEFCE and QAA codes of practice for indirectly funded HE.
2. Subject to meeting those codes, it will be for the HEI and the college to agree between them what proportion of HEFCE funding is passed on to the college. The HEFCE will not prescribe what that proportion should be, since it will depend on the individual circumstances, and in particular the types of support and facilities which the HEI makes available to the FEC and its students.
3. The college will not itself have to stay within the standard +/-5 per cent funding tolerance band for HEFCE funding. The partner HEI will be able to include the college’s provision as part of its own larger provision in managing fluctuations in recruitment to individual programmes, so as to stay within the tolerance band overall. Thus if in a particular year the college over-recruits or under-recruits to the programmes it delivers, the HEFCE will not apply any sanctions if those fluctuations can be absorbed within the franchising HEI’s overall maximum student number (MaSN) and contract position.
4. The college has no separate MaSN for HE numbers for the duration of the partnership agreement: for HEFCE purposes, its HE students are part of the HEI’s MaSN. At the end of the agreement, the HEI can choose how to redeploy those numbers. Alternatively, a college could seek agreement to transfer some or all of its existing numbers to an HEI for incorporation in the HEI’s MaSN for a specified duration of the partnership agreement, with the numbers then reverting to the college’s MaSN at the end of that period. In such cases, before transferring numbers back to the college, we will need to see the terms of the original agreement. Otherwise the numbers will continue to belong to the HEI, for deployment at its discretion.
5. The college will not be able to bid in its own right for HEFCE special funding programmes. But the HEI will be able to include the college in its bids for additional student numbers and other funding programmes, so that the college will be able to benefit from the full range of relevant programmes.

26. We want to support and encourage effective franchising, because we believe it can offer FECs a good way of linking with the wider HE academic community. So wherever franchising relationships are working well at present, there should be a presumption that they will remain, in order to avoid unnecessary turbulence for students and for institutions. We also look to colleges whose provision is not currently franchised to consider the advantages of franchising, particularly where their HE provision is small.

Funding option 2: direct funding by the HEFCE

27. In 1998-99, some 70 FECs are being directly funded by the HEFCE. Their experience has shown that direct funding can be effective, and it will remain an option. But here too we hope that colleges will consider whether there are forms of collaboration which will enhance the quality of the student experience.

28. In summary, the method that would apply is as follows:

1. The procedures for allocating and accounting for grant will be the same as those currently operating for HEFCE-funded FECs.
2. Colleges would be incorporated within the standard HEFCE funding method, with migration as necessary from their current funding levels into the funding tolerance band.
3. The exceptions to the standard method would be:

29. The implications of this funding option are:

1. The college receives 100 per cent of the HEFCE funding allocated for its HE programmes.
2. The college must take full responsibility for the quality and management of its provision, and cannot rely on support and services provided by a partner institution.
3. The college has to meet, in full and to the expected standard, all HEFCE administrative requirements in relation to data collection, financial memoranda, audit, information returns, and so on. The QAA’s quality review procedures will also apply directly to the college’s HE programmes.
4. Like all directly-funded HEIs, the college has to stay within the standard +/-5 per cent tolerance band, and has to stay within its MaSN. This means that colleges have to manage their recruitment carefully to ensure that they do recruit in line with their allocated student numbers.
5. Colleges will be able to bid in their own right for additional student numbers and for relevant special funding programmes (that is, in general those programmes which relate to courses rather than whole institutions). All such bids will be competitive, alongside HEIs, with no guarantee of success.
6. The college’s HE student numbers cannot be redeployed to another institution. Equally, the college has to manage fluctuations in recruitment by itself, without the capacity of most HEIs to redeploy between individual programmes within a large volume of HE provision.
7. The HEFCE funding method is based on standard ‘prices’ for four broad subject bands. It assumes that institutions will make differential allocations within large blocks of provision, and therefore does not attempt a finely disaggregated attribution of funding to different subjects. However, the smaller and more specialised the HE provision, the more likely it is that the standard price for that subject band will not reflect the specific characteristics of the college’s programme.

30. Colleges which opt for the direct funding route are encouraged to consider whether some form of partnership with an HEI, or with other FECs, would enhance the overall student experience. One model would be to establish a compact with an HEI, on the lines of arrangements in Wales (see Annex B). In considering future allocations of additional student numbers, we shall aim to promote such partnerships where they add value to the student experience.

Funding option 3: consortia

31. Options 1 and 2 above describe the funding routes which currently apply. An alternative could be to fund HE in FECs through consortia, which we would expect to be composed of clusters of colleges and HEIs in the same geographical area. We see consortia as potentially offering advantages in assuring and developing the quality of the student experience, in simplifying and allowing flexibility in administration, and in promoting collaboration between HE providers in planning the local and sub-regional pattern of HE.

32. The differences between a franchise and a consortium are:

1. In a franchise, HEFCE grant is always allocated to an HEI; whereas in a consortium an FEC could lead and co-ordinate the operation (although we would expect consortia also to involve HEIs).
2. In a franchise, the student numbers ‘belong’ to the HEI (see paragraph 25e above), and all the consequent HEFCE administrative arrangements apply to the HEI; whereas in a consortium each institution would have its own allocated student numbers, but with flexibility to transfer numbers between consortium members.
3. In a franchise, the HEI is responsible for the quality and standards of the provision delivered through the college; whereas in a consortium each member would be responsible for its own quality and standards. This flows from paragraph 32b above: whoever is responsible for the student numbers must also be responsible for the quality of the HE those students receive.

33. Funding of consortia is not currently part of the established HEFCE funding method, so a new set of procedures and understandings will need to be developed. We would be prepared to receive proposals from institutions for the way in which they would like to operate, so that we can develop in collaboration some pilots. In all cases we must apply certain minimum requirements to ensure propriety, regularity and transparency in accounting for the use of public funds. We will therefore need to ensure that any proposed consortia do meet those requirements before agreeing to fund HE through this route.

34. Funding for a consortium would flow through a lead institution, which would then take responsibility for co-ordinating, and accounting for, the allocation and use of funds. This would make lines of accountability clear. It will be for the members of the consortium to agree who should lead. Many of the same principles would apply as in the code of practice on franchising.

35. We would expect each consortium to involve an HEI, unless in exceptional cases a consortium was unable to identify an HEI able and willing to benefit the consortium. The nature of that involvement could vary: the HEI could be the lead institution for the consortium; it could be a member of a consortium in which a college was the lead institution; or it could collaborate in providing progression routes, credit recognition for students, quality assurance support, or other engagement. The objective in all cases would be to help link the consortium with the wider HE academic community.

36. The implications of this funding option are:

1. In all cases, the consortium will need to have a contractual status in order to ensure that lines of accountability are clear, and that there are full safeguards for regularity and propriety in the use of public funds.
2. There will need to be a clear, formal agreement between all the institutions concerned to ensure that the lead institution can discharge its responsibilities to the HEFCE, with all necessary powers of redress against members of the consortium who default. This agreement would need to cover in particular what happens if the requirements of the MaSN or funding contract are not met, or where misuse of funds is alleged. It may be necessary to distinguish between HE sector institutions and FE sector institutions within a consortium in terms of the reporting and accountability requirements, because the presumption would be that HE sector institutions will continue to meet individually the standard requirements of the HEFCE’s funding method.
3. Subject to these requirements, it would be for the institutions concerned to determine the purposes of the consortium, and the way in which it operated. That would include determining what proportion, if any, of HEFCE funds was retained by the lead institution to cover its co-ordinating costs.
4. The purposes of the consortium could include any of the characteristics of indirect funding partnerships. We would want to know the purposes of the consortium, and to approve the legal document underpinning it, but beyond that would not expect to regulate its operation, so long as regularity and propriety of expenditure were safeguarded. We do, however, expect that consortia would be more than merely funding mechanisms, and would develop as frameworks within which institutions can collaborate more widely.
5. Individual colleges within the consortium would not have to meet individually all HEFCE administrative requirements in relation to data collection, financial memoranda, audit, information returns, and so on. The lead institution could co-ordinate that on behalf of the consortium.
6. Individual colleges within the consortium would not each have to stay within the standard +/-5 per cent tolerance band. The tolerance band would apply to the aggregate of the HE provision offered through the consortium, allowing colleges to balance under- and over-recruitment to individual programmes so as to stay within the tolerance band, and meet the MaSN requirement, overall. The contractual arrangements between members of the consortium would need to determine how the MaSN would be distributed, and adjusted as necessary over time, between member institutions. It would also need to define how any penalties, such as holdback, were assigned between members.
7. Individual institutions would not be able to bid on their own for additional student numbers nor for any other special funding programmes which are applicable. But the lead institution would be able to bid on behalf of the consortium for additional student numbers and other relevant programmes. As with the direct funding option, consortia would be eligible to bid for those HEFCE special funding programmes which, in broad terms, support developments related to programmes and students, rather than the whole institution.
8. The lead institution would not be responsible for assuring the quality of the provision within the consortium. Consortium members would be directly responsible for the quality of their HE programmes, and would be reviewed accordingly by the QAA.

Procedures for choosing the funding option

37. The funding arrangements need to be resolved for the funding round which will start in November 1999 to determine grant allocations from August 2000.

38. The consultation paper (HEFCE 98/59) indicated that colleges would, if they wished, be able to continue with multiple funding routes – for example, being indirectly funded via an HEI for some provision, while being directly funded for other programmes. We believe nonetheless that, to avoid unnecessary complexity, it will normally make sense for a college to choose a single funding route for all its provision. We will wish to discuss their reasons with colleges that propose to retain multiple routes.

39. Colleges are asked to consider which option would best suit their circumstances, and to notify their HEFCE higher education adviser by Friday 10 September. We will discuss with colleges the reasons for, and consequences of, their proposed choices as necessary. In any case where colleges wish to explore the possibility of a consortium, we would like to know as soon as possible, so that we can discuss with the colleges and HEIs concerned how it might operate. We recognise that some colleges may not be able to finalise all the details of their preferred arrangements by 10 September; but in all cases we shall need at least an initial statement.

40. The information we will need about each college’s choice of funding route is:

1. Where a college is currently, and wishes to remain, directly funded by the HEFCE:
   • what partnership arrangements the college already has with one or more HEIs or other FECs
   • whether it has plans to develop such arrangements.
2. Where a college is currently, and wishes to remain, indirectly funded through an HEI:
   • that the HEI concerned agrees
   • that the agreement between the HEI and the college will reflect the principles of the code of practice on indirect funding partnerships.
3. Where a college is not currently, but wishes to become, indirectly funded through an HEI (including cases where the college’s HE is currently funded directly by the FEFC):
   • that it has identified an HEI willing to become a partner
   • that the agreement between the HEI and the college will reflect the principles of the code of practice on indirect funding partnerships.
4. Where a college is currently funded by franchise with an HEI, but wishes to become directly funded by the HEFCE:
   • the reasons why it wishes to end its indirect funding partnership
   • whether the partner HEI agrees that the indirect funding agreement should end
   • What plans it has to develop any alternative partnership arrangements with an HEI or other FECs.
5. Where a college is currently funded directly by the FEFC for its HE, and wishes to become directly funded by the HEFCE:
   • what consideration it has given to franchising its provision through an HEI
   • what compact or other partnership arrangement it proposes with an HEI.
6. Where a college wishes to be funded through a consortium:
   • the other members of the consortium, and that they have all agreed the terms of the consortium (that is, a jointly endorsed response will be needed)
   • the name of the lead institution
   • the terms of the contractual agreement for giving the consortium a legal existence.

Funding implications of terminating franchising arrangements

41. There was substantial support in the consultation responses for the proposal that existing indirectly funded provision should continue, unless the arrangements were terminated by mutual agreement. However, there have been cases of HEIs and FECs unilaterally withdrawing from existing relationships. In the long term we cannot oblige unwilling partners to stay together, since effective franchising requires goodwill from both sides. But we do need to ensure that:

1. Decisions by one or both parties to withdraw from franchising are taken on an informed basis, and not as a result of misunderstanding the implications of other options.
2. In particular, such decisions are not triggered by the hope of securing short-term financial advantages which are believed to attach to a different funding route. Our aim is that all funding options should offer the same broad level of resource, albeit that in the indirect funding route some of that resource is retained by the HEI to provide support, or undertake activities, which the FEC would otherwise have to provide itself.
3. Where franchising relationships are terminated, this is done in a planned way which does not disrupt provision for students.

42. The consequences vary depending on whether it is the HEI or the FEC which initiates withdrawal. The approach we shall take is as follows:

1. Where the HEI chooses to withdraw, we will look sympathetically on future bids from the FEC for additional student numbers to replace the numbers which the HEI has taken back, so that the college can carry on providing the course(s) concerned. In considering any bids for additional student numbers from the HEI, we will have regard to the fact that it will now have student numbers to redeploy.
2. Where the FEC initiates the withdrawal, the HEI will retain the numbers, and the FEC would need to show good reason why in such circumstances it should be allocated any additional student numbers in its own right. Without such an allocation it would not be able to carry on delivering the course(s).
3. Where the HEI and the FEC agree to terminate the franchise, we will normally expect to reflect in our funding allocations whatever distribution of student numbers they determine between them.

Annex A

Analysis of responses to HEFCE 98/59 ‘Funding higher education in further education colleges’

Introduction

1. This annex provides a qualitative analysis, supported by quantitative evidence, of the responses to the consultation on our funding proposals for higher education (HE) in further education colleges (FECs).

2. We received 147 responses: 53 from universities and colleges of higher education (HEIs); 81 from FECs; and 13 from other organisations. The HEI response rate represents approximately 40 per cent of HEIs funded by the Council. The FEC response rate represents approximately 30 per cent of the colleges fundable by the Council from 1999-2000.

3. This annex both separately describes the response rates from HEIs and FECs and aggregates them into an overall response rate. Not all respondents commented on all proposals. The analysis attributes neither a positive nor a negative view of the proposals where the individual respondent has chosen not to comment.

Responses

4. We invited comment under the broad headings addressed below.

The role of FECs in higher education

5. Comments were invited on the proposal that we should continue to support provision where it is appropriate, and that we should not prescribe the level of provision offered by either FE or HE sector institutions.

6. Over 65 per cent of both the HEIs and FECs supported this proposal. Only 6 per cent of all respondents argued either that in future HEIs should not provide sub-degree level provision or that FECs should not deliver any degree level provision.

7. There was some concern from both sectors about how we would determine whether an FEC was an ‘appropriate’ location to deliver degree level provision. Respondents wanted to know whether we would develop specific criteria to aid our judgement, and were variously concerned that these might be either too rigid or insufficiently rigid.

Funding mechanisms

8. The proposed funding mechanisms were all predicated on our belief that direct and indirect funding routes are both valuable and should continue. Some 10 per cent of all respondents challenged this, arguing either that all HE provision in FECs should be funded directly, or indirectly.

Existing indirectly funded provision

9. We invited comments on the proposal that existing indirectly funded provision should continue, unless both parties agree that arrangements should be terminated.

10. The proposal elicited many comments from both HEIs and FECs, often acknowledging that the issues underpinning the proposal were complex. Over 60 per cent of both the HEIs and the FECs supported the proposal, agreeing that it was a reasonable approach to a difficult issue.

11. Twelve per cent of all respondents argued strongly that mutual agreement was not a suitable principle for all circumstances. Examples of the reasons given are:

1. It should be open to either partner to terminate an arrangement, within the terms of their contract and subject to a reasonable period of notice.
2. An HEI should have discretion to withdraw from an indirect funding arrangement if it has concerns about the quality of the provision.
3. An FEC should have discretion to withdraw from an indirect funding arrangement if it feels that direct funding would offer it more stability.
4. An unwilling partner is not a good basis for an effective partnership.

12. Some respondents also doubted our capacity to enforce the principle of mutual agreement, and sought clarification of the tools we might use.

Existing provision directly funded by the HEFCE

13. Comments were invited on the proposal that existing provision directly funded by HEFCE should continue to be directly funded, unless the FEC agrees with the HEI that the numbers and funding should transfer to the HEI and be provided in future under franchise.

14. The majority (68 per cent) of all respondents supported this proposal, with similar support from both the FE and HE sectors.

15. Nine per cent of all respondents, again from across both sectors, rejected the proposal. They took the view that, under certain circumstances, we should not give colleges discretion, and instead should prescribe the funding route for existing directly funded provision. Two main circumstances were identified:

1. Where the FEC’s volume of HE provision is very small. They argued that such provision should be funded indirectly to ensure that adequate resources were available to support the student experience.
2. Where the college is proposing to maintain both a direct and an indirect funding route for different parts of its provision. Respondents argued that colleges should choose one funding route for all provision, to simplify and make more coherent the Council’s funding relationships with individual FECs and the FE sector as a whole.

Existing provision directly funded by the FEFC

16. We invited comments on the proposal that FECs with provision currently funded by the FEFC should be able to choose whether to have this provision directly funded by the HEFCE in future, or to transfer the student numbers and funding to an HEI, and to make the provision under franchise.

17. Most respondents (63 per cent) agreed with this proposal, although in general FEC respondents were most positive. That said, 56 per cent of the HE sector respondents supported the proposal.

18. Nine per cent of all respondents, from across both sectors, rejected the proposal. They took the view that, under certain circumstances, we should not give colleges discretion, and instead should prescribe the funding route for existing directly funded provision. The reasons mirrored those in paragraph 15.

New provision

19. Comments were invited on the proposal that FECs seeking additional funded student numbers in future should be able to make a case for these numbers to be either directly funded, or under franchise to an HEI or FEC.

20. The majority (68 per cent) of all respondents agreed with this proposal, although in general the FECs were more positive than the HEIs; 60 per cent of the HEIs supported the proposal.

21. Seven per cent of all respondents, from across both sectors, rejected the proposal. They argued that under certain circumstances, we should not give colleges discretion, and instead should prescribe the funding route for new growth in FECs. The reasons mirrored those in paragraph 15. An additional concern was that allowing FECs to bid directly for additional student numbers would exacerbate existing competition between FECs for local students by enabling them to set up rival programmes.

FEC consortia

22. Although it was not a specific consultation point, embedded within the consultation paper was our proposal that, in some circumstances, it might be appropriate for an FEC to provide an indirect funding route to another FEC. For example, we stated that an FEC with a large HE programme could provide an indirect funding route for an FEC with small numbers of students, or act as a lead institution on behalf of a consortium of neighbouring FE providers.

23. Only 13 per cent of all respondents commented on this proposal. The majority of comments were positive and originated predominantly, but not exclusively, from FECs. Not many of the respondents who rejected the proposal explained their reasons fully, but they clearly felt that an indirect funding relationship with an HEI was more appropriate.

Regulating indirect funding relationships

24. Comments were invited on the proposal that franchised (indirectly funded) provision should be subject to regulation, and on the nature of such regulation.

25. The FECs and HEIs were divided in their response to the principle of regulation.

26. Of FEC respondents, 65 per cent were positive about regulation, arguing that it was essential if they were to have sufficient confidence in the nature of indirect funding routes as an alternative to a direct funding route. Only 5 per cent of FECs rejected the principle of regulation.

27. In total 55 per cent of the HEI respondents commented on the principle of regulation: 33 per cent were positive about regulation as means to encourage good practice; 22 per cent rejected the principle, believing that it would be overly prescriptive.

28. Respondents from both sectors who rejected the principle of regulation argued that it was unnecessary because:

1. The QAA already provides a regulatory mechanism.
2. The new funding approach, where it is proposed that FECs should have greater discretion in selecting their funding route, will mean that indirect funding needs to be as attractive an option as direct funding. This should be sufficient incentive for partnerships to embed good practice if they have not already done so.

29. In discussing the potential nature of regulation, the consultation suggested three terms and conditions for indirect funding partnerships between HEIs and FECs. These were an agreement that the HE provider would receive from the contracting institution an appropriate amount of funding; a contract between the HEI and the provider which guarantees student numbers for the provider over an agreed period; and adherence to the QAA’s code of practice for collaborative arrangements.

30. Most respondents did not comment on the proposed terms and conditions of regulation. The majority of those who did comment were FEC respondents and positive about the suggestions. In some cases they argued that we should be more prescriptive than suggested in the consultation, particularly regarding the level of funding transferred from the HEI to the FEC.

Annex B

Arrangements in Wales

1. The Higher Education Funding Council for Wales (HEFCW) introduced a pilot initiative in 1997 for direct funding of selected HE programmes in FECs. Previously there was no general practice of direct funding of HE in FECs, although the HEFCW had continued its predecessor body’s practice of funding a limited range of HE courses at two particular FECs. In addition, as in England, there is a range of HE programmes franchised by HEIs in FECs. The new programme is described in HEFCW circular W97/31HE. It is open only to those FECs which have all of the following:

1. At least 2,000 FTE students in total and an enrolment of 200 FTEs or 400 students in the subject area in which the FEC is seeking to develop new courses;
2. A strong track record in providing programmes at HE level, whether franchised or directly funded. If those programmes are not in the same subject area as the proposed new programme, then the FEC must have experience of delivery in that subject area at FE level.
3. A strong quality profile, both overall and in the relevant subject area.

2. All FECs seeking direct funding from the HEFCW are obliged to form a compact with an HEI. The HEI should normally have HE/FE experience in the relevant subject area. The compact must cover:

1. Financial arrangements – the payment to be made to the HEI by the FEC for provision of services.
2. The period for which the compact is to be established, which should not be less than two academic years.

3. The compact might also cover:

1. Progression opportunities – an indication of the progression opportunities available at the HEI, including student transition and transfer arrangements and, where appropriate, bridging course provision.
2. Assistance with course development, if required. The partner HEI might be expected to have particular expertise to assist the FEC in developing the course, including providing advice on credit rating.
3. Validation, if required. The proposed new course might be validated and/or quality assured by the HEI, or by an external or professional body.
4. Staff development – details of staff development arrangements provided by the HEI for the teaching and other staff involved with the proposed course.
5. Use of campus facilities, where appropriate. This might include assistance from the HEI with provision of library, laboratory or other facilities.