FE merger musings: can a college be forced to merge?

The prospect of area reviews has prompted a number of institutions to contact us to ask what the position might be if they did not wish to implement any recommendations arising as part of such a review. Could they, for example, be forced to merge against their will?

BIS’s policy document  Reviewing post 16 Education and Training Institutions recognises that it is for individual governing bodies to decide whether or not to accept the recommendations made as part of an area review. However, the document also says:

In considering the outcomes of reviews it is important that college governors give careful weight to the long term stability of their institution and to their broader duty under charity law to comply with their legal obligations as charity trustees in exercising control and management of the administration of the college as a charity. The Secretary of State retains powers to intervene in college governance where there are substantial concerns that it is being mismanaged or significantly under-performing.  We expect institutions to take the right action, in light of the findings of a review, to ensure that they are resilient and able to respond to future funding priorities. Ultimately we expect the funding agencies and LEPs to only fund institutions that have taken action to ensure they can provide a good quality offer to learners and employers, which is financially sustainable for the long term.

So how do we unpick this?

Determining the strategy and future direction of a college is a non-delegable function of the governors, and the governors alone. It is not a wholly unfettered discretion though: as set out in my last blog on the subject, as charity trustees, the governors must ensure that the strategy/direction they set for the college is the best way of delivering its charitable object of delivering education and training for the public benefit. This could in certain circumstances mean merging with another college, particularly if the alternative is going bust or having to save costs by reducing the provision available to college learners.

The Secretary of State retains a power of intervention which is exercisable in the following circumstances:

·         Mismanagement of the college’s affairs;

·         A failure by governors to discharge any duty imposed on them by any Act;

·         Where governors are acting or are proposing to act unreasonably in relation to any power or duty under any Act; or

·         The college is performing less well than it could reasonably be expected to or is failing to provide an acceptable standard of education and training.

In situations where a college is struggling either financially or in quality terms, and governors are refusing to adopt reasonable recommendations including a recommendation to merge, the case for intervention may be made out.  Beyond that, though, it is difficult to see how intervention could reasonably be considered lawful and justified.

A further constraint on widespread use of the power of intervention may lie in the ONS decision to reclassify colleges as private sector bodies in 2012. Its report of the decision makes it clear that if the power of intervention were to be used other than in situations of mismanagement or poor performance, it could call into question the reclassification. Using intervention powers to achieve policy or funding priorities would not only be an abuse of the power but could also represent an assertion of control by the public sector over the general corporate policy of an FE college, meriting reclassification back in to the public sector. This would not be a desirable outcome for anyone.

In the interests of completeness, the Charity Commission also has powers to investigate mismanagement by trustees, but these are unlikely to be used given the direct power of the Secretary of State referred to above, and, in any event, would not be applicable to colleges that are not in difficulty or being mismanaged.

This leaves the suggestion that pressure might be brought to bear via SFA/LEP funding levers. Again these are not difficult to apply in the cases of poor quality provision or financially risky providers. However, in the case of good quality provision and sustainable providers, it would arguably be an abuse of the power to fund to withhold or remove funding to achieve an ulterior motive, namely a reconfiguration of FE providers.

So in summary, it will be very difficult to force colleges to merge unless they are financially weak or of poor quality. That is not of course to say that governing bodies won’t find themselves under pressure to merge, if that is what the area review concludes is best. But the destiny of their colleges will remain in their own hands.

Smita Jamdar 
Partner and Head of Education
T: 0121 214 0332
E: smita.jamdar@shma.co.uk
W: www.shma.co.uk

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