This week Sir William Stubbs sat before the Public Accounts Committee for a grilling on the financial health of his two-year-old baby, the further education sector.

The chief executive of the Further Education Funding Council faced questions on the 435 colleges entrusted to his care ranging from the level of executive pay to the openness of governors' activities. One college had not had its accounts signed by auditors because they did not like the look of the figures; two found their franchised courses going off the rails; another five have asked governors to return irregular payments.

Teething troubles, said Sir William. We are trying to get it right. But the PAC did not ask the really big questions: about the effect of the immense pressure on colleges both to grow and to be more "efficient", and to converge costs within a narrow range, amid increasing industrial relations hostility.

Education secretary Gillian Shephard has set a target of 28 per cent growth in four years, with an assumed per capita "efficiency gain" of 5 per cent per year. The FEFC convergence target is plus or minus 10 per cent of the median level of funding, from a range which now stands at plus or minus 28 per cent.

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Sir William was not asked how many colleges he foresees closing as a result; how many redundancies are needed; how the squeeze will affect quality once class sizes have gone up and staff have been shed.

Further education faces major challenges. Unlike the university sector, demand for increased numbers of places is below, not above, Government aspirations.

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Colleges have to go out and drum up custom. FEFC is easing the growing pains by translating student expansion targets into units, where extra units can be gained by the same number of students provided that retention, completion and achievement rates improve. Many colleges are successfully proselytising in local communities which were blind to learning opportunities. But those which grew rapidly before incorporation are left wondering where more expansion will come from - and meanwhile have to reduce costs (staff).

To go for growth colleges need not just the flexibility of lecturers but also their goodwill. The great failing of the sector has been the way the dispute over new contracts has been allowed to fester unresolved for two years.

Lecturers' union Natfhe and the Colleges' Employers' Forum must share the blame. They also need to sort it out before they are blamed for colleges failing. Although CEF chief executive Roger Ward can claim the moral high ground for agreeing to talks at Acas, his non-bargaining bargaining persona is as inappropriate as the cuckoo-land leftism of some of the Natfhe national executive.

Just when co-operation and good management are needed, the pressures of the dispute, added to external pressures over qualifications, grants, and predatory sixth forms is taking a toll on principals. What further education needs is structural stability while the bugs in the funding system are sorted out and while the larger external issues are addressed.

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