College closures and debts in Saudi Arabia — just how bad is it?
In 2013-14 a host of UK providers jumped at the chance to take part in a programme in Saudi Arabia that provided the opportunity to share their expertise overseas. The UK government promoted the ‘Colleges of Excellence’ programme widely, calling the huge contracts secured by providers a “£1 billion exports win for UK education” and championing involvement in the region.
The ‘winning’ UK institutions set about establishing their new colleges in the region, with the aim of furthering vocational education and training in Saudi Arabia for men and women. But two years on, the programme has not lived up to expectations and an FE Week investigation has uncovered grave financial problems at some of the colleges taking part.
With the projects in Saudi struggling to recruit students and some colleges in the region being forced to close, some UK providers are now mired in damage control. FE Week senior reporter Alix Robertson examines the extent of the problems.
Lincoln College — a challenging overseas venture
Lincoln College has included a significant loss associated with a contract in Saudi Arabia in its accounts for 2014/15, FE Week can reveal.
The accounts, which all colleges submit each year to the Skills Funding Agency (SFA), show that involvement in the Colleges of Excellence (CoE) programme has led to the college facing financial challenges.
FE Week understands that this is likely to result in an SFA financial notice to improve.
In March 2014, Lincoln College was awarded a huge contract worth £250m from the CoE programme, a scheme designed to improve technical and vocational education and training in Saudi Arabia. Winning the opportunity to go to the Middle East and run three new colleges was seen as a coup for the college. However, after recruitment problems led to two of the colleges in the Al-Aflaj region being closed down, the costs began to mount up.
Commenting on the colleges’ finances, a spokesperson for the SFA said: “We make judgments on the financial health of colleges based on colleges’ financial plans and their published, externally audited, account statements.
“We are currently in discussion with the college about their end of year financial position.”
The CoE programme was promoted by the UK government as a good opportunity for both the education sector and the economy. Lincoln College had to compete against 50 other applicants from across Europe, America, Canada, Australia and New Zealand for the contract.
The successful bid meant it would be responsible for Lincoln Al-Aflaj Female College of Excellence, Lincoln Al-Aflaj Male College of Excellence and Lincoln Al-Muzahmiya College of Excellence, with a focus on developing English language skills in a vocational context.
At the time, the managing director of Lincoln College International (LCI), Simon Plummer, saw great potential for the project.
He said in a college press release dated March 13, 2014: “We aim to replicate the success we’ve had in the UK in Saudi Arabia and help the 4 per cent of under 30s who are currently unemployed to find jobs.
“Staff and students in the UK will also benefit as we will be able to ensure that surpluses resulting from this five-year £250m contract will be used to further improve the facilities at its campuses in Lincoln, Newark and Gainsborough.”
Lincoln planned to initially employ 100 staff across the three Saudi colleges (primarily UK residents), with further recruitment drives in December 2014 and April 2015.
However, in January 2016, less than two years into the programme, Lincoln College announced via its lincolnksa.com (Lincoln Kingdom of Saudi Arabia) website that its two Lincoln Al-Aflaj colleges would be closed by the end of the month.
A statement on the website said: “Unfortunately, the number of students able to participate in this unique education in Al-Aflaj is not sufficient and, in agreement with CoE, we have taken the decision to close both Lincoln Al-Aflaj Colleges.
“Our intention is to close the colleges to students this trimester, with the last day of teaching later this trimester.”
FE Week questioned the college further on the closures, and received the following statement from an LCI spokesperson: “By mutual agreement, two colleges in Al-Aflaj were closed during this trimester, enabling us to concentrate our focus on enhancing further our work in Al-Qatif for our learners there and maximising benefits to the wider Lincoln College Group.”
Lincoln College — board minutes reveal ‘surprise’ at loss from venture
After the college closures, FE Week analysed Lincoln College’s board meeting minutes, finding that the extent of the financial impact of the Saudi project is still unclear.
Minutes from December 15, 2015 confirm the reasons given for the college closures in Saudi Arabia, stating that, in Al-Aflaj, “the local population would not bring in the student numbers to support the college, particular due to the other provision in the area (vocational college and university) and it was felt the due diligence had not been effective”.
They emphasise that because the college is the only provider operating as a single entity in Saudi Arabia, the risk is bigger than for other providers, who have partnered with other organisations and therefore spread the risk.
Crucially, these minutes record that the chief executive officer “explained a verbal agreement had been reached to: close both colleges; give free choice of new college/s; defer the bridging loan repayment until March; undertake a joint review; consider contract extension”.
FE Week questioned Lincoln College on these points and the nature of the “bridging loan” in particular.
A spokesperson for the college refused to comment on the size of the loan and whether it would be paid in March, saying the figures were commercially sensitive.
When asked by FE Week if the “free choice of new college/s” meant Lincoln would be taking on new projects in Saudi, despite having to close two colleges, the spokesperson said: “We would consider other colleges should the opportunity arise and should due diligence and process conclude they were viable”.
The minutes from December 15, 2015 also highlight a “deficit” in the college’s KSA finances.
They state: “The COO [chief operating officer] will be visiting KSA in February to follow up on the rebuilding of the financial model. The Chair asked for an indication of when the finances would move into the positive and the COO responded that within the five year contract there would not be a deficit.”
When this point was queried with Lincoln, the LCI spokesperson said: “These accounts spanned an 18-month period and not the usual 12-months. They included unforeseen exceptional costs.”
He added that these “exceptional costs” were related to the “initial mobilisation and recruitment for a male college, which was discontinued by CoE and replaced with the female college in Al-Qatif”.
The spokesperson said other problems included the fact that members of staff recruited for the male college were not transferable to the female college and costs were incurred by “damage to IT Infrastructure”.
He added the college is seeking compensation for these losses from CoE.
FE Week also found in minutes from a meeting on December 10, 2015 that the loss recorded against KSA was “a surprise” to the college’s Finance Committee. The minutes state that after this an agreement was made to keep the committee updated through “monthly management accounts”.
Going back to Lincoln’s early involvement with the programme, minutes from a May 20, 2014 meeting refer to the College Board agreeing to secure “£5.7m credit with NatWest Bank”. FE Week asked the college whether there were any concerns about repaying this loan.
The LCI spokesperson said: “Minutes referring to £5.7m of credit simply relate to the initial bond taken out to mobilise our colleges in the Kingdom at the start of the contract.
“In relation to our ability to meet loan repayments; our Al-Qatif college is forecasted to make enough surplus funds to repay the loan.”
Of Lincoln College’s overall involvement in the CoE programme, he said: “LCI has been in constructive discussion with CoE for some time over the re-negotiation of our offering in KSA.
“The initial framework allocated providers with a mix of large colleges in areas with significant recruitment potential and smaller ones in more rural locations.
“It was anticipated that across each provider’s portfolio, there would be balance. This has proved not to be the case — a fact recognised by CoE, who have been proactive in approaching providers to re-negotiate terms with them.”
Hertfordshire colleges facing financial ‘losses’
A Hertfordshire college consortium may also be facing serious financial challenges as a result of involvement in the Saudi Arabia CoE programme, FE Week has found.
The Hertfordshire Vocational Education Consortium (known as Hertvec, or Hertfordshire London Colleges in Saudi Arabia) won a five-year £225m contract from the CoE in April 2014.
The consortium would run three Colleges of Excellence in Saudi Arabia, with a total capacity of 2,000 students each. As with Lincoln College, this presented significant challenges and questions remain about the impact on the Hertfordshire group.
Hertvec began as a partnership between Hertford Regional College (HRC) and North Hertfordshire College (NHC) supported by the University of Hertfordshire and Samama Holdings Group, a Saudi Arabian company specialising in construction and facilities management.
However, following an enquiry from FE Week, a spokesperson for the University of Hertfordshire confirmed that the university pulled out shortly after the bid for the contract.
She said: “The University of Hertfordshire was part of the initial bid proposal process regarding the three colleges in the Kingdom of Saudi Arabia.
“However after careful consideration, the University decided not to participate in the organisation, delivery or administration of the colleges … We have no involvement of any kind with these colleges in the KSA.”
And on analysing the board meeting minutes of NHC and HRC, FE Week found that the CoE programme may have jeopardised other relationships within the consortium —as well as causing financial concerns.
The NHC Corporation Board meeting minutes from September 7, 2015, state: “We have agreed with HRC a 90 day option, to mid Sept, to replace them as a partner in Hertvec. HRC have agreed to pay 60 per cent of the losses to date and also make a one off payment of £250k to NHC.”
FE Week contacted HRC and NHC to clarify this, asking whether it meant that HRC is no longer part of the Hertvec consortium and the CoE programme.
The enquiry also asked whether HRC had been replaced by another provider, what the root of the “60 per cent” of losses was, and whether this and the one off payment of £250k had now been paid to NHC.
The individual colleges declined to comment.
Questions were also raised by the content of HRC audit committee minutes from March 16, 2015. The minutes state that “the Chair queried when the college might expect to be paid the £713,000 due from the Saudi Arabia project” and said “everything was now in place for the College to invoice for this sum” and “funding should be available this month”.
However, they also say this depended on a member of the leadership team in Saudi arranging “the release of the funding as the loan to Hertvec from the mobilisation funds [had] still not been confirmed”.
FE Week put this to HRC and NHC, asking who the £713,000 was owed to, why it was owed and whether the money was received, but the individual providers declined to comment.
Instead, a statement was issued from Hertvec, saying: “We believe that the success or otherwise of a business like Hertvec should be considered over the medium to long term.
“As should be expected for a contract of this nature our first year was a challenging one, from which we take many invaluable lessons. Over that period we have also made huge progress in building three vibrant institutions in the Kingdom of Saudi Arabia working with local employers and stakeholders.
“We remain committed to our work in the Kingdom and are working with CoE to make sure that the programme realises its objectives. We will not be making any further comments on Hertvec or the wider CoE programme at this time.”
‘Unrealistic assumptions’ says former advisor
FE Week asked Tom Bewick, an expert on overseas skills ventures who advised the Saudi government in 2012, for his views on the findings of the investigation.
He said: “I’m not surprised if some UK providers are getting into difficulties with the CoE programme.
“The Saudi approach of heavily weighting contract payments on job outcomes resulted in some very crude and unrealistic assumptions being made about the relative growth and maturity of the Saudi labour market.
“The danger is that many of the skills and employment forecasts they were working to are no longer relevant, particularly when you consider that the price of oil has dropped significantly and the Saudi economy is now struggling.
“My advice to any UK provider that’s developing market opportunities overseas is to make sure that they do proper due diligence, and crucially, employ only those who have the locally trusted business knowledge and relationships. Despite the downside risks, I do still think it is important for FE colleges to look to grow by exploiting international market opportunities.”
Background to the £850m colleges of excellence programme
In April 2014, then Minister of State for Skills and Enterprise Matthew Hancock announced that UK education providers had won four contracts worth £850m to establish 12 technical and vocational training colleges in Saudi Arabia.
In total, 100 colleges were to be set up across Saudi Arabia as part of the Kingdom’s CoE programme.
UKTI Education, jointly set up by the Department for Business, Innovation & Skills (BIS) and UK Trade & Investment (UKTI), took responsibility for bringing together consortiums to bid for the contracts, working in 2013-14 to raise awareness amongst education providers across the country.
By April 2014 UK education providers were responsible for operating 16 of the 37 colleges let at the time, valued at more than £1bn.
This included successful bids from TQ Pearson and the Nescot consortium (North East Surrey College of Technology; Highbury College, Portsmouth; Burton and South Derbyshire College; the University of Hull; and Birmingham City University) in the first wave of the programme in 2013.
The groups taking on contracts in 2014 were Lincoln College; Hertvec; the Oxford Partnership, comprising Activate Learning, GEMS Education Solutions and Moulton College; and FESA, a further consortium of UK colleges and training providers.
Mr Hancock said at the time: “I visited Saudi Arabia earlier this year in support of UK bidders and am particularly pleased that they will soon be offering high quality practical skills training to an additional 24,000 Saudi students.
“I look forward to seeing the UK’s education and training presence continue to grow in Saudi Arabia and internationally.”
In December 2015, FE Week reported that the English colleges involved in the CoE programme could be facing severe financial issues as their projects were proving less popular than expected, after an article appeared on the topic in Education Investor.
Alongside raising financial concerns, the report said TQ Pearson had dropped out of the programme in June last year and was understood to be in a legal dispute with CoE.
Other providers involved hit back at claims that the scheme might lead to bankruptcy, but UKTI Education conceded that CoE had “encountered challenges”.