Four further education colleges are poised to sue the Employment Department over its handling of the collapse of a London training and enterprise council.

The colleges have asked lawyers to begin assembling a case which, if succussfully pursued, would challenge the ED's claim that it is not responsible for TEC activities. Such an outcome would also call into question the relationship between Government departments and quangos like the further and higher education funding councils.

The move comes a week after the Further Education Funding Council for England published a new guide advising colleges and TECs on how to work together.

It follows the folding of South Thames TEC last year, which left Lambeth College, Lewisham College, Southwark College and Woolwich College, owed nearly Pounds 2 million for training carried out under contract with the TEC.

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A claim for full compensation by the colleges was turned down by the ED on the grounds that TECs were private trading organisations for which it held no responsibility. Meanwhile the Government Office for London, which took over the funding of training temporarily while arrangements were made for neighbouring TECs to fill the hole left by South Thames, refused to pay for any work done after November 8 last year. The result, say heads of the colleges, is that they have been left with a liability which has led to compulsory staff redundancies and cut-backs in programmes and equipment.

In a letter to all FE sector college principals, they describe the ED's position as "absurd". "A TEC cannot be seen as a separate, private company except in the most legalistic and narrow of terms. The TECs were the creation of Government: without the franchise to run publicly funded training schemes, they would not exist. The whole policy of the Government has been to build organic relationships between FE colleges and the local TECs."

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Geoff Pine, principal of Woolwich College, said written counsel's opinion on the strength of the case would be sought in two weeks time. "We are looking to direct our claims directly at the ED, on the grounds of their role in relation to the TECs," he said.