London Metropolitan University has shelved a major outsourcing and shared services project in the wake of the loss of its licence to recruit overseas students, as internal papers reveal fears of financial instability.

Under the shared services/outsourcing contract, worth ?74 million over five years, all London Met services bar teaching would have been provided by an external company.

In the later phases of the three-stage project, London Met was to set up a shared services partnership with a private firm to deliver its non-teaching services, and it was then to create a "special purpose vehicle" with the firm to provide those services to other institutions.

The scheme, the first to try to take advantage of the chancellor's VAT exemption on shared services for organisations such as universities, would have signalled a major shift towards externally delivered non-teaching services in higher education.

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But following a report by the Exaro news website on 19 October, London Met confirmed that it had shelved the bulk of the project. The university will now proceed only with the first stage, in which a private firm will reshape non-teaching services but they will remain in-house.

"The university has decided to stop the shared services procurement and to replace it with an extensive and rapid business process re-engineering exercise, focused on our support service areas," a London Met spokeswoman said.

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She added: "Our student and financial landscape has shifted dramatically since the revocation of our highly trusted sponsor status ... We no longer feel that the basis on which we opened the competitive dialogue for shared services is now the best match for our new circumstances."

The loss of highly trusted sponsor status leaves London Met uncertain about future income from overseas students, a likely deterrent to potential private partners.

The university's internal risk register, drawn up earlier this month, gave the highest possible severity of impact rating, 5/5, to the risk of "failure to manage the changing portfolio of university services ... including delivering the required return from partnerships, joint ventures and other initiatives". The risk register put the financial impact at "potentially ?3.4 million".

An even greater risk, joint highest in the register overall, was "failure to achieve financial sustainability", assigned the maximum 5/5 for both likelihood and impact. Mitigations listed were "maximising recruitment and retention of students" and efficiency measures such as the shared services project.

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David Willetts, the universities and science minister, is said to have been a keen supporter of the shared services/outsourcing project. His former special adviser, Jonathan Woodhead, is executive officer to London Met's vice-chancellor, Malcolm Gillies.

john.morgan@tsleducation.com.