Ministers have been forced to bring in a troubleshooter in an attempt to rescue a huge building programme that has ground to a halt because of the credit crunch.

John Denham, the Skills Secretary, has just appointed Sir Andrew Foster to investigate the crisis facing a programme of building or renovating sixth-form and further education colleges, The Times has learnt.

Sir Andrew, former chief executive of the Audit Commission, will be asked to investigate why the project, operated by the Learning and Skills Council, has run out of money.

The LSC, the Government's body responsible for allocating funds, has frozen the programme for three months. It said that colleges had to raise part of the capital before they were given grant funding, but they had been unable to do so because land values had plummeted and bank loans dried up.

Some colleges went ahead with their plans, expecting the Government to bail them out to the tune of nearly £1 billion, industry insiders told The Times. At least 42 college buildings are now under threat and some may never get the go-ahead, government sources have admitted.

Mr Denham and other Cabinet ministers are furious that building work has stalled just when the Government is trying to boost the economy with public sector construction. But other capital programmes, including those built with Private Finance Initiative funds, are also under threat due to the economic crisis.

PFI schemes worth hundreds of millions of pounds for roads, waste plants, hospitals and defence projects are now under threat because the banks are reluctant to lend money.

The Times has also learnt that 60 projects worth more than £2.3 billion, and involving more than 100 schools, colleges and hospitals, have also been delayed or are on hold due to financial and planning difficulties.

The £45 billion Building Schools for the Future programme, half of which is under PFI, is also facing serious problems finding finance to rebuild or refurbish 3,500 secondary schools.

Behind the scenes, the Treasury is now exploring a range of options to try to restart the schools scheme, including shorter timescales for PFI deals. A £300 million loan from the European Investment Bank has been agreed and some councils are now offering bridging finance to allow building to start.

Partnership for Schools, which is responsible for monitoring the programmes, said that so far about six banks had come forward to offer finance. Talks are being held with other possible funders, such as Norwich Union, the insurance company, and Nationwide, the building society.

Tim Byles, chief executive of Partnership for Schools, said that banks were reluctant to offer as much as they had in the past, so in most cases several institutions were clubbing together for one project.

“Many are only prepared to lend £30 million to £50 million rather than hundreds of millions,” Mr Byles said. In addition, many banks are favouring a shorter time period to lend money.

Most PFI projects span 20 to 30 years, with the local authority or health trust paying the money back in instalments. But Mr Byles told The Times that banks were more interested in deals over seven to ten years which could be refinanced when the contract came to an end.

In some areas councils are offering to support the projects while PFI negotiations continue. In Newham, for example, the council offered a bridging loan to help two schools projects before the PFI deal was closed.

The Learning and Skills Council held emergency meetings last week with 22 colleges that were expecting to start rebuilding work this spring.

Dr David Collins, president of the Association of Colleges, said: “The LSC has encouraged colleges to do bigger builds than were intended. For some reason they seem to have lost track of the amount of money that was in the system. At the very time when Gordon Brown is talking about the opportunities for more publicsector involvement, the LSC is sending out a contradictory message.”

A spokesman for the Learning and Skills Council said that nearly 700 projects had been agreed at 330 colleges and only 42 colleges had not yet benefited from investment.

“However, the pace of demand for funding has increased because the scale of ambition and the government funding they require has grown,” he said. For this reason all bids that were in the pipeline would be examined individually before further decisions were made.

“The 253 colleges that are under way already will go ahead,” he said.

Additional reporting: Joanna Sugden and Laura Dixon

Running out of money: capital projects delayed, on hold or at risk

M25 expansion Work is set to begin on the planned extension of the M25 in April to guarantee completion in time for the Olympics in 2012. But the consortium running the project is still looking for private-sector finance to support the scheme to convert the remaining three-lane sections into four lanes. The £5 billion-over-30-years contract was given to Connect Plus, a consortium made up of Balfour Beatty, Skanska, Atkins and Egis Projects, last May. Bidding for the project was due to close at the end of last year but the consortium pushed that deadline back to “early 2009”. The Highways Agency denied that problems in securing funding would cause any delay to the project's start date. A spokesperson said: “The contract is not on hold. We remain confident of a successful outcome... Connect Plus is in constructive and regular dialogue with the potential funding banks and we know they are keen to participate.”

Birmingham secondary schools The £1.2 billion plan to rebuild or refurbish every secondary school in Birmingham under private finance initiatives has been delayed twice since last month. The council is stalling on the choice between the final two bidders, Catalyst Lend Lease and Land Securities Trillium, to carry out further “evaluations” of the companies and their bids, a spokesman for Birmingham City Council said. The decision has now been postponed until next month, having already been put off from December to January. There is speculation that the council, fearing the withdrawal of bank loans from construction companies, has got cold feet and is demanding cast-iron guarantees of financial stability before it awards the contract. The programme would entail the rebuilding or renovation of 89 schools over the next 15 years - the biggest redevelopment of schools in the country.

London 2012 The public bailout of the Olympics now stands at half a billion pounds after private financing dried up for two key venues on the East London site. The £355 million press and broadcast centre was nationalised last week and £326 million was used to keep the construction going on the £900 million Athletes' Village. The building work to accommodate thousands of competitors and team officials could still drain another £500 million from the public purse if Olympic chiefs fail to strike a deal with the Australian construction company Lend Lease for a cash injection before 2012. The use of contingency funds to support basic construction work on the Olympic Park has left ministers with reduced financial flexibility to react to extraordinary events such as a terrorist attack, industrial dispute or last-minute cost overruns. Only £600 million of a £2.7 billion contingency fund remains unallocated with three years to the Games.

Northwick Park The redevelopment of Northwick Park Hospital, in North London, would have seen a major “state of the art” facility replace the existing outdated estate, but the project has been stalled. The plans were first approved in 2004 but, five years on, there is still uncertainty about the scheme. The hospital said the £305million redevelopment was “on hold”, while the Department of Health went further yesterday and said that the scheme had been cancelled. A spokesperson for the hospital said: “Plans for this redevelopment were put on hold in the light of overall affordability and also to await the outcome of national, London and local strategic reviews of how patient services should be provided in the future.” The Department of Health said: “The scheme at Northwick Park in its current form was formally cancelled in the summer after being effectively ‘on hold' for over a year while it was subject to a local service review.”

Times Recommends

• The playboy and the Tory party leader
• Bin Laden's family tree is impenetrable jungle
• Paul McCartney