The company responsible for failing to deliver hundreds of thousands of grants to England’s poorest sixth formers has been sacked.

Liberata’s £80million six-year contract was terminated yesterday as it emerged the company knew more than a year ago it had no hope of delivering the Educational Maintenance Allowance (EMA) on time but failed to inform the Government.

The EMA is a means tested £30 a week maintenance grant to encourage children to stay on in full time education when they reach 16. The delays to thousands of payments meant many teenagers were forced to drop out of courses because of lack of funds and one college had to issue Tesco food vouchers to tide students over.

It is the second termination of a large scale education contract this year because of IT failures. In August, the American company ETS Europe was fired after millions of 11 and 14-year-olds did not get their test results. Nick Gibb, Shadow Schools Minister, said: “Any large scale project run by this department seems to end in inept failure.

“This latest debacle is the most damaging yet as it directly undermines the educational prospects of some of the poorest children in the country.”

Last night a source from Liberata said the company knew they would not be able to fulfil the requirements of the contract a year before the deadline. He told Newsnight: “I am aware that a senior colleague of mine presented a report stating the technical and non-technical problems he had identified and said they needed to employ more staff and make technical changes - this was in October 2007.”

The Learning and Skills Council said yesterday that IT problems caused a backlog of more than 200,000 applications and announced that Capita, the company who delivered the EMA before Liberata took over last year, would be re-engaged to complete the project.

Jim Knight, Schools Minister, said 12,000 students are still owed money but made assurances they would be paid. "All delayed payments will be backdated in full,” he said. Liberata will lose future revenues of over £60million over the remaining term of the contract, he added.

David Collins, President of the Association of Colleges, said: "Liberation from Liberata will be welcomed by college students still experiencing delays in payment of EMA. Colleges will continue to support students and parents affected until such time as the situation is fully resolved."

Beth Walker, Nation Union of Student’s vice president for Further Education, said: “We fear that many students have been forced to drop out of their courses by the delays and there is an urgent need for the Government to conduct a full inquiry into this catastrophic failure.”

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