Grants worth up to £185 million made to universities to boost their business links last month could be in jeopardy because of a legal challenge from vice-chancellors who missed out on the awards.
Heads of at least six universities that had bids rejected in last month's Higher Education Innovation Fund competition have said the allocations were "perverse" and should be scrutinised. One university confirmed that it had taken legal advice and may seek a judicial review.
The universities argue that the Heif competition denied funds to universities with proven records in knowledge transfer, the so-called third-leg activity the fund was set up to support.
They also argue that the allocations went disproportionately to old universities, which already take the lion's share of traditional research funding, contradicting the aims of the Government's White Paper on higher education.
It has also been claimed that the referees for the bids were given insufficient time to consider each application properly.
Alan Roff, deputy vice-chancellor of the University of Central Lancashire, which received no institutional funding, said the university had "grave concerns" about the allocations.
His university has joined a consortium of North West institutions that were denied funds - Jincluding Manchester Metropolitan and Salford universities and Bolton Institute - Jto demand a review.
He said the North West had a success rate of 30 per cent compared with 60 per cent nationally.
Concerns over the allocations were not restricted to the North West.
Malcolm Grant, the provost of University College London, said: "UCL is dissatisfied with the decision and has grave concerns about the process and is taking appropriate steps."
Tony Dickson, deputy vice-chancellor at Northumbria University, said: "The outcomes will be challenged vigorously, if necessary through resort to due legal process."
The Higher Education Funding Council for England announced the Heif grants, worth £185 million over two years, last month. The 2003 White Paper said the funding would "support non-research intensive universities".
Hefce made 124 awards. Of 35 bids that were rejected, 20 were from higher education colleges, eight from new universities and seven from old universities. Cambridge University won £2.3 million and Imperial College London, £2.4 million.
Kel Fidler, vice-chancellor of Northumbria, has seen Hefce's guidance to referees. He told The Times Higher that he was concerned about the time referees had to review each bid.
"The workload set out for the referees was horrendous," he said. "I really wonder if questionable judgements were made by extremely busy referees."
Rama Thirunamachandran, director of research and knowledge transfer at Hefce, said: "Inevitably, a competitive bidding process leads to winners and losers, and it is clear that a more stable and substantially formulaic allocation process is highly desirable for 2006 and onwards.
"We are confident that the process, involving four separate streams of assessors and the advisory board, was robust and transparent." There was more regional input than in the previous Heif round, with regional development agencies closely involved in the assessment process.
Dr Thirunamachandran, who could not comment on individual bids, said:
"Hefce has already provided consolidated factual feedback from the assessments regarding all proposals for which no funding was awarded."