Education: The Budget has delivered a €1 billion-plus package for the third-level sector in a move that has surprised and delighted college heads.

Minister for Finance Brian Cowen announced a €900 million package for capital projects at third level over five years. This will be augmented by a €300 million allocation for a new modernisation fund at third level, operating over the same timeframe.

Known as the Strategic Innovation Fund, it will reward colleges for reform, rationalisation and cost efficiencies.

The package, the most extensive ever planned for the sector, comes after years in which the university presidents and others warned of serious underfunding and a looming crisis facing the sector, particularly since the abolition of tuition fees.

The new package makes it less likely that college fees will return in the short to medium term.

Last year a landmark OECD report on third level called for a "quantum leap" in funding in order to allow the Republic to compete internationally. Until yesterday's Budget, there was little sign that this would materialise.

There was a widespread sense of elation across the third-level sector last night.

The €900 million in capital works will be divided between Exchequer funding (€600 million) and projects funded through public-private partnerships (€300 million).

The money, designed to build modern facilities and upgrade existing accommodation, will be directed largely towards areas prioritised by the Government - facilities for science, technology and research.

The €300 million for the modernisation fund could see colleges having to compete with each other for monies.

In his Budget address, Mr Cowen also placed some stress on the need for colleges to collaborate more closely. It is likely that effective co-operation between colleges will also help to secure additional funds.

The new fund is a boost for the likes of UCD, Trinity and UCC, which are pushing through radical - and very contentious - restructuring programmes.

It is likely, too, that the universities and the institutes of technology will compete for allocations from the reform fund. The Higher Education Authority is to establish detailed criteria for awards.

Colleges will be asked to submit their plans and will be "rewarded" for changes including:

Internal restructuring and streamlining efforts;

Teaching and learning reforms;

Promoting wider access for lower socio-economic groups;

Providing improved management information systems;

Providing improved management performance systems;

Demonstrating that real and clear benefits will derive from the proposals.

The Strategic Innovation Fund could also reward colleges that meet overall economic needs by providing more graduates in disciplines such as science and technology.

By some estimates, the Republic will need more than 300,000 skilled graduates in the period to 2010.

The Government has stressed that the return of tuition fees for undergraduate students was "off the agenda".

The return of fees was the main recommendation of last year's OECD review.