About 180 learning providers have joined forces to bring the action, despite an offer of limited compensation from the government, following a highly critical report by the Parliamentary Ombudsman, revealed in Computer Weekly last month.
"There is very clearly a wrong committed here. A lot of people have been very badly injured. We want to ensure compensation for consequential loss, including loss of profit caused by the scheme's closure," said lawyer Nick Smith of ANG Solicitors, who is representing the firms.
The action follows three enquires into the ILA debacle which heavily criticised the DfES and IT supplier Capita for mismanaging the programme and leaving it open to fraud by failing to adequately secure its IT systems.
Directors of the training companies told a fraught meeting of MPs and government officials last week that they had still not been paid hundreds of thousands of pounds by the government for providing IT training courses to the public, more than 18 months after it abruptly brought the scheme to a halt.
Many have been forced to close their businesses, lay off staff, and even remortgage their homes or raid their pension funds to survive, said Roger Tuckett, director of a training company forced out of business by the closure of the ILA scheme.
Delays by police investigating claims of fraud meant that legitimate training companies were being deprived of the payments owed to them, training companies said.
Suzanne Orr, the DfES official responsible for the ILA scheme, used the meeting to issue a public apology to the training providers. "We are very sorry for the difficulties that some learning providers have experienced with the ILA programme during 2001 and fully support the report by the Parliamentary Ombudsman," she said.
Capita, which managed the IT systems behind the ILA scheme, struggled to defend itself against a barrage of claims of incompetence from learning providers.
They accused the firm of staffing its call centre with untrained youngsters who were clueless about the operation of the scheme, refused to give their names, gave contradictory advice and refused to put answers in writing.
Training companies complained they were being penalised by the DfES for failing to follow the rules of the scheme, when Capita's own staff appeared to have no idea what the rules were.
"Personally, I cannot even contemplate getting involved in an ILA 2. The frustration we felt at not been able to get answers about the scheme was indescribable," said Paul Tranter of training company Vanguard Alliance.
The Eduction and Skills Select Committee told the meeting it would hold further hearings into the ILA debacle in coming weeks.