At the institutional level universities in Australia have put in place funding allocation models which mimic the policy model used by the Commonwealth Government at the system‐wide level, despite explicit government statements that such a model is unsuitable at the lower level. The impetus for this may be traced to the crisis in Australian higher education revolving around forced amalgamations, the introduction of the Unified National System of Higher Education, and the imposition ofgreatly increased accountability. This paper examines the contributing factors which have resulted in the Australian university sector adopting an externally contrived funding model rather than developing institutionally specific mechanism