School Privitization Needs Better Contracts

Published January 1, 1997

When the Baltimore, Maryland public school system cancelled its management contract with Educational Alternatives Inc., opponents of the arrangement lost no time in dancing on the grave of school privatization. However, as Mark Twain might have observed, reports of its death have been greatly exaggerated.

EAI took over the management of 12 poorly performing public schools in Baltimore in 1992. In 1994, the company entered an agreement to manage all of the schools in the Hartford, Connecticut school district. Both contracts are now terminated, prompting critics like National Education Association President Robert Chase to say “I think EAI has learned a lesson not to be lost on others: schools are unlike other businesses.”

However, the real lesson to be learned from the failure of EAI is not that schools aren’t businesses, but that businesses have to write better contracts with schools. EAI’s problems arose from poorly written contracts, not from their efforts to treat schools as businesses. The concept of privatizing school management is not flawed. In EAI’s case, its execution was.

EAI’s Baltimore contract gave the company virtually no authority over school personnel. EAI could not hire teachers or administrators, nor fire them, nor even affect their evaluations. EAI could bring new technology, teaching materials, and supplies into the classroom, but it could do nothing about the staff that was supposed to work with those resources. By contrast, teachers in Edison Project schools are employees of the company, not the school district (see related article on page 10).

EAI also left itself with little control over finances. In Baltimore, EAI’s profitability was doomed when the school board asked the company to cut $7 million from its budget. In Hartford, profitability became impossible when the cost savings that EAI had achieved were spent by the school board on other items.

Another difficulty faced by EAI was evaluation of the results it had achieved. Survey data show that parents are happy with EAI schools, and EAI points to test results that show students in its program performed substantially better in “longitudinal growth”than students in other Baltimore public schools. The school district says there is no difference. The EAI contract made no provision for arbitration of such a dispute.

In the future, says EAI President Philip Geiger, the company will insist on contracts that are cancelable only for cause, specify shared savings, and provide more direct authority over teachers. Ultimately, the EAI experience represents the sort of valuable “failure”that takes place in the marketplace all the time. Future privatization efforts will benefit from EAI’s pathbreaking work.