Choosing an Education Contractor: Assessing Financial Viability and Organizational Capacity

1. Choosing an Education Contractor:Assessing Financial Viabilityand Organizational Capacity Presented at: 3rd National Summit on Successfully Serving Students with Disabilities in Charter Schools November 9, 2006 Presented by: Carol Cohen The Finance Project

2. Why Are Financial Viability and Organizational Capacity Important? Contractors should have the financial capacity to sustain quality services and customer support over the long term. • Financial management system • Financial stability • Diverse and sustainable funding A strong organizational management and staffing structure indicate that an organization has the capacity to meet the goal of providing quality services. • Management and staffing capacity • Internal performance analysis • Customer service orientation

3. Financial Viability: Financial Management System What to Look For: • An unqualified opinion from an auditor. • No reportable conditions and/or material weaknesses in internal controls. • Minimal number of comments, recommendations, or observations. Red Flags: • No audit. • A qualified opinion in the last 3 years. • Any material weaknesses.

4. Financial Viability:Financial Stability What to Look For: • Access to cash or sufficient reserves. • Good credit rating. • Minimal number of canceled contracts. Red Flags: • Does not have sufficient reserves or access to cash. • Has had to delay payroll at least once in the last year. • Poor credit rating (medium to high risk of late payment). • Has had to cancel multiple contracts.

5. Financial Viability:Diverse and Sustainable Funding What to Look For: • Funds are largely made up of fees for service. • Funds come from multiple sources. • Contractor is not overly dependent on one source of funding. • Contractor has reasonable growth plans. Red Flags • A large percentage of revenues are from grant sources (as opposed to fees). • Dependence on 1-2 large funding source(s). • More than 30% of funding from a single source.

6. Organizational Capacity:Management and Staffing Capacity What to Look For: • Management team with solid expertise in education. • Organizational structure that clearly assigns responsibility for key functions. • Board with appropriate experience, including education and business. • Large majority of staff (>80%) who work directly with school personnel with at least 5 years of direct K-12 experience. • Formal training program for new and continuing staff. • Clients feel staff are well-trained and experienced.

7. Organizational Capacity:Management and Staffing Capacity (con’t) Red Flags: • Management responsibilities are not clearly assigned. • Board does not have sufficient nor varied expertise . • Many open staff positions and/or high turnover. • Many staff do not have significant K-12 experience. • Absence of a clear plan for orienting/training staff. • Recent clients are dissatisfied with quality of personnel.

8. Organizational Capacity:Internal Performance Analysis What to Look For: • Regular internal performance analysis on all products and services. • Changes made in resource use as a result of performance analysis. • Regular solicitation of client feedback on performance. Red Flags: • Cannot specify any internal assessment efforts. • No evidence of or unwillingness to share information about changes made due to internal analysis. • Not willing to share names of recent clients. • Does not solicit feedback from clients.

9. Organizational Capacity:Customer Service Orientation What to Look For: • Evidence that contractor provides timely, responsive customer service (CS). • Contract/workplan specifies technical services/CS resources. • Recent clients attest to CS and an overall positive experience with the contractor. Red Flags: • No evidence of help desk, dedicated client contact, or other structure. • Recent clients are not aware of/dissatisfied with CS resources. • Contract/workplan does not specify the technical services/CS resources that will be provided. • Recent clients do not have a clear understanding of the services to which they are/were entitled or are/were dissatisfied.

10. How to Use This Guide:Guide Layout • Questions to Ask • Information Sources • What to Look For • Red Flags • Documentation Checklist • Assessment Worksheet

11. How to Use This Guide: Suggested Review Process • Research contractor background. • Perform contractor interviews and request documentation (see Documentation Checklist). • Perform interviews with contractor’s recent clients. • Review the information and make your assessment (see Assessment Worksheet).

12. Considerations • The review process should be scaled to be commensurate with your overall investment. • The process assumes that your review of financial viability and organizational capacity is part of a larger assessment of the scope and quality of the services offered. • The review process relies on contractor self-reports where external information is not available

13. Contact Information CSRQ Center American Institutes for Research 1000 Thomas Jefferson St, NW Washington, DC 20007-3835 csrq@air.org; www.csrq.org The Finance Project 1401 New York Ave., NW Washington, DC 20005 www.financeproject.org