September 20 — 11:00 pm, 2006

Princeton Review wins big in bid for contracts

The company, formerly known for test prep, now does a $7.6 million annual business in Philadelphia

What the New York Yankees are to baseball, Princeton Review is to Philadelphia School District contractors. The New York-based company, known for its SAT preparation program, has scored at least $24.5 million in contracts here since 2002, making it one of the largest contractors for educational services in the District.

This year, with beefed-up summer school and extended-day contracts that are the heart of its business in Philadelphia, the company will realize revenues of over $7.6 million from the School District.

Founded in 1981 by John Katzman, the company launched its K-12 division, which contracts with Philadelphia, in 1999. The company had total revenues of over $130 million last year, but is operating at a loss.

“Strong growth” in the K-12 division is one of the company’s bright spots, according to analyst Rich Smith, writing for “The Motley Fool” column in August.

Philadelphia appears to have made a significant contribution to this growth, accounting for almost 20 percent of the K-12 division’s reported revenue. The company also has major contracts in New York and Chicago.

The bulk of Princeton Review’s contracts with the District (see chart) have been for consumable materials for summer school and for the extended day program (initiated under CEO Paul Vallas), which provides after-school remediation in math and reading.

Princeton Review contracts

approved by School Reform Commission, August 2005 – August 2006
$ 3,000,000 Extended-day program
$ 270,000 Saturday program
$ 107,824 Saturday program
$ 4,246,666 Summer school program
$ 900,000 Small school transition
$ 50,000 Praxis test prep

Princeton Review is also a major subcontractor for SchoolNet, providing benchmark assessments for elementary school grades (see "Mining the data").

In the past year, the company has been hired to run a Saturday program, to provide test preparation for teachers taking the Praxis exam, and to serve as a “transition manager” for four small high schools (see "Transition project").

The growth of the company’s business in Philadelphia illustrates how the rules of the contracting process under the School Reform Commission and CEO Paul Vallas have often been informal, falling somewhere between a no-bid process and a formal, competitive one.

The company’s most recent $3 million contract authorization for extended-day materials was awarded after a competitive bidding process that attracted seven vendors. The District is consolidating its extended-day services for both reading and math with Princeton Review and has cut the total cost of the program by $2.3 million.

State law requires that textbook contracts be competitively bid. The extended day materials are basically workbooks and so the recently awarded contract may fall into that category.

But in a Notebook review of prior SRC resolutions authorizing Princeton Review contracts, none make mention of any comparisons to other vendors or of a competitive process when explaining the justification for the contract award.

However, CEO Vallas said that the School District did put out “Requests for Qualifications,” or RFQs, on Princeton Review’s earlier contracts. “The reason they were hired,” Vallas said, “was because of their track record.”

Vallas also notes that two Princeton Review bids for SAT preparation contracts were rejected.

One advantage enjoyed by the company, cited by one SRC resolution, is “staff familiarity with the materials.”

According to School District leaders, another key advantage Princeton Review enjoys over its competitors at this point is that it has already cleared earlier hurdles and now has a track record. A contractor applying to the District for the first time, Chief Academic Officer Gregory Thornton said, “gets a much higher degree of scrutiny. “Then from that point on,” he noted, “the key question becomes ‘Are they doing effective work and are they meeting the terms?’”

District officials attribute higher test scores in part to the extended day program and link the success of that program to Princeton Review materials, but they did not provide any formal evaluations to back up their analysis. One District contract resolution cited data showing higher math test scores and lower rates of suspension for students in the extended day program as justification for purchasing Princeton Review materials.

The issue of how to maintain consistent oversight of contractors confronts the District as it scales up the contracting out of services, and companies like Princeton Review that have long-term business with a system pose some particular challenges.

Columbia University professor Elliott D. Sclar, in his book You Don’t Always Get What You Pay For: The Economics of Privatization, writes, “Oversight is a classic problem in public contracting: maintaining an arm’s length relationship between the contractor and the [public] employees charged with supervising the contractors’ performance.”

Sclar adds, “It is always in the interests of the contractor to form an external amicable relationship with the agent designated by the state to supervise him or her,” and he goes on to note that these bonds formed by contractors can pose challenges for the agency in maintaining an “arms-length relationship.”

Two Princeton Review consultants who figure prominently in the company’s relationships in Philadelphia are Gary Solomon, who has served as the company’s lead consultant in Philadelphia and Phil Hansen, one-time national director for urban schools for Princeton Review, who formerly served as chief accountability officer under Vallas in Chicago.

Vallas has described Hansen as a “pro bono” advisor in Philadelphia, but says he sees no conflict of interest in their relationship. He strongly defended seeking Hansen’s advice based on Hansen’s national reputation and demonstrated ability, describing him as one of “the absolute best when it comes to accountability.”

Vallas said Princeton Review was “getting their work not because we know Phil Hansen but because they are producing.” He noted that many vendors hire educators with national reputations.

Solomon, also a Princeton Review consultant in Chicago during the Vallas years, was involved in controversy in 2005, when he appeared to be trading on ties with Vallas associates including Hansen to promote his consulting company as a provider of “the Vallas model” of school reform. Vallas denounced the scheme as unauthorized as soon as it became public and Solomon disavowed the effort (see Notebook, summer 2005 edition). Vallas denied any relationship with Solomon. “I don’t deal with Gary Solomon,” he said.

Solomon and Hansen did not respond to requests for comment for this article.

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