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

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

Why Are Financial Viability and Organizational Capacity

Important?

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.

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.

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.

Organizational Capacity: Management and Staffing

CapacityWhat 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.

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.

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.

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.

• Questions to Ask • Information Sources• What to Look For • Red Flags • Documentation Checklist• Assessment Worksheet

How to Use This Guide:Guide Layout

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).

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

CSRQ CenterAmerican Institutes for Research1000 Thomas Jefferson St, NWWashington, DC 20007-3835csrq@air.org; www.csrq.org

The Finance Project1401 New York Ave., NWWashington, DC 20005www.financeproject.org

Contact Information