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Published in Print: December 1, 2004, as States Writing Penalty Clauses Into Testing Contracts

States Writing Penalty Clauses Into Testing Contracts

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With so much now riding on student test results, states are introducing stiff penalties and other provisions into assessment contracts to provide an incentive for publishers to deliver results on time and error-free.

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“Statewide testing programs are much more visible to the public, and so I would say there is a heightened sensitivity to any glitches,” said Jeff Galt, the president and chief executive officer of the San Antonio-based Harcourt Assessment. “Where there used to be some collegiality, or an understanding that it’s still a process dependent on human beings, subject to mistakes, there’s very little tolerance for that.”

Hawaii, for example, is negotiating a partial reimbursement from Harcourt for errors in the state’s spring 2004 state testing materials. The company reviewed test scores last summer, to ensure that none of the mistakes in the test booklets or administration manuals would harm students or schools. And it has worked out new quality-control processes with the state to ensure that the problem won’t happen again.

“There’s no question: The biggest change we see is the terms and conditions,” said Stuart R. Kahl, the president of the Dover, N.H.-based Measured Progress. “They include penalties and damages and also requests, in some cases, for performance bonds. A performance bond is almost like an insurance policy, where you name the state as the beneficiary.”

It’s a real problem for small companies without deep pockets, he added, that cannot always carry such liability costs.

Providing Incentives

Georgia is a case in point. The state had experienced numerous problems with the timely delivery of test results, scoring errors, and the inadvertent release of secure test items dating back to 2001 and spanning contracts with several test publishers. ("Ga. Suspends Testing Plans in Key Grades," April 16, 2003.)

Since the spring of 2003, however, the state has taken aggressive steps to address the issue.

Kathy B. Cox

“I had to realize that part of the problem was here,” said Kathy B. Cox, Georgia’s state superintendent of education. “It wasn’t just the contractors. Part of the problem was the maintenance of the contract, and the oversight of the contract with the contractors, and the mixed messages that contractors had gotten.”

Ms. Cox has reorganized the testing division within the state education department, including paying more to attract well-qualified people. Georgia has staggered its requests for proposals, so that the testing and legal divisions are not forced to negotiate several contracts simultaneously, each worth tens of millions of dollars.

Its new contractor for standards-based tests in grades 1-8, Riverside Publishing, faces heavy penalties for potential failures, ranging from the late delivery of test results to the administration of an invalid exam. The penalties, starting at $5,000 a day, top out at 30 percent of the overall value of the contract.

The state department of administrative services also requires companies to post a performance bond for any contract in excess of $100,000. The insurance basically guarantees that, in case of a breach of contract, the state can recoup its costs.

Georgia’s contract with the Itasca, Ill.-based Riverside, a division of the Boston-based Houghton Mifflin Co., also establishes a payment schedule, in which more than half the fees are paid upon the receipt of essential services, such as getting the testing blueprints on time or a smooth administration of the exams.

“If they fail to meet these key delivery dates,” said Ms. Cox, “at any point along the way, we have the option of not paying them, and that was not real clear in the other contracts.

“So we’ve really increased the incentives for these companies to meet their deadlines, and that was a huge problem before,” she added. “They didn’t have an incentive.”

‘Too Risky’

Other states, such as Michigan, have reduced the number of penalty clauses in their contracts but made the ones they have heftier for failure to meet crucial deadlines.

“The states have either gotten burned themselves by delivery problems or errors in the past, or they’ve read about other states that have had those problems,” said John H. Oswald, the senior vice president and general manager for elementary and secondary education at the Princeton, N.J.-based Educational Testing Service. “And they have added some very, very strict penalties.”

“If we see a contract that looks too risky because the penalty clauses are just way out of line with the timelines,” he added, “then we’ll just pass on it, which is why we don’t bid on that many contracts.”

But David M. Taggart, the president of CTB/McGraw-Hill, based in Monterey, Calif., argued that, while some states have incorporated steep penalties into their programs, “I don’t see it as a trend.”

“I think most state departments recognize this is a collaborative effort,” he said, “that there are a lot of things that can happen outside our control.”

And although state requests for proposals have become more sophisticated, Mr. Taggart said, there’s still a wide range.

Eduventures, a Boston-based firm that tracks education-related businesses, also predicts that with the increased stakes attached to state assessment results, states will begin to pay more attention to such issues as provider qualifications and experience, and not just award contracts to the lowest bidder. The freedom to do so varies across states.

Vol. 24, Issue 14, Page 19

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