EAI facing cancellation of contracts Baltimore officials cite failure to gain $7 million fee cut

'Frustrated and angry'

Mayor, school board, parents to meet over school privatization

November 18, 1995|By Eric Siegel and Jean Thompson | Eric Siegel and Jean Thompson,SUN STAFF

Baltimore began moving yesterday to terminate its nationally watched school privatization contracts with Education Alternatives Inc. after the company failed to agree to a flat $7 million reduction in its management fee.

The city's action came after EAI failed to respond to a 5 p.m. ultimatum and officials rejected "outright" a last-ditch proposal the company submitted Thursday, raising the prospect that the 3 1/2 -year experiment of having a private company operate nine public schools could come to an end as early as mid-February.

Although the machinery to end the pact was set in motion, Mayor Kurt L. Schmoke said through a spokesman that he would not make a final decision on what to do until after meeting with parents on Monday. The mayor also would have to decide whether to let the contract run through June or cancel it in mid-year.

Cancellation of the "Tesseract" experiment would follow years of controversy over the effectiveness of the program and a policy debate over whether companies should be allowed to profit by educating children. It also would -- the hopes of many here, including the city school chief and many parents in EAI-run schools, that private management could be the salvation of public education.

Termination of the contract here would also be a severe blow to EAI, a pioneer in the private management of public schools.

Besides Baltimore, the only other contract EAI currently has to manage city schools is with Hartford, Conn. EAI helps the city to manage its education budget and directs activities at six schools. EAI and Hartford currently are in disagreement over fee payments the firm says it is owed.

The termination of EAI's $44 million contract to manage Baltimore's nine "Tesseract" schools can be done essentially for any reason with 90 days' notice to the company and a majority vote of the city school board, officials said.

A meeting of the school board has been set for Tuesday night.

Also affected would be separate contracts that EAI has to provide noneducational services at three other city schools.

William R. Brown Jr., the city's finance director, did not rule out the possibility that EAI could salvage its contract by agreeing before next week to the city's demand. But he quickly added: "I don't perceive it happening. It hasn't happened during five months" of negotiations.

Schools Superintendent Walter G. Amprey, who brought EAI to Baltimore, also thought it unlikely that the two sides would agree.

"It looks like the mayor is going to have to go ahead and move toward termination," he said. "I think [EAI's] position is there is not enough money there, and the mayor's position is that there is. I just think we're at a real impasse."

But a lawyer for EAI called for more negotiations on its proposal this week, which called for the company to make monthly million-dollar reductions in its fee but would allow it to recoup that money by identifying sources of possible savings throughout the school system.

"As far as we know, it's in their court. We think we have responded," said Clyde H. "Rocky" Sorrell, the company's Maryland-based attorney.

The latest developments were set in motion early yesterday, when Mr. Sorrell asked Mr. Brown to put in writing the city's position on the EAI contract.

In a two-paragraph letter to John T. Golle, EAI's chairman and CEO, Mr. Brown said that unless the company agreed to a $7 million reduction in its contracts for the current academic year, "the city will immediately begin proceedings to terminate all contracts with Educational Alternatives Inc. No other alternative to the foregoing is acceptable."

Mr. Brown set a 5 p.m. deadline yesterday for the company to respond.

Mr. Golle answered with a letter to Mr. Brown and a handwritten note to Mr. Schmoke.

In the note to the mayor, Mr. Golle said he was "frustrated and angry" that an agreement had not been reached. "I thought we'd agreed to a deal we'd advance $7 million to the city conditioned upon us being able to 'earn' it back," the note said.

Efforts to reach Mr. Golle last night were unsuccessful.

Late yesterday afternoon, Mr. Brown sent another fax to Mr. Golle, reiterating the city's deadline and asserting that "there is not now nor has there ever been a 'deal.' Your perception of a 'deal' merely represents a proposal you submitted yesterday afternoon which was rejected outright."

Mr. Brown last night described EAI's proposal as a "shell game" and likened it to giving somebody a $100 bill and asking for 10 $10 bills in return.

Besides the return of the $7 million in reductions, Henry Raymond, the school system's chief financial officer, said there were other elements of EAI's proposal that the city found objectionable. They include elimination of the city's right to cancel the contract -- meaning that it would stay in force through June 1997 -- and relinquishing claims to disputed payments that could amount to $3.4 million.

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