In some cases, the degree of specialization required is such that there are no suitable inhouse providers for a particular service. In such a situation, the decision to contract for a particular service becomes one of selecting among various outside providers.

At other times, administrators may be choosing between contract and in-house service. Although cost is not the only factor in the decision of whether or not to contract for a given service, it is certainly a major one. Comparing the costs of using in-house versus contract providers is a difficult process. Most school districts do not have an accounting process that enables them to easily identify the full costs associated with a particular service. In trying to identify total costs, administrators should ask themselves the following question:

If a school stops producing its own instructional service, and instead relies on a private provider, will a given cost continue?

In addition to identifying the fully allocated cost of current services, administrators must also ask themselves what additional costs might be incurred as a result of the contract? Such costs could include the cost of bidding, monitoring and administering the contract.

Table 1, prepared by Gail Ostler, a school-finance consultant and former finance director for the Milwaukee Public Schools, shows how a hypothetical district might compute the hourly, fully allocated, cost of in-house instruction.

Depending on the circumstances of each school district and contractor, the figures presented above should be adjusted accordingly. In preparing Table 1, Ostler made the following assumptions:

  • The annual salary for a teacher employed by the district averages $28,600.

  • The district will not incur any significant contract-related administrative costs as a result of this contract.

  • Table 1 compares the hourly costs of public and private providers. Some contractors may charge a lump sum for the entire instructional program, in which case the total program cost should be divided by the number of contract hours to obtain the cost-per-hour of a private provider.

  • Equipment, supplies, and curriculum are usually provided by the private contractor and are included in the contract rate. These costs have not been included in the calculation of in-house service costs.

  • The costs of in-house services also do not include the cost of teacher training, which is often avoided when private contractors are used.