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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.
