Steven Moore, a vice chancellor at Texas A&M University, said the contract was not put out for competitive bid because administrators believed no other company could match the expertise that Pearson had gleaned working for NAU.

Pearson’s NAU program at the time was barely underway; there was no way to gauge its academic impact or its appeal to students. (Just two dozen would enroll that fall.) Nonetheless, officials at Texas A&M-Commerce and South Texas College were so confident their partnership with Pearson would be a success that they agreed to pay the company for at least 40,200 student enrollments by 2018. Pearson collects a fee for each enrollment; all told, the company stands to earn $9.4 million.

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In the first year, the colleges got just 463 enrollments, far short of the 840 projected in the contract. Administrators said they expect it to pick up now that they have launched a major marketing campaign for their first degree program, a bachelor’s in organizational leadership.

And if enrollments fall short despite the marketing? The colleges still owe $9.4 million. The contract does, however, let them make up any shortfall by buying additional Pearson products, which they could use to launch new degree programs — supported by Pearson.

Pearson’s Niyogi said the company “works with all of our partners to structure a contract that makes the best use of their resources.”

A FLORIDA BLOCKBUSTER

Pearson’s contracts in Arizona and Texas pale in comparison to its blockbuster deal with the University of Florida.

That deal traces to 2011, when a Pearson subsidiary won a competitive process to develop online programs for graduate students at Florida’s flagship university. Pearson’s online courses did not do very well; just 48 students enrolled last fall in a Master of Arts in Urban and Regional Planning, which was projected to draw hundreds this year. But administrators got to know Pearson representatives.

So when the legislature ordered the university to build an online college for undergrads on a tight deadline, the UF team didn’t host a new round of competitive bids, though the project was much bigger than the graduate courses, and at least eight companies have expertise in the field. Instead, the team rewrote Pearson’s old contract to assign the company’s new, and far more lucrative, responsibilities.

“Given that we already had Pearson people we were acquainted with, we needed to investigate using their expertise,” said Andrew McCollough, an associate provost. “We knew Pearson by reputation. … In our considered judgment at the time, this was the best route for us to take.”

The contract was signed just before Thanksgiving of 2013. By Christmas, Pearson had collected its first $1.75 million.

All told, the contract is worth a projected $186 million to Pearson through 2024, according to a business plan reviewed by POLITICO.

That sum includes $9.5 million in public funds over the next few years. The rest comes from student tuition.

Pearson will initially collect $135 for each Florida student who enrolls in an online class — and $765 for each out-of-state student. The faculty member teaching the course, by contrast, will earn a flat $60 per student, according to minutes from a June meeting of the university’s board of governors.

Paul LeBlanc, president of Southern New Hampshire University, has studied this type of arrangement — though not this particular contract — and says it makes sense for companies like Pearson to demand substantial payments and multiyear deals. The private sector must “put in enormous amounts of capital and resources to bring these institutions online,” he said.

At the same time, LeBlanc said he hears frustration from his fellow college presidents. They feel a great urgency to get into the online market, but they lack the expertise, he said, so they have few options other than to bring in a for-profit partner.

Many colleges are “looking for life rafts,” said Ken Hartman, principal analyst at the consulting firm Eduventures, which advises universities on developing online programs. Administrators often jump in without fully considering either their needs or the cost of hiring a private partner, Hartman said: “It looks very tempting, and you think it’s going to save the day for you. But it’s not.”

In Florida, UF won’t begin making significant profit off the online college until 2020 — and then only if it grows exponentially, according to the business plan. The university projects more than 25,000 undergrads will be enrolled within a decade. About 1,600 enrolled in the first year.

“I believe we are on track,” McCollough said, “but the future is yet unknown.”

Pearson’s contract with UF gives the company the right to request access to all information from students’ applications for admission, including financial aid data. The university does have discretion, though, and uses it: “We’ve already had instances where Pearson wished they would have more access to student information, and we’ve said no,” McCollough said.

“I heard a lot from my constituents about Pearson’s role. They’re very concerned that it’s taken over of much of the educational assessment arena — that it’s basically become a behemoth.” - Arizona state Sen. Kelli Ward (R)

Other contracts reviewed by POLITICO give Pearson more leeway with no restrictions on how the company uses the vast quantities of personal data it can collect as it recruits and enrolls students and then tracks their progress through the academic programs. Some of the information is protected by federal privacy law, but much is not.

Pearson says it does not sell the data or use it to target advertising to students. But the contracts do not give the colleges Pearson works with any mechanism to monitor or enforce that policy. Pearson has declined to join more than 100 other education technology firms in signing a Student Privacy Pledge recently hailed by President Barack Obama as an important safeguard against commercial data mining.

ROUGH TIMES IN LOS ANGELES

As public criticism of Pearson has mounted, the company has moved aggressively to manage and protect its public image.

It engaged a market research firm last summer to conduct in-depth interviews with journalists and other “elite stakeholders” about their views of the company, offering to pay participants $150 for their time. (POLITICO education reporters were asked to participate but did not.)

Pearson has also stepped up outreach on social media and through its campus ambassadors — students paid to promote its products at colleges.

And when controversy began swirling around a pricey Pearson partnership with the Los Angeles Unified School District, executives leaped into action.

“I’m writing to see how we can support a concerted effort to make the many positive voices more prominent,” Sherry King, a Pearson Foundation vice president, emailed then-Superintendent John Deasy in the fall of 2013. “Please let us know how we can help in a systematic way. Our team is ready to work with you.”

As it turned out, no amount of positive PR could rescue the Pearson deal with LAUSD.

Emails first published by public radio station KPCC showed that Deasy and other top LAUSD officials had been discussing a major curriculum purchase with Pearson executives a year before the contract went out to bid.

The Pearson reps positioned themselves not just as potential business partners but as loyal acolytes of Deasy, who had his hands full dealing with a restive school board and angry teachers union. “I’m proud to know you!” one wrote. Another told Deasy she hoped he was getting enough rest after some difficult days, adding, “thank goodness we have you as our Supt.”

On May 24, 2012, then-Deputy Superintendent Jaime Aquino — who had worked for a Pearson subsidiary before joining the district — circulated an email thread that included an exchange he’d had with Pearson executives about whether the district would have to seek competitive bids before buying the curriculum. “I believe we would have to make sure that your bid is the lowest one,” he wrote.

Pearson executive Judy Codding responded that she didn’t see a need for a competitive bid. “I don’t know why there would have to be an RFP,” she wrote. “I just want things right. I cannot imagine any oneelse able to do this as cheaply…”

Deasy and Pearson have said they were only discussing a pilot project. But the emails suggest conversations about a much bigger deal. Aquino told the Los Angeles Times that his involvement in the project was “by the book.” He said his email was just an attempt to explain how a competitive bidding process would work, with the district seeking the lowest possible price.

The district ended up requesting bids in March of 2013 for an enormous project — distributing tablets loaded with math and reading curriculum to all 650,000 students plus all their teachers.

A subsequent review led by school board member Monica Ratliff found serious flaws in the process, including inconsistent scoring of bids and late rule changes that appeared to favor the ultimate winners: Apple and Pearson.

At least three LAUSD officials who had a role in evaluating the bids had attended a three-day conference in Palm Desert the previous year hosted by Pearson, KPCC has reported. Participants got a look at the new curriculum Pearson was trying to sell to LAUSD — and each took home an iPad loaded with sample lessons.

The iPad contract LAUSD finally signed in the summer of 2013 was eye-popping. Pearson alone stood to make an estimated $135 million over three years even though its curriculum was at that point at least a year away from completion. And that was just the start: The district would also have to pay Pearson an estimated $60 million a year to keep using its curriculum after 2016, according to LAUSD spokeswoman Shannon Haber.

Days after the publication of the Pearson emails last August, Deasy halted the purchases. He resigned in October, saying that he wanted to spend more time with his family and that he was confident he had committed “no missteps” in the iPad deal.

In December, the FBI seized 20 boxes of records about the deal from the district for an investigation that is still ongoing. Niyogi said the FBI has not requested information from the company, but it will cooperate if asked.

Early reviews of the curriculum, meanwhile, have been poor: An independent team visited 245 classrooms in the fall and found just one using the Pearson lessons.

“All the things that supposedly were so attractive about what Pearson was offering have not come to fruition, at least for me,” school board member Steve Zimmer said. He described his vote to buy the iPads loaded with the curriculum as “the worst vote I’ve ever made in my life.”

Chai, Pearson’s senior vice president for school product technology, said it’s “very typical of these kind of rollouts … that the adoption curve for teachers follows a bit of a bumpy path.”

BACKLASH

The company has experienced some setbacks in its higher education division. California State University last summer scrapped a 2012 contract worth more than $25 million after Pearson’s bid to recruit online students flopped spectacularly.

CSU had priced the online degrees substantially higher than traditional in-state tuition — at least, in part, because of the built-in cost of hiring Pearson, said Gerry Hanley, assistant vice chancellor for academic technology services. Enrollment never hit even 10 percent of projections.

Minutes from an advisory board meeting in October 2013 indicate that Pearson sought to raise its fees in the face of disappointing numbers. The university refused. “The quality of the marketing provided by Pearson was not adequate,” the minutes note.

Last year, Howard University also canceled plans to develop online programs with Pearson; neither the university or the company would comment on the reasons. And faculty at Rutgers voted to block Pearson from developing online courses in the graduate school, though the company is still working on other degree programs.

Pearson also faces challenges in the K-12 realm.

A federal review of the LAUSD’s iPad deal found the district could have saved considerably by building its own custom curriculum from a variety of online resources rather than buying a costly off-the-shelf model from a major publisher. More and more districts are coming to similar conclusions.

“The industry is changing,” said Mark Edwards, superintendent of the Mooresville Graded School District in North Carolina. Pearson has hailed Edwards as a partner and a visionary, but he recently discontinued the remaining Pearson curricular product in use in his schools. Edwards said he couldn’t imagine ever again investing in a “one-size-fits-all” curriculum when “there’s so much rich new content coming online all the time.”

In the testing world, too, the ground is shifting rapidly. A loud backlash against the Common Core has prompted several states to pull out of the PARCC assessment consortium and reject the tests being developed by Pearson.

Florida, Georgia, Tennessee, Oklahoma and Arizona have all withdrawn from PARCC and picked rival testing companies to administer their statewide reading and math exams. Mississippi is poised to join them after the state Board of Education voted last month to leave PARCC and seek competitive bids for a new state assessment.

Pearson’s contract with PARCC projected that up to 10 million students would take the exam annually; this spring, just 5 million will be tested.

“I heard a lot from my constituents about Pearson’s role,” said Arizona state Sen. Kelli Ward, a Republican, who worked to extract her state from PARCC. “They’re very concerned that it’s taken over so much of the educational assessment arena — that it’s basically become a behemoth.”

Another big blow came this fall in the Lone Star State when Education Commissioner Michael Williams declined to renew Pearson’s $90 million-a-year contract to run the Texas standardized testing program.

The state auditor had ripped into the contract in a 2013 report that concluded it was far too vague to allow for effective oversight by the Texas Education Agency. The contract had so few details about the costs of each element that when the legislature eliminated 10 of the 15 tests required for high school graduation, state officials had to rely on Pearson to tell them how much they’d save.

Texas launched a competitive bidding process for new exams and is now reviewing the proposals.

Perhaps the biggest threat to Pearson’s continued dominance, however, comes from Capitol Hill.

Republicans and Democrats alike have expressed sharp concern about the prominent role standardized testing now plays in schools across the nation. They’re considering scrapping the federal mandate that all states test all students in reading and math each year in grades three through eight plus at least once in high school.

Pearson is not abandoning the U.S. market because of these challenges — far from it.

Niyogi said Pearson is proud of its work on projects such as the Common Core exams and an online toolkit for parents and won’t be sidetracked by criticism. “We have to make sure we’re not distracted by the noise,” she said.

Yet Pearson is also deliberately shifting resources as it pivots to focus on new markets in the developing world.

Pearson already has a major footprint running English-language schools in China and Brazil. It operates degree-granting colleges serving tens of thousands of students in Mexico, Saudi Arabia and South Africa. It’s growing in India.

And just last month, Pearson announced it would invest $50 million in local education startups, including for-profit private schools, across Africa, Asia and Latin America.

The time is right for Pearson to expand internationally, said Brendan O’Grady, a vice president. The company stands ready to export to the world the model that has proved so successful in the United States since Pearson purchased National Computer Systems nearly 15 years ago and first jumped into the American testing market.

“We see it,” O’Grady said, “as an opportunity.”

Correction: An earlier version of this story misstated the amount North Carolina had to pay Pearson above the original contract price to fix problems in a new student database. The state paid Pearson $825,000 for additional tech help and $750,000 for additional training to deal with the database problems.

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