From “Arkansas Democrat Gazette” | By Josh Snyder | Published November 9, 2024
ClassWallet Submits Low Bid
A Miami-based firm that served as the vendor for the first year of Arkansas’ Education Freedom Accounts is once again poised to win a multimillion-dollar contract to operate the online platform, according to the state Department of Transformation and Shared Services.
Kleo Inc., which does business as ClassWallet, is the anticipated awardee of the contract with a projected seven-year cost of $13,996,250 that will come before the Arkansas Legislative Council’s Review Subcommittee on Thursday. The initial deal would begin Dec. 1 and end Nov. 30, 2028, according to the Transformation and Shared Services Department.
State Department of Education spokeswoman Kimberly Mundell said in an email that the proposed contract “ensures a seamless transfer to a new portal, and there will not be any disruption of services.”
The upcoming meeting to consider the contract comes a little more than a month after the Education Department informed Bloomington, Ind.-based Student First Technologies that its contract would end Dec. 31. Education Secretary Jacob Oliva said in an Oct. 8 letter to Student First Technologies co-founder and CEO Mark Duran that the company failed to meet deadlines set out in the agreement and that services that have been provided were plagued with "significant problems and delays."
ClassWallet served as the vendor for the first year of the Education Freedom Account program, and received a one-time $49,000 service fee for voucher and tutoring programs it set up, as well as a 2.5% transaction fee on each voucher payment, Mundell has previously said.
In its proposal document for the new contract, ClassWallet requested a $75,000 implementation fee, though it wasn’t immediately clear whether that figure had been renegotiated since the proposal was submitted.
The Education Department issued the new request for proposals Oct. 9 and received bids from five companies: ClassWallet; ACE Services, doing business as ACE Scholarships; Merit International; Primary Class, doing business as Odyssey; and Pearl. Of those, all but Pearl received scores from an Education Department-appointed evaluation committee.
ClassWallet received the highest weighted technical proposal, cost and total scores, according to an evaluation document. The firm received a total score of 944. Odyssey received the second-highest score at 815.62. ClassWallet received the highest cost score because it bid at the lowest total cost. Odyssey’s proposed total cost was $14,448,000, making it the second-cheapest of the bids. ACE Scholarships received the lowest score, at 468.84. The estimated cost of its proposal was $28,595,000, the evaluation document indicates.
While the initial term of the contract if approved will be for four years, the agreement may be renewed by the state for as many as three additional one-year terms.
When the Arkansas Legislative Council voted to adopt the contract with Student First Technologies in late May, some lawmakers expressed confusion about the Education Department’s decision to shift away from ClassWallet and to a new vendor. They also questioned whether Student First Technologies would be able to fulfill its obligations. For instance, Sen. Bart Hester, R-Cave Springs, said during that meeting he heard Student First Technologies had only 10 employees compared with roughly 300 at ClassWallet. Division of Elementary and Secondary Education Assistant Commissioner of Fiscal and Administrative Services Greg Rogers told lawmakers at the time he didn’t know how many people Student First Technologies employed.
Rep. Jimmy Gazaway, R-Paragould, was among the lawmakers who voiced concern about leaving ClassWallet for Student First Technologies. On Friday, he said he was unaware of any concerns about ClassWallet’s performance during the first year of the voucher program and felt "mystified as to why we seemed to be changing course all of a sudden."
Asked if he planned to support the new proposed contract with ClassWallet, Gazaway answered, "I don’t see any reason why we would not."
"That’s a fairly hefty price tag, but we need someone that’s experienced doing the work," he said. "And obviously this other company was not suitable."
The voucher program, called Education Freedom Accounts, was authorized by Gov. Sarah Huckabee Sanders’ sweeping education package known as the LEARNS Act, or Act 237 of 2023. The program greatly expands the use of state taxpayer funding for tuition and other private and home school expenses.
In his letter to Student First Technologies, Oliva said the "extended notice" given to the firm regarding the end of their contract was meant to "minimize disruption" to families and schools. About 13,427 student applications for Education Freedom Accounts had been approved by late August, a figure more than double that of the previous year, state officials have said.
Until the Dec. 31 termination occurs, the Education Department said it expects Student First Technologies to "fulfill its obligations as required by the contract," and to cooperate with the agency and any entity designated by the agency. Should the firm fail to do so, the agency "will be obligated to pursue punitive contractual damages and all associated costs and attorney’s fees," Oliva said.
The Education Department expects more than 20,000 participants in the voucher program in the next school year, with more than $150 million estimated for scholarship funds. ClassWallet will be required to "ensure a smooth transition for students, families, and providers participating in the program, and continue full implementation of the program through future expansions," according to the solicitation document.
In order to do so, the firm will be required to work with Student First Technologies to transfer information and data and be able to assume payment processing by Jan. 1. The solicitation document also requires the firm to have "available sufficient staff or access to a call center to respond to participant questions and inquiries, which may be at a higher-than-average volume during the transition period."
Jason Hart, spokesman for ClassWallet, declined to comment on the proposed contract.
The platform’s problems under Student First Technologies’ contract "prevented parents from accessing the educational opportunities that are best for their children," Mundell said in an earlier emailed statement.
"The vendor did not meet any deliverables and did not perform to the high standards we have for the program," she said. "We don’t have confidence that Student First will be able to meet these high expectations, so in the best interest of students and their families, we are terminating the contract."
Mundell said the agency would continue to work with families to ensure their needs would be met in the meantime.
The number of student applicants for the Education Freedom Account program increased from 6,495 students in 2023-24 to 18,490 for the 2024-25 school year, according to a recent report.
Several mass emails from the Education Department to families participating in the Education Freedom Account program throughout September and early October relate the dissatisfaction both groups experienced in working with Student First Technologies since the start of the school year.
"While we were excited for a smooth start, reality didn’t quite match our expectations," a Sept. 2 letter from the agency states. "Several issues came up on launch day that have affected performance and user experience."
Education Department officials met with representatives from the firm on Sept. 25, during which the officials asked for a "concrete final estimate" for when the firm could produce the "fully functioning system" required by the contract, "as well as a financial reconciliation of funds disbursed to Student First," Oliva stated in his letter to the firm. The Education Department notified parents of its discussions with Student First Technologies about the issues with the program’s rollout in a Sept. 30 letter that also provided new "workaround solutions" to the problems.
Included among the workarounds were links to various Google Docs regarding improved communication, purchasing educational resources, extracurricular activities and marketplace service providers and vendors.
The Education Department said in the improved communication document that the agency had not been able to answer "many" parents’ emails within the state’s standard 48 hours.
"Our staff receive almost 800 emails a day, and even working all day and sometimes into the evening, it is impossible to respond to that many emails in a day, while reviewing reimbursement requests, manually contacting the 300+ families that have requested EFA support purchasing educational resources, while diagnosing and testing the Student First platform in an effort to improve the functionality," the document states. It provides a directory of people to contact if they have questions or concerns about the voucher program.
Assistant Commissioner of the Office of School Choice and Parent Empowerment Darrell Smith said in a Sept. 10 email to one parent that "we’re all dealing with the broken promises of this situation."
Billy Newsom of Lead Hill home schools six of his children and his family participates in the Education Freedom Account program. He operates a subreddit entitled "Arkansas EFA," which began in August as a space for families to discuss their experiences with the Education Freedom Account program, and said it was "pretty aggravating" that issues with Student First Technologies TheoPay platform made it difficult for him to purchase basic educational resources.
"To this day, I haven’t really spent anything because of TheoPay," he said. "If that system had properly worked I would have already bought several things on Amazon, Best Buy."
Newsom said he hopes ClassWallet’s financial capabilities will be audited at some point in the process. He also wondered if the firm would be able to correct the issues he said he and others experienced with Student First Technologies.
"The (new) vendor supposedly may fix that,” he said. “But it may not, and I’m just throwing up my hands."