Literally freezing out public school kids might not have been what Alvarez & Marsal, the maverick "turnaround" firm hired by the New York City Department of Education (DOE), sought as its legacy in New York City, but one frigid January morning and thousands of stranded kids settled that score.

After A&M won a no-bid $15.8 million city contract to help the DOE streamline its budget, the global consulting company saw opportunities for the department to save money, especially on some school-bus routes that the Bloomberg administration said were carrying too few students and wasting millions of dollars in the process. A&M predicted savings by rearranging and eliminating such "unnecessary" routes. According to a 2004 article in Business Week, back in the '80s, partners Bryan Marsal and Antonio Alvarez solidified their vision for their company over a game of golf. Their philosophy, forged over the tee: "It's better to make a decision, be 10 percent wrong and 90 percent right, than not to address the problem." They've since applied that theory to such companies as Hostess, which was suffering financially after redoing its cupcakes and Ding Dongs recipes, rendering them "doughy and unappetizing."

In 2003 came its first foray into the public sector: A&M was hired to help St. Louis schools consolidate their bus routes, as part of an effort to overhaul the city's financially strapped public school system. In April 2005, A&M was hired to oversee the reconstruction of the failing New Orleans school system. Then, in August of 2006, the DOE's Division of Contracts and Purchasing approved a request from the office of then-chancellor Joel Klein to retroactively hire A&M for the period spanning June '06 to November '07.

At the time, the Bloomberg Administration was in a big hurry to implement "Empowerment Schools," an initiative to transfer authority over curriculum and budget from the DOE to individual schools, if said schools agreed to meet certain performance goals. The plan required that services provided centrally, like transportation, be streamlined. For this reason, there would be no time for a competitive bidding process. The DOE's Committee on Contracts green-lighted the no-bid A&M deal, giving the firm—which was already working in the public schools under the auspices of the Klein-led nonprofit Fund for Public Schools—a guaranteed payday that the DOE justified on the grounds that A&M was the only firm to have done this type of restructuring work with public schools before and that it has done so with dramatic success in St. Louis and New Orleans.

But in November 2006, before A&M released its rejiggered busing plan, the City Council's education committee released a report that raised issues with the A&M contract itself, namely the salaries paid to its top consultants ($450 per hour) and outrageous expense reports (an estimated $1.5 million for the duration of the contract). The report also expressed alarm over a larger issue: the fact that the DOE's contract budget had more than doubled, from $1.28 billion in 2002 to $2.68 billion in 2006, with the cost of no-bid contracts growing from $12 million in 2002 to $56 million in 2006.

While DOE officials credited A&M with improving St. Louis schools, Public Advocate Betsy Gotbaum said in a statement that "Alvarez & Marsal ... left [St. Louis'] school district in a shambles" and that "even a cursory check" of A&M's track record there "would have been enough to raise suspicions." After A&M departed St. Louis, the school system was taken over by the state on the brink of bankruptcy.

Many in Missouri faulted the consultancy for its cost-cutting and school-closing; some said A&M did its job of trying to balance the system's books.

Yet there was no escaping the fact that there are twice as many children in pre-K and kindergarten in New York as in the entire St. Louis school system. Would A&M be up to the demands of so huge an educational empire? Two months later, in January, came the answer. For weeks following the implementation of the new busing plan, the DOE received thousands of calls from furious parents: Many buses never showed, leaving kids waiting in the cold; and some kids as young as 5 were given MetroCards and left to fend for themselves. "It was a disaster," says Council Member Robert Jackson, the chair of the education committee, of the A&M plan, "in retrospect, just a complete disaster."

In the midst of it, school officials set up a hot line that fielded more than 2,000 calls on the first two days.

Asked to comment on the snafus, the mayor said: "I think there were the teething pains which you could expect. Could they have done it better? Could they have handled the press better? Sure. But let's get on with it and get things done."

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The DOE's contracts budget now stands at $4.5 billion—with $149 million of it going for "professional services" covering work other than direct educational services. The use of contractors in general, consultants in particular, and no-bid deals in several high-profile cases, is typical of the Bloomberg approach across agencies citywide. But the DOE is not like other agencies; it's a sui generis creature. It's not considered a mayoral agency, but the mayor exercises complete control over it with regard to the hiring and firing of its executive players. In addition, the mayor appoints eight of the 13 members of the purportedly independent Panel on Education Policy, which ostensibly monitors contracting. "The PEP is a rubber stamp for the mayor, and everybody knows it [thump]!" Jackson says, pounding his fist on the table for emphasis. "Look at Cathie Black—in essence the mayor gave her a no-bid contract! [thump].")

DOE consultants do everything from ordering textbooks to coaching teachers to wiring classrooms. Some of those projects have been considered successful. Some, like the A&M bus project and a deal with the global consulting firm Accenture to streamline school food operations ran into serious trouble. And just this summer, the DOE belatedly nixed a contract with Future Technology Associates (FTA) after spending $74 million on mostly no-bid contracts with the firm, so FTA could set up "an electronic ordering system" for principals. The FTA had no track record, its headquarters were a mail box in Jacksonville and an FTA owner, with help from a former DOE executive, allegedly skimmed from the multimillion-dollar project, in part by secretly subcontracting work to cheap labor in India and Turkey.

But some contracts are harder to categorize as a success or failure.

SESIS (Special Education Student Information System) is one of these. Its implementation has been neither an unbridled success nor a total failure. But what's more interesting—and troubling—is that even a perfect SESIS might not have helped the students it was designed to assist.

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It's a bright day in the first week of class for New York City's 1.1 million public school students. In a Clinton Hill coffee shop, a special-education teacher who works with seventh- and eighth-grade kids in a school and a neighborhood he'd rather not name, is frowning at his laptop. He's showing me the new software program that's supposed to make his life, not to mention the lives of the kids he teaches, easier. But for now the system is rejecting his username and password.

A few keystrokes later, we're in. The teacher pulls up the Individualized Education Program, or IEP, for one of his students, a 12-year-old we'll call Joe. (Under a federal law known as the Individuals With Disabilities Education Act, every special-ed student in New York State must have an IEP designed in accordance with his or her specific educational needs.) The teacher scans the page and points out a data field that's been left blank. "This document is useless to me," he says, shaking his head. "Joe now has a beautiful IEP, but it doesn't change anything. His mom didn't show up for the IEP meeting." Without her input, the teacher explains, the process of implementing a federally mandated educational program tailor-made for Joe—who is in seventh grade but reads at a second-grade level—grinds to a halt.

Last year, New York City's Department of Education starting rolling out SESIS. The program is designed to track special-ed students regarding their specific educational needs—what's been done on each student's case, who's done it (teacher? paraprofessional? administrator?), and what needs to be done next. If anyone involved with the child shirks his or her duties, it's noted in the system.

When the DOE moved to upgrade its IEP process in 2005, there wasn't really much of a process to speak of. Roger Maldonado, an attorney, represents special-ed plaintiffs in the "Jose P." litigation, a landmark lawsuit filed in the 1970s to force the state to provide school services to disabled children. Before the move to SESIS, Maldonado says, the DOE relied on an old software system that made it next to impossible to find special-ed students who were falling through the cracks.

And the quality of the IEPs varied widely. They were largely hand-written or kept in local computer databases, which often caused major problems whenever a student transferred schools or graduated to a new one. "A child would change schools and their IEP would show up six months later," says Patricia Connelly, a parent advocate and activist with a focus on special education, and who was serving on the Citywide Council on Special Education Needs when the DOE announced the SESIS contract. "So the general consensus was that something had to be done."

So the DOE put out a request for proposals for a new system and got several bids. The Virginia-based consulting company Maximus won the contract.

Maximus' motto is "Helping government serve the people," but, as with all corporations, its bottom line is to help its shareholders. A February 2009 earnings conference call made clear that where others see policy or politics, Maximus (and probably other consultants) sees profit.

"Our business today stands well-positioned to benefit in the long run from greater demand for our services due to the economic slowdown and new legislation that calls for expansion of existing programs. This includes increased funding through the proposed $800 billion-plus stimulus plan," Richard Montoni, Maximus' CEO, said on the call. He added that the stimulus bill encompasses "many of the benefit programs in which we operate, in fact, in offerings where Maximus is the market leader." He went on to say: "Once the legislation is passed, we expect that it will begin to benefit Maximus perhaps somewhat in the tail end of fiscal 2009 but materially so in fiscal 2010 and beyond."

Montoni's monologue revealed a company in mid-pivot, shifting from a "revmax" business model—identifying and claiming reimbursable federal dollars for state and local governments—to a provider of IT services like SESIS. And SESIS, as the conference call revealed, is simply a repurposing of an existing software package called TIENET—a system that Maximus had already implemented in the Chicago school system. Montoni reassured an anxious analyst: "Naturally, we'll have to interface it with the systems of New York City, and we'll have to train the users in New York City on how to use it. But it should not be viewed as a custom-build situation." Just as when A&M came into town riding high on projects in St. Louis and New Orleans, SESIS was a case of a consultant getting big bucks to map a product created for a different (smaller) school system onto New York's unique education superstructure.

One of the early champions of SESIS was Linda Wernikoff, who in June 2009 retired from her job as the city's top special- ed official, only to be rehired by the Fund for Public Schools as a DOE consultant on SESIS less than a year later. New York City's Conflict of Interest Board signed off on a wavier for her rehire at $1,000 per day—on top of her DOE pension. (Wernikoff declined to comment for this story.)

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At about $79 million, SESIS is a bargain compared with CityTime. But chances are that SESIS, along with many other IT contracts the city is currently engaged in, will end up costing taxpayers more than its originally stated "base" rate. City Limits obtained a copy of the SESIS contract—which, at about the thickness of The Collected Dialogues of Plato and similarly dense, is a pamphlet compared with many other such contracts—and there are several places in which it is clear that Maximus can bill the city many million dollars more under a so-called renewal of contract and also under something called a change order—which effectively renders the originally agreed-upon price of the contract obsolete. (An example of this potential is the contracts awarded to Accenture in the past decade, whose value has swelled from $455 million to $723 million.)

"In these types of contracts, no one looks at the details, and change orders happen all the time," says Donald Cohen, chair of In the Public Interest, a good-government group that focuses on responsible contracting. He compares a government consultant wielding a change order to a contractor you've hired to build your house: "I've done half of it, and I'll leave it as is unless you pay me double."

But more important than the amount spent might be where that spending shows up in the city's budget. Hiring a consultant can lower a politically sensitive expense—say, the cost of paying all those politically unpopular public servants—while raising another, lower-profile spending area. "It's a different line item in the budget, consultants versus civil workers. It's no longer a personnel expense. In one case I know of, [consultant hires] went into the same budget line item as paper clips," says Cohen. "It makes it harder to see them, and it leads to greater and greater [contractor] involvement."

Meanwhile, major oversight and accountability issues loom. According to the DOE's Procurement Policy and Procedures Manual, approved by the Panel for Education Policy, the board that oversees the DOE, in January 2010, the DOE is required to establish a process for evaluating and documenting the performance of its vendors. But no such system exists yet. Barbara Morgan, a spokeswoman for the DOE, says, "A prototype system has been developed and will be rolled out in the near future to capture this data."

For an administration intent on measuring and grading everything from teacher performance to school graduation rates, metrics on high-priced private contractors are, surprisingly, absent.

Beyond the questions about cost and oversight, how good is the SESIS product that Maximus has delivered?

Maldonado says SESIS makes the process of tracking the IEP much easier, and when implemented correctly, everyone who needs to sign off on it is held accountable. "SESIS makes sure that everyone does what they need to do. They have to provide the service before they check the box," he says.

But implementing SESIS has been anything but easy. The biggest issue has been schools literally not having the bandwidth to run the program: Many principals don't have enough money in their recession-strapped budgets to buy textbooks, let alone laptops. Connelly was at a special education district office when they tried to demo SESIS, but that too was a failure. "Even from a district office they couldn't produce an IEP," she says.

And if schools manage to get SESIS up and running, there's been little formal training in how to use it, and up to a two- hour wait for teachers who call a SESIS helpline.

"In the beginning, I think they handed us a few sheets of instructions," says the teacher, who confesses that after a year of using it, he still doesn't fully understand the software. In response to myriad complaints, the United Federation of Teachers (UFT), the union representing most public school employees, has drafted a SESIS grievance form, available for download on its website, because the various teachers, school psychologists, guidance counselors, occupational therapists and so on who need to use the system are spending nights and weekends figuring out how to use it.

In a June Daily News article, Schools Chancellor Dennis Walcott blamed SESIS for the DOE's failure to find seats for about 2,500 kindergartners with special needs, saying that the transition to the new system delayed placement efforts past a mid-June deadline. Officials authorized schools to use emergency funds—essentially overtime—to pay for teachers to try to find seats for the incoming kindergartners on evenings and weekends. Kids who don't get places are entitled to a private education paid for by the city, and tuition can be upwards of $30,000 a year. The city already spends about $100 million a year to educate about 4,000 kids in this situation.

The latest snafu, says a source within the UFT, is that on September 15th, SESIS locked out anyone who had not yet entered a new layer of attendance-related data for students for the month of September.

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But as troubled as the implementation has been, some critics point to a deeper problem—a problem that on one hand has little to do with SESIS, but on another casts in harsh light the decision to prioritize an IT solution.

"There are about 170,000 kids with special-ed needs, and not all are getting what they need, says Maggie Moroff, from Advocates for Children. "They don't have perfect IEPs now [with SESIS], but part of the problem is that they didn't have good IEPs to begin with." And, as the city has spent more on IT ideas executed by private consultants, the human side of the DOE "product" has suffered. This might have particular bearing on special education, where graduation rates have been stagnant despite progress elsewhere in the system.

"Instead of the DOE hiring more social workers and more school psychiatrists, people that would have time to actually work with students are now just filling out paperwork. I used to have many conversations with social workers at my school, and now that hardly happens anymore," says the teacher who showed us SESIS. That's not surprising, given the current ratio of counselors to students. "For the 1,000 kids at my school," he says, "we have three guidance counselors and one part-time social worker who splits her time between four other schools."

"They are selling SESIS as the greatest thing since Jesus," the teacher says. "But the kids are still not ready for college." He qualifies his statement: "SESIS is not the real problem—the real problem is the lack of support, and support for parents, to help the kids with their social and emotional issues." As the 2011-12 school year kicked off, the DOE was still monkeying with bus routes, leaving some Queens students to face three and even four-hour commutes via public transportation.

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This is not Alvarez & Marsal's problem anymore—if it ever was. The firm's contract with the DOE specified that the city "assumes responsibility for the implementation of any restructuring proposal,' which department employees "are assigned to implement or select.' But legal niceties aside, the firm has moved on, physically. Right around the end of the school year that was punctuated by the bus episode, The Washington Post ran a story about an audit that the District of Columbia had ordered.

"The audit will cost $3.3 million and be performed by two management consulting firms: Alvarez & Marsal and McKinsey & Co.," the article read, adding that Board of Education president Robert Bobb "said he began considering an audit of the system shortly after he took over the school board in January, adding that he had interviewed several potential firms and favored Alvarez & Marsal."

"That company has worked with school systems in St. Louis, New York City and New Orleans, although its work has included some highly publicized missteps, including the creation of consolidated bus routes that left students stranded. Bobb defended the selection of the auditing firms, saying Alvarez & Marsal has learned from its mistakes and will not repeat them in Washington."

Research support for this project was provided by the Investigative Fund at The Nation Institute.