FED-EX KINKO’S CONTRACT…….TOO COSTLY
FED-EX KINKO’S CONTRACT…….TOO COSTLY
2006-01-31 at 11:16:00 am #13992
Kinko’s deal is costly to DISD
Exclusive: Principals lament expense; firm stands by copying, printing program
When the Dallas schools announced a groundbreaking plan to outsource copying and printing to industry giant Kinko’s, W.T. White High School jumped on board.
Company reps told Principal Joy Barnhart that she could slash copying and printing expenses by 21 percent, money she could plow back into classrooms. Instead, those expenses nearly quadrupled, according to district records. From 2003 to 2005, such expenses rose from $42,000 to $158,000.
Across the entire Dallas Independent School District, copying and printing costs more than doubled. In 2003, the district spent $5.87 million; by 2005 it was spending $12.82 million, according to records obtained by The Dallas Morning News.
“I just think that somebody needed to scrutinize that contract, and I’m not sure anybody did,” Mrs. Barnhart said.
FedEx/Kinko’s spokeswoman Maggie Thill referred requests for cost figures to DISD. She did not dispute The News’ findings, which were based on DISD’s figures, but said the company stands by the program – which, she said, allows DISD to opt out with only 30 days’ notice
“Based on a school-by-school assessment, we are in fact saving the district money,” she said.
District records and interviews don’t support that claim, however. Kinko’s based its estimates on industry averages and other assumptions that DISD says do not apply and which ended up inflating estimates of the district’s expenditures. For example, Kinko’s included such things as estimated time workers spent making copies and repairing machines, as well as office supplies like toner.
“It has been said by FedEx/Kinko’s that we simply didn’t understand our total cost to copy equation and the expenses are not out of line,” the district’s purchasing director, Greg Milton, wrote to his boss in September. “My professional opinion is that they’ve come up with this explanation as a means to justify their costs, but the argument is ridiculous when analyzed. … [Current charges] are double to eight times our real costs!”
In addition to complaints of excessive cost, public records examined by The News indicated that:
•DISD’s handling of the project was led by Ruben Bohuchot, DISD’s former director of technology, who was ousted last fall after becoming the subject of an FBI investigation into a separate computer-services contract. Mr. Bohuchot, who did not return phone calls from reporters, played in an exclusive golf tournament subsidized by FedEx/Kinko’s that was included as part of the deal with DISD. A FedEx/Kinko’s spokeswoman said the company has not been contacted by the FBI. No charges have been filed in the FBI investigation.
•The contract obliges schools to lease equipment from FedEx/Kinko’s, so hundreds of perfectly functional printers the district already owned now sit in warehouses, wrapped in plastic.
•The project’s grand vision was to create a network of high-tech printers and copiers throughout the district, allowing teachers and administrators to print anything, anywhere. Two and a half years into the three-year deal, that remains only a dream.
•Some school budgets are breaking under the cost of operating new equipment leased through the program. T.C. Marsh Middle School’s copying charges for the current school year would amount to more than $80,000, Principal Kyle Richardson estimated. He said the amount he had budgeted for the year “would not even cover three months of charges.”
“One of my chief responsibilities is to be a good steward of public funds,” he wrote in a November e-mail to central office administrators. “How can that goal be accomplished when we have a system that is much slower and costs twice as much to use?”
Superintendent Michael Hinojosa said he’s heard complaints about the contract since arriving in the district in May.
“We’re concerned not only with the cost, but also the service,” Dr. Hinojosa said. “We’ve started looking at it.”
Origins of the deal
The idea to privatize the district’s copying and printing needs gained steam in early 2003.
Enthusiasm for the contract went to the top of Kinko’s corporate ladder.
The company’s stake went beyond this one deal. Records and interviews indicate that top executives hoped to establish a trend-setting program with DISD that could then be marketed to other large districts around the country.
The potential of such a deal was “huge, huge, huge” according to one former executive who was involved in the early stages of the project DISD “was a huge deal for the company,” said the former Kinko’s executive, who spoke on the condition of anonymity. “We simply could not fail.
Once the deal was inked in 2003, then-Superintendent Mike Moses urged his employees to sign up with Kinko’s, telling them they could redirect any savings into their schools.
Trustee Hollis Brashear, who was board president at the time, voted against the contract. He questioned why the administration pushed for the deal even though schools were not complaining about their equipment.
“Kinko’s was never able to prove they could save the district money,” he said.
Kinko’s had told DISD it could save $6.7 million on equipment alone over the first three years of the deal. More than 60 schools and numerous district departments signed onto the deal, each hoping for a piece of those savings.
The contract called for Kinko’s, which was soon bought by FedEx, to analyze how every school and office could improve productivity. Its suggestions centered on replacing old equipment and handing large printing jobs over to local FedEx/Kinko’s stores.
As schools signed on with Kinko’s, they began to wonder why anyone had thought it could save them money. From the principals’ perspectives, costs were rising steeply.
When FedEx/Kinko’s looked at W.T. White High School, for example, it concluded that the school was spending $104,116 per year running its Oce copiers. The company said it could save the school an average of $45,000 a year.
Principal Barnhart told The News she can’t figure out how the company arrived at its figures. In previous years she spent $42,000 annually for equipment rental, copying costs, toner and repairs – the same costs included in FedEx/Kinko’s billing, district officials say.
The principal at Reinhardt Elementary also stated that her school’s estimates were way off. The company told her that Reinhardt ran 20,000 sheets through its ink jet printers per year and made between 400,000 and 600,000 copies. The principal, Jill Barney, told central office administrators that the actual figures were 2,500 ink jet printouts and more than 1 million copies.
“Their original estimate of what we spent on inkjet cartridges and printers was too high so the savings they were claiming to give us was incorrect,” Ms. Barney wrote in an e-mail to district officials.
In an effort to better understand how FedEx/Kinko’s arrived at its estimates, the district’s purchasing department examined financial records at 10 campuses before and after the schools joined the FedEx/Kinko’s project.
The conclusion: district officials could not figure out how Kinko’s came up with the estimates, which were based on a complicated formula that included not just what schools paid for copying, but also things like the time teachers spent in the copy room and the amount of time repairmen spent on campuses. The estimates also included supplies like toner, which schools had received for free under previous contracts.
To DISD’s bookkeepers, however, those labor costs were irrelevant. Teachers got paid whether they were standing over a copier or doing other things to prepare for class. The district also said Kinko’s used industry average costs in its estimates, but presented the figures as if they were actual DISD expenses.
By late 2004, some managers warned that the program was blowing school budgets. Records show that top officials were unsure what to do. In July 2005, DISD froze the project and stopped allowing new schools to join. However, they continued paying for schools that had already signed up.
One of the first administrators to question the deal was Mr. Milton, DISD’s purchasing director. Last summer, he wrote his bosses to share his concerns: Nobody at DISD really understood how Kinko’s arrived at its estimates, and therefore all were surprised at the expenses that followed, he said. Plus, he said, upper management didn’t make addressing the concerns a top priority.
“I think we are throwing good money after bad trying to salvage something that doesn’t even meet the needs of the campuses,” he later wrote in a September e-mail to his boss. … “We are spending millions of dollars … which the competition [other companies] offers for millions less.”
In response to complaints from principals, DISD’s central office began absorbing the cost overruns incurred by the participating campuses.
The total copying charges, however, were rising fast enough to put a dent even in DISD’s $2 billion budget.
In 2003, the year before trustees ratified the deal, DISD spent $5.87 million on copying, printing, equipment and associated costs, according to district records. In 2005, districtwide spending for copying hit $12.82 million – $2.1 million more than DISD had budgeted. Those costs do not include charges to school credit cards many principals used for copying expenses after becoming frustrated with the contract. The district has not provided complete records of those transactions.
Earlier this month, The News reviewed 15 months of billing records from FedEx/Kinko’s. Those records indicated that the company has billed the 64 participating schools and some departments $7.1 million in printing and copying charges for 2005. Copying expenses for the rest of the district, 153 schools, were about $5.7 million, according to district records.
Ms. Thill, the company spokeswoman, said The News’ figures were “exactly in line” with the company’s records.
FedEx/Kinko’s said that if the deal is indeed bad for the district, DISD can simply cancel it with 30 days’ written notice. That the district has failed to do so for 2 ½ years indicates that the program is working, Ms. Thill said.
Superintendent Hinojosa, however, said terminating the contract would require the district to have a plan to provide copy and printing services to campuses. Some schools had been renting their equipment.
Reached last week, Mr. Moses said through a spokeswoman: “It is very disappointing if printing costs have increased, because the idea was presented to our purchasing department as a way to bring cost-effectiveness to the district’s printing and copying expenses. If costs have not been driven down as promised, then the board definitely should review and cancel the contract.”
District officials, including Superintendent Hinojosa, say what’s needed is a thorough examination of the costs, and a detailed analysis of where the projected savings have gone.
“We have to question why we’re doing so much, and what’s causing it to be so high,” Dr. Hinojosa said.