EXCLUSIVE — An administrative judge in Iowa has dismissed allegations the company chosen to administer the state's education savings accounts misrepresented itself to win the school choice contract.
As families in Iowa began applying for ESAs this week, Primary Class (the company that was awarded the contract with Iowa to administer the school choice accounts through its platform Odyssey) was being accused of "substantial material misrepresentations" in its bid application.
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Iowa is the latest state to launch school choice, which began Wednesday with close to 10,000 students applying as of Friday morning. With more states implementing ESAs, the need for third-party vendors to administer the funds is rising, setting off bidding wars to win state contracts. The dispute among vendors in Iowa could be a sign of growing pains in the rapidly expanding market, which has some school choice advocates warning that states need to be "vigilant" in how they choose to implement ESAs and what organizations they choose to administer them.
Documents provided to the Washington Examiner by the Iowa Department of Administrative Services, where the case was being adjudicated, show complaints filed by two other entities that lost during the bidding process, Inspired Life and Student First Technologies, protesting Odyssey's contract award.
The complaints highlight two primary problems with Odyssey's bid: misrepresenting past business relationships and undervaluing the bid.
While Student First issued a protest in the award, Inspired Life, which was set to partner with larger ESA firm ClassWallet if it won the bid, took the complaint to an administrative law judge inside the DAS for a closed-door review. The judge decided Friday morning that the case did not have enough evidence to move forward in court.
Odyssey provided the Washington Examiner with its post-trial brief contesting some of the accusations, arguing that "Inspired Life simply disagrees with the agency decision."
Odyssey's filing claims members of the Evaluation Committee were concerned with Inspired Life's presentation and lack of ability to answer certain questions.
"To be charitable, Inspired Life’s presentation 'did not go well,'" the document reads, quoting Iowa Chief Operating Officer Jacob Nicholson, who was a member of the committee. According to the document, Inspired Life could not answer questions related to cybersecurity, which Odyssey says is "one of the most important aspects of ESA administration."
Inspired Life's inability to answer on cybersecurity left EC member and Iowa Departments of Management and Revenue Director Kraig Paulsen "with the impression that either they [Inspired Life/ClassWallet/FACTS] didn’t understand it or they didn’t care, and that’s not ok," the document reads, adding Paulsen said Inspired Life's presentation was "just this side of horrible."
However, multiple ESA administration companies raised concerns to the Washington Examiner about Odyssey's bid.
A source close to the matter, who requested anonymity over fear of retribution, told the Washington Examiner that Odyssey's business model has been to undervalue services provided at a loss to the company, win the contract based on the price, and eventually procure enough contracts in enough states to make up the lost funds.
While Odyssey's cost proposal estimated just under $630,000 per year for its services, other companies had much higher costs, which they consider to be more realistic. For example, Merit, a leading contender to win the contract, estimated the cost at $3.6 million for the first year and $2.2 million for each subsequent year.
"They're operating as this loss leader, lowering their prices to the detriment of the programs and at the expense of the taxpayer, the family, and the state," the source said, describing Odyssey's bidding as "fraudulent activity."
In its bid to secure Iowa's contract, Odyssey said it had administered two different programs in Arizona as proof of its ability to take on the Hawkeye State's ESA program.
One program, a $10 million "microgrant" to Love Your School from August 2022 to August 2023, is contested by LYS's executive director and founder Jennifer Clark as she said she never partnered with Odyssey for the program, but did speak to the organization about a potential relationship.
The other was a $5 million program with consulting agency Resolute Group for the Arizona Tax Credit Scholarship Child Opportunity Fund starting in November 2022. However, this tax credit scholarship referenced by Odyssey does not appear on Arizona's list of entities certified to accept the money for the program. Resolute Group's George Khalaf did not respond to a request for comment from the Washington Examiner.
"They do not, nor have they ever been directly involved in an AZ tax-credit scholarship of any amount," the March 1 complaint from SFT Co-Founder and CEO Mark Duran says of Resolute Group.
Education advocates believe the burgeoning market for ESA vendors could lend itself to abuse by disingenuous companies attempting to inject themselves into a growing movement.
"This controversy is a great reminder that states must be vigilant when implementing school choice policies," Parents Defending Education president and founder Nicole Neily told the Washington Examiner. "Parents have fought too hard for the right to determine their child's future education. We cannot afford for administrations to waste hard-fought victories."
ClassWallet CEO Jamie Rosenberg told the Washington Examiner: "Implementation of education savings accounts is incredibly complicated, probably one of the more complicated programs a government agency may undertake."
He added that bills setting up ESAs often do not "contemplate the challenges involved in balancing the compliance of ensuring funds reach the intended beneficiaries and are used for the intended purposes, with the highly diverse and personalized learning needs of students, with the intense demand for maximum transparency from the public."
After Gov. Kim Reynolds (R-IA) signed the Students First Act earlier this year, Iowa joined several states in setting up accounts designed for parents to decide where to send their children to school.
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These education savings accounts take the normal allocation for per-pupil funding, about $7,598 for 2023-2024 in Iowa, and deposit the money into an account that parents can use to pay for tuition, fees, and other qualifying education expenses.
Reynolds's office declined to comment, and Odyssey CEO Joseph Connor did not return a request for comment from the Washington Examiner.