Purdue University Answers Questions on Purdue-Kaplan OPM Contract

Author

Phil Hill
January 15, 2020

On Monday I shared a post “Purdue University’s System-wide OPM Contract With Kaplan Higher Ed“ that was based on a public records request. In the post, I described a list of questions I had for Purdue University. Similar to the handling of the post on Purdue Global’s financial losses from the first year of operations, the university spokesperson provided welcome answers to the questions.

I am going to share Purdue’s response in full and then provide some initial thoughts below.

Purdue University Response

In this section, the original questions are in blue italics, and Purdue’s commentary is in quotation below each quote.

“The Kaplan agreement (the one for OPM services outside of PG) is significant. Can you describe how Kaplan was selected as your institution-wide partner? In other words, was there a competitive process, or was this tied to PG contract, or some other decision process?”

Kaplan Higher Education (KHE) was selected as a provider of basic services because it made sense to do business with a partner with whom we had a long-term relationship (via PG) and who had a shared interest in cultivating online offerings that would cater to different needs in a cohesive and logical fashion. One of the key reasons for acquiring Kaplan University in the first place was to obtain rapid and ready access to online support expertise, as opposed to trying to build it in-house. Since KHE has that expertise, they were a logical choice to turn to for similar functions on Purdue Online’s behalf.

Even still, the agreement with KHE is not exclusive. KHE currently serves five non-PG online offerings for Purdue, but there are a greater number that are not being served by KHE, including legacy programs with other OPMs, programs that Purdue self-services or directly sells to a customer for workforce development, and small niche programs.

“Which university groups have been briefed on the agreement and its implications?”

All colleges are aware of the options available to them as they develop and grow online programs.

“I was surprised that the entire section on distribution waterfall was redacted. Can you describe how the mechanics are different than PG waterfall (don’t need specific numbers like rates or rev share percentages)?”

The terms were developed through separate negotiations, but in general, the waterfall operates in a similar fashion: program revenue is distributed first to cover all program costs incurred by Purdue and KHE before any fee to KHE is paid. KHE is only paid a fee if all program costs of Purdue and KHE have been covered and if cash remains to pay KHE’s fee. Any residual revenue after that accrues to Purdue. To the extent there are differences between the two agreements, they likely stem from the fact that online programs being developed by Purdue are more in their infancy stage and the potential benefits of an OPM to a new program are different than those of an established program.

“How many programs outside of PG are using Kaplan for OPM services now that the contract is a year old?”

Five with a few more in the works.

My Commentary

Like the response on Purdue Global finances, this response from Purdue is quite helpful in filling in gaps in the public record. Given the increasing importance of the OPM market, and given the importance of institution-wide online strategy, it is important that other schools (and even for-profit companies) understand what is happening with this high-profile initiative, and to understand it accurately. I will share additional thoughts on this contract and what it means for Purdue and for the OPM market in a future post. Below I will just add some initial thoughts on the specific answers provided.

The Purdue response on how Kaplan was selected as an OPM provider addressed why Purdue perceived the need for an outside provider vs. using in-house resources, and they mentioned the explicit connection with the Purdue Global agreement. But what this situation means is that no, there was not a competitive evaluation for an institution-wide OPM partner with 30-year contract term and “limited exclusive” status. That is remarkable to me – making this big of a decision without any market evaluation or competition involved.

Purdue’s response mentions online programs not using Kaplan, but that somewhat misses the point. The contract listed named pre-existing exceptions to the agreement. Purdue has chosen to redact the information on the mechanics of how programs may end up using or not using Kaplan (section 4.1.1), but this is not a case where each program (or department, or college) can just pick who they want with no strings attached. This is an institution-wide strategy and approach with a “limited exclusive” partner.

Purdue’s response also seems to confirm that the contract decision was made by a small group of people without broad campus involvement or even information-sharing before decisions were made. What I believe the answer “All colleges are aware of the options available to them as they develop and grow online programs” implies is that this fait accompli has been communicated to individual college leadership (deans and staff) for decisions moving forward. Essentially a notification rather than a discussion.

The Purdue response on the financial structure is useful and confirms the hybrid approach. First, pay direct costs from Purdue as well as fee-for-service due to Kaplan. Second, look at net revenue to determine if Kaplan also received a revenue-sharing percentage (what I believe is meant by “the fee”). Third, accrue residual revenue to Purdue. Much of the discussion on the OPM market refers to a false binary between revenue-sharing and fee-for-service without recognizing the significant trend of hybrid revenue structures such as used in the Kaplan contract.

Time permitting, I’ll add some overall thoughts in a future post. For now, I’d like to thank Purdue University again for answering questions on this important topic.