In 2008, the Australian government paid out $A22m when the ABC chain of centres collapsed. The banks reportedly lost over $1 billion and hundreds of staff lost their jobs.

ABC was the largest private for-profit ECE provider in the world at the time and its collapse was a nightmare for families dependent on its services in Australia and New Zealand. A number of centres closed while others were later taken over by a partnership of non-profit providers.

But ECE is once again the corporate darling and 2008 seems long forgotten. Two large ECE corporates are now listed on the Australian sharemarket (G8 Education and Affinity Education). A third joined the ranks at the end of last year as part of what is termed a “roll-up” of New Zealand services.

The Porse in-home childcare chain, Lollipops Educare and some 55 standalone services are now owned by Evolve Education, which opened on the New Zealand and Australian stock exchanges in December. The listing gave shareholders an immediate profit of 7% on the issue price of shares.

Those original shares had been snapped up largely by Australian and Asian investors, and the $132 million they paid for them gave the owners of the “rolled up” services a handsome purchase price for their services.

Norah Barlow, Evolve’s new chair, told The New Zealand Herald that “ECE has the potential to become just as big a sharemarket success as aged care”. She was formerly the chief executive of the retirement village operator Summerset Group.

Warnings

But even before the company listed, warnings were issued about the likelihood of an Evolve collapse and from the most unlikely of sources.

Wayne Wright, who owns the fast-growing Kidicorp chain of ECE services with his wife Chloe through a family trust, told EA he expected that within “four to six years from now we’ll be picking up the remnants of Evolve.

“They’re buying centres at five or six times earnings and putting them on their books at 10 times earnings.” Wright believes that it will be difficult for the company to meet projected profitability (it is forecast to make $16 million in its first year) at that level.

Wright contacted EA following an investigation into ECE in the spring edition of the magazine. A number of issues were raised with him, including the use of “zero hours contracts”” whereby staff have no guaranteed hours of employment. He said he had not been aware that the company used this practice, as his role was “values and vision” rather than operational management.

He acknowledged there had been quality difficulties in Auckland with a manager, who has since left, who had been too focused on “KPIs” (key performance indicators).

“I want to apologise to staff if they were affected,” Wright told EA. He also noted that it was “difficult to meet investors’ expectations and maintain quality”.

Nevertheless he would not sell his business. “It’s our legacy. “This is what I want to be remembered for. I could never do that in construction or telecommunications or food processing or all sorts of businesses I’ve had over the years. They were things to do and they had financial outcomes. This actually makes a difference. That’s what I like about it.”

Proliferation

Concerns are widespread in the sector, and have been backed up by recent reports from the Ministry of Education and the Education Review Office, about the quality of ECE provision. Members report that the rapid growth of for-profit providers is associated with declines in quality.

NZEI members working in for-profit services have reported that minimum staff:child ratios aren’t met, that there are “blind spots on the floor”, that children are crying and scared because there aren’t enough teachers around, and that parents pay extra for snacks for their children but then the child is limited to one quarter of a sandwich and an eighth of a piece of apple. (See “The rise and rise of corporate childcare”” EA Spring 2014.)

For many members, there is not the choice of leaving a bad employer, says South Auckland head teacher Julie Brice. “New graduates need experience to gain registration but they can end up tied to an employer who keeps promising they’ll sign off on the paperwork needed for registration ‘in six months time’.” Brice says teachers may have few other employment choices as small centres are swallowed up by the “baby barns”.

“There are some too who feel a loyalty to the children so they stay in a place where they might not like what’s going on but they want to make it the best they can for those children.

“You look at all that research Cathy Wylie did about quality and how to get the best results for children” about small group sizes and lots of language experience” but it’s hard to see how that can be going on in some of these places.”

Inquiry needed

NZEI’s past president, kindergarten head teacher Judith Nowotarski, says the current situation is utterly unacceptable. “An independent inquiry is urgently required into the sector.”

In one of several initiatives by NZEI members to cut through to government, the union made a detailed submission to its Productivity Commission, which is conducting an inquiry into “More effective social services”, including ECE. (Read it at http://tiny.cc/v5p1qx)

The submission states that, despite the best efforts of educators, the current situation poses a number of risks to the government’s

  • ‘clients’ (to use the commission’s language), that is to the children in ECE
  • reputation, as examples of poor quality come into the public domain
  • goals. Poor quality ECE will make it more difficult for the government to reach its student achievement goals. It will also undermine long-term economic goals, as poor quality ECE leads to higher costs for crime, welfare and health and lower income from taxes.
  • finances. Any kind of economic shock or downturn where people lost jobs would see children taken out of ECE. For-profit providers, who rely on parents for about 30% of income, would be vulnerable and likely to ask for bailouts, as did ABC.
  • policymaking. It appears that the government intends to change the funding model for ECE
  • but without meaningful consultation with the sector as part of its policy development. The lessons of Novopay, charter schools, National Standards, the IES and class sizes have not been recognised.

“The government cannot act too soon to commission an independent inquiry,” says Nowotarski. “The situation must not be allowed to deteriorate further.”

In ECE, it is standard that labour is about 75% of the cost of running a quality service because high-quality ECE depends on high-quality teaching: staff who are qualified and registered, and working reasonable hours and conditions.

Yet, in Australia one of the listed companies is reporting that it has cut its labour cost to 60%. The numbers speak for themselves but it’s the basics of the ABC that are not being heard.

More complaints

Education and care services and home-based services had a far higher proportion of complaints against them in 2013 than kindergarten and Playcentre services.

The Ministry of Education received 246 complaints against ECE services in that year. The majority of these related to fees, governance, management and administration issues but 26 related to physical or verbal abuse against a child and 25 to accident management, including accidents or incidents not being properly reported. Another seven related to children managing to get out of a centre due to insecure premises or lack of supervision. Twelve complaints were outstanding when the data was collected in February 2014.

Every ECE centre is required to clearly display a complaints process to parents. But, according to the ministry, parents or staff may “choose” to come to the ministry with their complaints.

“They may do this to remain anonymous, if the complaint has not been satisfactorily resolved by the service’s process, or if the complaint is very serious.”

An Official Information Act request made by EA resulted in figures that show home-based and education and care services were the subject of 80% of the complaints (199) received by the ministry, even though they had 71% of enrolments.

In comparision, kindergartens accounted for 17% of enrolments but had just 7% of complaints. Some 70% of education and care services are run by for-profit providers, and 83% of home-based are private.

Of the complaints made against these services, 37% were upheld, compared to a much lower 18% of complaints made against kindergartens that were upheld. But Playcentre has the best record of all – 0 complaints.

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