A Government Collection Contract that Can Change an Agency Forever

Davitt said the visibility and ConServe’s new status as an unrestricted ED contractor helped it recently win new business with some state student loan guaranty agencies. He said the company’s 310 employee base could grow to as many as 600 over the next two years.

“The federal contract is so public and open. People can see what’s going on and how performance has been,” Davitt said. “It’s better than a sales person saying we’re doing a good job when you can point to public records saying we’re doing a good job.”

Stagg agreed saying the ED contractor presents huge opportunities and huge risks for small agencies. The Anaheim, Calif.-based company is preparing for growth.

In August, Stagg – along with partner and Coast CEO Brian Davis -- will open a new facility in Geneseo, N.Y. and hire workers that will help work the ED contract and handle new business when the company is ready to expand. He said Coast could potentially employ as many as 250 workers at its offices in West Monroe, La. and Geneseo just to support the ED contract.

But as quickly as an ED contract can elevate an agency’s revenue and stature in the student loan space, it can lead to a company’s downfall if the operations and performance isn’t managed well, Stagg said.  Coast will have invested about 12 months of preparation and $2 million in security and software before it even begins collecting on the ED contract this fall, Stagg said. Some of the financing will come from Coast’s cash reserves. But the size of the investment, due to new security requirements, could mean that ED contractors will operate in the red a lot longer than prior ED contracts, Stagg said.  

Account Control Technology, Inc. (ACT) president Donald Taylor agreed that an ED contract is an award that doesn't' come cheaply.  Because of the new security requirements, he estimates it could take ED contractors as much as 24 months to break even.  

But the eight year relationship has benefitted the company, headquartered in Canoga Park, Calif. ACT went from 40 employees when it won its first ED contract in the small business category in 2000 to about 250 today as the company won ED volume and won new business from state guaranty agencies, colleges and universities, Taylor said. And, like ConServe, the company was moved to the unrestricted ED contract this year. Taylor said ACT's new unrestricted contract will likely mean staff will increase 100 percent.
 
"From our perspective, you make such a large investment, but it's a bet on the future," Taylor said. "It's the single largest contract in the country."

Given the enormity of the changes and Coast’s commitment to perform well for the ED and its existing customers, the company will not pursue any new business in the next two years, Stagg said.
 
“Something that makes you laugh can make you cry if you don’t do it right. I know of several companies that have had an ED contract that are no longer in business,” Stagg said. “Failure is not an option.”