The largest and longest-running experiment in school privatisation in the United States, where a company was invited to run nine inner-city schools in Baltimore, Maryland, has been abruptly terminated.

Baltimore mayor Kurt Schmoke cancelled the contract with Education Alternatives Inc, on the recommendation of the city’s school board.

The decision pleased teachers’ unions even as it scared off investors, sending EAI’s stock prices spiralling downwards.

For four years, the project has been closely watched in the US and to some extent in Britain as a hands-on test of whether introducing the profit motive into the running of public-sector schools can improve standards while cutting down on bureaucracy, as its backers claim.

Both sides have been trying to put their own spin on events. But the acrimony in Baltimore was hardly an advertisement for education reformers. EAI is already involved in a tricky contract dispute with its only other major customer, the school board in Hartford, Connecticut.

On March 1, 1996, Baltimore will resume control of nine schools it contracted out to EAI in 1992, Mayor Schmoke said. “Those who look closely will see what happened was a failure to resolve a business problem,” he added.

Facing a budget shortfall for the entire school system of $32 million (Pounds 20.5m), the city asked EAI to take a $7m cut on a contract worth $44m. EAI refused, saying such a cut would erase its profits to date, and Baltimore exercised its option to cancel on 90 days’ notice.

While EAI’s schools were kept clean and attractive, with substantial investment in computer technology, and individualised education plans for pupils, they failed to keep promises of dramatic improvements in test scores - the acid test for those who say there is an education crisis in the US.

For all its promises of wider and early foreign language teaching, and greater parental involvement, no groundswell of support for keeping the company seemed to emerge. However, EAI’s supporters - including some teachers and parents - claimed that the company had begun the job of righting some of the city’s most troubled schools.

Researchers from the University of Maryland last year carried out the only independent assessment. “The promise that EAI could improve instruction without spending more than Baltimore city was spending on schools has been discredited,” the team concluded.

If nothing else, analysts say, the end result amply illustrated the dangers of any private company working in the most politically charged and financially sensitive area of American local government - the schools.

When EAI removed 90 unionised semi-professional teachers’ aides and replaced them with people straight out of college, increasing the adult-pupil ratio but lowering wage bills, the union turned against it.

The Baltimore schools superintendent who helped to bring EAI to the city insists it was on the verge of reaching its goals. However, EAI’s reluctance to provide detailed accounting figures for how it achieved Pounds 4.5m in gross profits led to suspicion that it was draining money from public education. Its progress was compared unfavourably with a partnership between a Baltimore private school, the Calvert School and a city school which received teaching and management support.

EAI chief Robert Golle told the Baltimore Sun that the loss of the Baltimore contract “will have a devastating impact”, but insisted his company was unlikely to be bankrupted. “We’ve still got Hartford, and we’ve got $32m in the bank,” he said.