Child Day Care Services

SIC 8351

Companies in this industry

Industry report:

This industry includes establishments primarily engaged in the care of infants or children or in providing pre-kindergarten education where medical care or delinquency correction is not a major element. These establishments may or may not have substantial educational programs and generally care for pre-kindergarten or preschool children but may also care for older children when they are not in school. Establishments providing baby-sitting services are classified in SIC 7299: Miscellaneous Personal Services, Not Elsewhere Classified. Head Start centers operating in conjunction with elementary schools are classified in SIC 8211: Elementary and Secondary Schools.

Industry Snapshot

In the early 2010s, approximately 65 percent of women with preschool-aged children worked outside the home, up from 39 percent in 1975. Of three- to five-year-olds, about 60 percent of children received care in center-based programs, 10 percent received care from nonrelatives, and 20 percent were cared for by a relative. As a result, by the early 2010s, the child daycare business had become, by some estimates, a $47 billion dollar industry. Between 1980 and 2000, the number of children in center-based child care quadrupled. Legislation requiring welfare recipients to work, an increasing number of state-run preschool programs for three- and four-year-olds, and increased subsidies for low-income families drove demand during the late 2000s and early 2010s.

Organization and Structure

Day care services can be broadly divided into two groups: family day care homes and day care centers. Family day care occurs in a private residence and typically serves four to six children. Most such providers operate unofficially, however, either because (a), they take care of four or fewer non-related children and thus in many states are not required to register, or (b), they are subject to state regulation but are wittingly or unwittingly operating underground. Estimates of these facilities naturally vary widely: a report of the National Association for the Education of Young Children places their number at anywhere from 500,000 to 1 million.

Day care centers, in contrast, operate outside homes and typically enroll more children, perhaps 50 to 100. The centers can be divided into for-profit and nonprofit facilities. For-profit centers comprise the large national or regional chains with hundreds of centers, such as KinderCare and Children's World Learning Centers, as well as thousands of smaller businesses. Nonprofit centers may be operated by churches, parent cooperatives, public schools, community centers, Head Start, YMCAs, and so forth; some may be operated by businesses for the benefit of their employees or by the employees themselves.

During the late 1990s, thousands of mothers entered the workforce under the guidelines of the Clinton administration's welfare-to-work program, causing an overloading of already limited availability of adequate child care. Parents called upon employers and state and local government to provide assistance with child care, in the form of subsidies, training, better monitoring and regulations, and greater flexibility. As the labor shortage worsened, more and more employers found that child care was an important benefit for both employee retention and increased productivity. But because of the labor shortage, qualified childcare workers became even more difficult to find.

Several studies during the late 1990s and early 2000s caused frazzled parents even more worries. For example, a study of 1,000 families in 10 cities conducted by three researchers from Columbia University in 2002 found that three-year-old children scored significantly lower on basic assessment tests if their mothers worked more than 30 hours a week by the time the child was nine months old. Although studies were mixed on the long-term effects of high quality child care versus staying home with a parent, surveys examining the standards of U.S. child care were unanimous: the majority of children in day care received mediocre to poor care. However, by the late 2000s, child care centers had overcome some of their negative stereotypes. Some studies began reporting that children attending day care centers developed better social skills. In addition, a 2008 study of four-year-olds by the National Institutes of Health found that those who had been in daycare actually did better on literacy and number-skills tests.

As in most other sectors of the economy, major growth in the industry was achieved by mergers and acquisitions. Although large chains made up a very small portion of childcare services, many were rapidly purchasing local chains and independent centers to expand operations, while others consolidated to increase their clout in the marketplace.

Background and Development

During the seventeenth and eighteenth centuries, parents in the United States rarely had to face the problems of child-rearing alone because they could usually expect support from their extended families, many of whom lived and worked close by. Urbanization and changing social conditions in the nineteenth century created a need for child care for poor mothers who had to work. To this end, in 1828, a group of evangelical women established the Boston Infant School, often considered the first day care center in the United States. Similar schools were soon set up in New York and Philadelphia. As these centers were usually established under religious auspices, part of their care entailed instructing their charges in moral and religious belief.

Throughout the nineteenth century and the early 1900s, such centers generally provided care only for poor children. More affluent mothers rarely worked, and, if they did, they hired nannies to look after their children. Thus, until the Great Depression, day care was generally seen as an issue confined to a relatively small segment of the population. The enormous rise in unemployment and the subsequent creation of the New Deal afforded a vast expansion of day care facilities through the Works Progress Administration. One of the primary objectives of these centers was to give jobs to the unemployed, especially laid-off schoolteachers.

Despite the dramatic social changes brought on by the Great Depression and World War II, most communities did not have full-day childcare programs until the late 1960s. In the 1970s and 1980s, the number of day care centers grew dramatically. The rise in the number of women working outside the home explains much of the story: in 1987, 67 percent of women in the United States were in the out-of-home workforce, compared with 39 percent in 1970. According to government estimates, in 1991, employed mothers had almost 10 million children under the age of five. Nearly one quarter of these children received care in an organized facility such as a nursery school or a day care center. Forecasts indicated that women would account for 62 percent of the growth in the labor force through the year 2005, thus indicating a continued need for child day care services.

Demand also depends on local social conditions, including the strength of family ties. For example, a unit of KinderCare, one of the largest of the day care chains, surveyed 4,000 employees of an Ohio company and found that only 42 said they would use a corporate day care center. A stunning contrast was provided within the skyscrapers of New York, where children of investment bankers might be making bird feeders from milk cartons as their moms and dads closed billion-dollar merger deals down the hall.

State and local regulations, primarily enforced by state human services agencies and, to a lesser degree, local building departments, were a major challenge for day care operators. Day care regulation presented a particularly difficult dilemma for governments and legislators--and parents. While tough rules might increase the quality of care, they could also curtail supply and raise costs. Moreover, stringent requirements often drove providers, especially those with small family day care homes, to operate underground.

Thus what began as a valiant attempt to offer maximum protection to children had the effect of creating facilities that had little or no regulatory oversight. Indeed, there was little doubt that some underground providers were not only skirting extraneous regulation but basic safety requirements as well. In early 1993, for example, the bodies of two children caught in a fire in a New York day care home were found in the cellar, next to a pile of mattresses and a nonworking smoke detector.

Some observers noted that often the rules might be sufficient, but the staff that enforces them could be small and inadequate, with a single inspector responsible for as many as 150 facilities. Providers complained that there were so many requirements that they were unable to discern which were essential and which were merely recommended. Directors were often frustrated by having to compete with programs that were exempt from licensing, which often included centers run by churches, local governments, or public schools.

The biggest regulatory hurdle for many day care centers was meeting child-to-staff ratio requirements, since wages usually accounted for well over half of all operating costs. To ensure that children received proper supervision, state regulations required certain ratios of workers to children. The ratio varied with the age of the children. Child development experts generally recommended that a single caregiver be responsible for no more than three or four infants (less than one year old), five or six toddlers (one to two years old), or 10 preschool-age children (between two and five years old).

Health and Safety.
During the mid-1980s, the insurance market for childcare centers was in a crisis. Legal costs were climbing; insurers feared huge tort settlements; reports of child sex abuse, most notably at the McMartin Preschool, were on the rise; and a major insurer of childcare services, Mission Insurance Co., became insolvent. By 1992, however, the Child Care Action Campaign was able to list 25 insurers that offered coverage, up from just a few providers available several years earlier.

Some day care centers were criticized for unsafe conditions identified on playgrounds, where climbing equipment was often too high or equipment was poorly maintained. While children did occasionally sustain injuries at centers, most of them were minor and resulted in only small claims. Indeed, it appeared only 5 percent of accidents at centers led to liability claims, versus 10 to 15 percent for accidents in general. On the downside, however, policies became more expensive and insurers excluded some important risks. Most refused to cover legal costs to defend against physical or sexual abuse charges.

Without attempting to minimize the horror of any instance of child abuse in a day care setting, some observers noted that these incidents represented a very small fraction of all child abuse cases. Indeed, statistically speaking, children were less likely to suffer abuse in a day care facility than they were in their own homes. Other commentators noted that a child in day care is, again on a statistical basis, safer than a home because someone is always supervising the children, poisons are locked up, and there are no guns.

Whether small children are more likely to catch infectious diseases in a day care facility than in their own homes was a source of controversy. Some noted the literature in medical journals that suggested several serious diseases, as well as less dangerous maladies, were more common among children in day care than those at home with a parent. A 1995 study found that an unsettling number of childcare centers, both for-profit and nonprofit, were unhealthy for children. The study showed that one in eight centers was unhealthy, primarily because of unsanitary conditions that promote the spread of infectious diseases. According to researchers, the underlying cause of many child day care problems could be attributed to the low training of personnel and the high worker-to-child ratios.

Welfare to Work.
The welfare reforms of the Clinton administration during the 1990s raised new concerns about the quality and quantity of day care, as many women previously staying home to care for their children were compelled to work outside the home. One company addressed the problem by hiring women recently off welfare to provide childcare. In 1997, Philadelphia-based Childspace Management Group employed such women at an hourly wage of $7 an hour--25 percent higher than the industry average. Employees paid a reduced rate to enroll their own children and after one year were offered stock options in the company. The turnover rate for the company was more than 50 percent lower than the industry average. Another program, based in Chicago, which came about due to welfare reform efforts, helped women getting off welfare to obtain licenses for running day care centers out of their homes.

For many of the working poor, mainly single mothers, help was not so forthcoming. Although some states offered childcare assistance to working women, for some women their wages were too high to get public assistance but too low to pay for childcare bills as high as $600 per month for one child in the Seattle area--or up to $1,000 monthly for two. Some women requested lower wages or part-time work; others took lower paying jobs. Actually finding child care also presented challenges. Although women leaving welfare received priority, they still faced waiting lists nearing 400 families.

An additional hurdle facing workers starting in entry-level jobs was the difficulty of finding child care that matched their working hours. According to a survey by the National Association for the Education of Young Children, in the early 1990s only 10 percent of childcare centers had weekend hours, and just 3 percent offered their services at night. According to the U.S. Census Bureau, less than one-third of workers hold 9-to-5 jobs, and that proportion is much higher in entry level positions. Cities working to move parents off welfare initiated programs and lessened restrictions to increase the number of hours child care was offered. In 1998, for example, the Chicago City Council rescinded a regulation requiring childcare centers to close before 9:00 p.m. Rolling Meadows, a Chicago suburb, announced plans to open a center operating 24 hours a day, seven days a week.

Employer Support.
Employer support might take several forms, which included providing referral and information services; reimbursing employees, in varying degrees, through a benefits package; using a vendor system (the company buys places at day care centers, and the employee pays all or part of the costs); contributing to local day care facilities; or opening a corporate childcare center, as was the case with some corporations in the United States that have on-site facilities. Opening a day care center often yields much goodwill within the firm as well as favorable press. A 1997 study by Coopers & Lybrand LLP reported that 43 percent of employers offered child care benefits, up from 30 percent the year before.

The study also reported that as many as 73 percent of companies with $1 billion or more in revenue provided some kind of childcare benefits, while only 18 percent of companies with revenues under $10 million did the same. But as small business grew throughout the 1990s, so did their childcare concerns. Tightening labor markets made retention of employees at all levels a crucial issue, more so in smaller firms, where losing one employee--either for a day or permanently--meant losing a substantial portion of the workforce. Smaller firms lacking the resources for on-site child care often offered employees a payroll deduction permitting them to use pretax earnings for day care through the federal Dependent Care Assistance Program. Union-based movements were also pushing state governments and individual employers to improve childcare benefits.

A growing trend for employers was the provision of backup child care, allowing parents to work when their regular babysitter was not available: on weekends and evenings or in case of an emergency. ChildrenFirst Inc. operated 14 backup care centers in major metropolitan areas in 1998. "Sick day care," child care for children too ill to attend regular day care, was also subsidized by some major employers. Often, employers "subscribed" to the program by paying a flat annual fee; employees who used the service made a low co-payment for the days they used. Both types of providers relied primarily on corporate clients for support, rather than individual parents. According to benefits consultants, this sector of the industry was growing faster than on-site care.

Quality vs. Quantity.
As more mothers entered the workforce throughout the 1990s, concerns about the effects of day care on children also increased. Several studies released in the late 1990s offered mixed reports. Widely publicized studies in 1997 reported that the most brain development happens prior to age three and that it is highly dependent upon environmental factors including attachment to caregivers and mental stimulation. In 1999, the National Institute of Child Health and Human Development released another installment of a study of 1,300 children from birth to age three. The results suggested that using child care during the first year of life, particularly the first four months, disrupts "the process of attachment, when mother and child learn to read one another's signals and expressions." Early reports from the National Institute's study provided parents better news. Findings released in 1998 indicated that "toddlers in day care have fewer behavioral problems, like tantrums and hitting, than do those cared for alone with a nanny or in small groups." A 1997 report from that study claimed that children in high-quality day care begin school with enhanced language and social skills. A 27-year study at the University of North Carolina supported these findings by concluding that children in "quality childcare programs" could maintain that advantage into adulthood.

With extreme shortages in affordable child care getting worse, however, quality was hard to come by. In 1999, the Consumer Products Safety Commission (CPSC) released the results of a study revealing unsafe practices and products in a majority of day care centers. Of the 200 licensed centers the CPSC examined, over two-thirds had at least one major safety hazard. The findings, reported in U.S. News and World Report, listed several common safety hazards: "At 38 percent of the centers, children were wearing clothing with neck drawstrings, which can become caught in playground equipment and can lead to strangulation. Twenty-four percent of the centers had unsafe playground surfacing, and 19 percent had cribs that contained soft bedding, which can smother children. Other dangers included poorly maintained playground surfaces, loops on the cords of window blinds, and failure to use child safety gates where necessary." The study offered no count of how many injuries were caused by these hazards, but the CPSC reported 56 deaths since 1990. A broader nationwide study, however, counted at least 76 deaths in the year 1996 alone.

Apart from safety concerns, many centers did not offer high quality care. A report published in 1996 by Suzanne Helburn and Carollee Howes found that 86 percent of childcare centers were below average to bad. Home-based day care was not substantially better: the study found 35 percent to be inadequate and 56 percent to be no more than adequate. A 1999 article in Time cited a federal study with similar findings: "85 percent of preschoolers who are cared for outside the home get poor or mediocre care, delivered by a hodgepodge of mostly unregulated providers."

Other Programs.
As private nursery schools began to proliferate in the postwar years, educators began to note that children were entering kindergarten with widely differing abilities. Project Head Start was conceived to give poorer children a "head start" on their education. The program was distinguished by its commitment to the total child: it included nutrition and health care assistance and supported parents in their job searches. Unlike many of the programs initially funded during the Johnson administration's War on Poverty campaign of the 1960s, Head Start continued to receive strong support from the government and the public.

In 1999, there were approximately 1,500 Head Start programs nationwide--some of which covered multiple sites--at an annual cost of $4.6 billion to the federal government. In the mid-1990s, the government became concerned with the quality of Head Start programs in many communities. According to the National Journal, "Over time, many Head Start organizations became stale, entrenched bureaucracies, protected by local politics and politicians, with little accountability to anyone or close examination of their record in helping kids." Another challenge to the program was its strong affiliation with African-American communities, as the population of children being served by Head Start became more diverse and more heavily Hispanic. In a Clinton administration initiative, hundreds of the poorest performing Head Start programs were closed down, and many others were reformed.

Child care for older children also became a bigger issue, as more parents sought structured after-school programs. Proposals included keeping schools open as late as 6 p.m., although conservatives have argued that such programs give government too much power. As a compromise, some suggest using public school facilities for community-based programs. As of 1999, 30.0 percent of public elementary schools offered after-school programs; 3.4 percent of eligible children made use of them. One publicly held childcare provider sought to corner this market: Nobel Education Dynamics offered programs for children through the eighth grade. The company announced in early 2000 that its net earnings for the six months ended December 31 1999, increased by more than 153 percent from the same period of the previous year.

According to the Children's Foundation, in 2002 there were 113,298 regulated childcare centers in the United States, up from 86,212 in 1988. Family childcare homes totaled 306,802. Of that total, 262,329 were family-based childcare homes and 44,473 were group (large) childcare homes. This number represented a significant increase from 1988, when the Children's Foundation listed 193,044 total family childcare homes--181,662 family-based and 11,382 group.

The trend toward children living in households where both parents work continued to provoke discussion in the childcare industry on how best to serve the needs of these children. Although two-thirds of mothers with young children work outside the home, a report issued by Public Agenda reported that 70 percent of mothers with children under the age of five preferred to stay at home and 80 percent believed that their children would fare better in terms of attention and affection under the care of a parent than in a well-run, quality childcare facility. Whereas 67 percent of parents surveyed supported tax cuts to help families allow one parent to stay at home, only 27 percent of child advocate groups agreed. Organizations such as the Children's Defense Fund and National Association of Child Advocates believe that the answer to the nation's childcare needs lies in developing more affordable and better quality day care centers.

As a result of the ongoing debate regarding the future direction of satisfying childcare needs, the direction of future trends is fragmented and without consensus. While childcare advocates push for increased funding to improve the quality of care available to low-income families who cannot afford to place their children in private day cares, families themselves have opted for changing to stay-at-home careers and jobs with flexible work hours. Ideal for many would be a trend toward on-site childcare facilities, but nearly 80 percent of companies surveyed by Public Agenda did not believe they had lost good employees due to lack of childcare benefits, making unlikely the hope that corporate America would lead a full-scale charge into innovative child care.

In 2005, group day care centers numbered 15,074, for 11.8 percent of the market. In addition, group day care centers employed 88,824 people while posting revenues of $2.5 billion. Head Start centers, excluding those operated in conjunction with schools, included 3,772 centers with a workforce of 49,407 and revenues of more than $1.3 billion. There were 7,208 preschool centers, for 5.6 percent of the market. The preschool sector employed 75,587 people and posted revenues of $2.0 billion. Last, there were 2,532 nursery schools employing 25,864 people and generating $485.8 million in revenue.

According to statistics published in The Condition of Education 2006, compiled by the U.S. Department of Education´┐Żs National Center for Education Statistics, children ages 3 to 5 enrolled in some form of early childhood day care program climbed 60 percent in 1999 and fell to 57 percent by 2005. The percentage of children age 3 who attended child day care services stood at 43 percent, while 69 percent of children ages 4 to 5 participated in child day care services. In terms of educational background, 73 percent of children with mothers holding a bachelor's degree or higher had their children in childcare. By comparison, only 49 percent of children whose mother had a high school diploma had children in childcare, and enrollment of children whose mothers had less than a high school diploma dropped to 35 percent. There was little difference when it came to the total number of hours per week a mother worked. Mothers working 35 hours per week or more utilized child day care 64 percent during that time, while mothers working less than 35 hours per week reported using child day care 61 percent during that time.

More companies were joining Working Mothers' annual list of 100 best companies to work for when it came to corporate on-site day care, as well as other resources to make it easier for women to remain in the workforce. In fact, 18 companies joined the list released in September of 2006. From on-site day care facilities to telecommuting to flex scheduling, corporations were making it possible for women with children to remain in the workforce and helping to drive the industry for child day care services.

In the late 2000s, daycare centers continued to enroll the majority of children, with a small proportion being cared for in smaller, home-based child care settings. According to data published by the Federal Interagency Forum on Child and Family Statistics, those under the poverty line were less likely to have their children enrolled in a day care center. In fact, in many areas of the country the Head Start and Early Head Start programs, which served lower income families, had long waiting lists. During the 2007-08 program years, Head Start and Early Head Start served 976,409 and 95,325 children, respectively. The programs received a significant boost in 2009 when additional funding of $2.1 billion was included in the American Recovery and Reinvestment Act of 2009, which was added to $7.2 billion in regular appropriations for fiscal year 2009.

Just how daycares affected the overall health and emotional and intellectual development of children remained a matter of debate in the late 2000s. Although the daycare center had shed some of its poor image problem of the 1990s by adding a variety of educational programming, skill-based activities, and new studies showing that a group environment could provide children with advantages that were not enjoyed by other children, some previously touted benefits, such as children in daycare build up an immunity to diseases and allergies, were coming under scrutiny in the late 2000s.

In 2009, there were an estimated 131,164 establishments primarily engaged in the care of infants and children, of which 99,727 focused on child day care services. Other subsectors within this industry included group daycare centers, Head Start centers (except in conjunction with school), Montessori child development centers, nursery schools, and preschool centers. According to a 2009 D&B Marketing Solutions report, the industry generated revenues of $22.4 billion with a workforce of 989,529 people.

Current Conditions

Although like many businesses the child day care industry slowed during the economic recession of the late 2000s, recovery was on the horizon as the 2010s began. A 2012 report by global market research firm IBISWorld predicted that demand would increase as unemployment numbers dropped and people, especially women, returned to work. In addition, the increase in disposable income accompanying the recovery of the economy was expected to boost the industry, as more discretionary funds became available to families who in turn would enroll their children in early education programs. In addition, according to the IBISWorld report, "One key area of growth for the industry is employer-sponsored child care services, which will become increasingly important as companies ramp up their efforts to attract and retain staff." The research firm estimated that more than 832,000 establishments employed 1.6 million workers in the industry, and that together these firms earned $47 billion in revenues in 2011.

Industry Leaders

This industry is highly fragmented, and the top 50 companies generate less than 20 percent of revenues. However, in the early 2010s, Knowledge Learning Corporation, which operates KinderCare, Knowledge Beginnings, and Children's Creative Learning child care centers, was one of the nation's largest for-profit childcare organization, caring for over 300,000 children, ages 6 weeks to 12 years old, at over 1,700 locations. The privately held company reported revenues of $1.62 billion in 2007.

Learning Care Group operated some 1,000 sites under the names The Children's Courtyard, Childtime Learning Centers, La Petite Academy, Montessori Unlimited, and Tutor Time Child Care. In 2008, the private equity arm of Morgan Stanley purchased 60 percent of the Learning Care Group for $420 million. The company is a subsidiary of Australia-based ABC Learning Centres, Limited. Revenues for Learning Care reached $891 million in 2011.

Bright Horizons was another large childcare center chain, specializing in on-site child care. It operated more than 600 centers in the United States, Canada, the United Kingdom, and Europe. It has been consistently named to Fortune Magazine's "100 Best Companies to Work for in America." In addition, more than one-half of the companies listed on Working Mothers' "100 Best Companies" were Bright Horizon customers. In 2011 the firm reported revenues of $882.7 million.


According to the U.S. Department of Labor, there were 804,600 childcare workers, including preschool teachers, employed in 2011. Preschool teachers, who accounted for about one-third of the industry's workers, earned an average annual salary of $26,300. Teachers' assistants, who made up 13.5 percent of the employment base, earned an average annual income of $21,290. Child care workers, who accounted for 30 percent of the workforce, earned an average annual salary of $19,300. Low pay and meager benefits contributed to a high turnover rate.

About 42 percent of child care workers have a high school education or less, reflecting the low level of educational requirements. The majority of the workers in the industry are female, and about one-third of the workforce is composed of women of color. Many childcare workers worked part-time, and about 4 out of 10 preschool teachers and childcare workers were self-employed, most of whom were family day care providers. More than 60 percent of all salaried preschool teachers and childcare personnel are found in child day care centers and preschools, and about 15 percent work for a religious institution. Others work in service organizations and in government.

The training and qualifications required of preschool teachers and childcare workers varies widely. Each state has licensing requirements that regulate caregiver training--ranging from a high school diploma to community college courses to a college degree in child development or early childhood education. Some states require continuing education for workers in this field. Virginia, for example, requires that all day care center personnel receive eight hours of child care- related courses each year. Formal education requirements in some private preschools and day care centers are often lower than in public programs since they are not bound by state requirements. Some states prefer preschool teachers and childcare workers to have a Child Development Associate (CDA) credential, which is offered by the Council for Early Childhood Professional Recognition. The CDA credential is recognized as a qualification for teachers and directors in 46 states and the District of Columbia. The credential requires 120 hours of training, a high school diploma, and 480 hours of experience. By 2012, 275,000 people had become CDA certified.

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