Government Contracting Delays Hurt Nonprofits and Communities

Although New Yorkers from all walks of life rely upon nonprofits to provide vital services, nonprofits can neither count on the government to pay them on time nor in full, despite New York State’s preexisting laws. The State’s human services providers continue to face the epidemic of late contracting, which has a detrimental effect on both the organizations themselves and the communities they serve.  According to the most recent annual prompt contracting report released by Comptroller Thomas DiNapoli, State agencies processed 61 percent of their nonprofit contracts late in 2015.   While this is certainly an improvement from 2014, when the State processed a staggering 77 percent of its nonprofit contracts late, the percentage is still unacceptably high and jeopardizes the ability of nonprofits to carry out their mission. [1] Last year, the government spent $129,824 of taxpayer dollars paying interest on delayed contracts, which is money that could actually be spent providing nonprofits with the funds they need to aid the communities they support. Furthermore, the $130K is only a fraction of what the nonprofits were owed; indeed, the government paid interest on only 22% (303) of the 1,379 eligible contracts.

In 1991, the State passed the Prompt Contacting Law, which was intended to prevent delays by requiring State agencies to process contracts within 150 to 180 days. Furthermore, a 2007 amendment requires the Comptroller to release an annual report detailing if agencies meet the time frame and if not, offer reasons for delay.[2]  The law provides for interest payments on late contracts to prevent financial hardship.  Unfortunately, the law also allows nonprofits to waive their right to these interest payments, and many human services contracts contain waiver clauses.  Providers believe that they have no leverage when the government presents them with a contract that includes a waiver clause; they are fearful that if they challenge the clause, the government will simply find another group to provide the service. As such, 25 years after the adoption of the Prompt Contracting Law, government continues to process the majority of its nonprofit contracts late, without paying interest in most cases—and nonprofits end up paying the penalty for government’s bad contracting practices. The law thus should be amended to include stringent criteria for when a waiver is permissible.

Through thousands of contracts, the State relies on the nonprofit sector to provide vital services to New Yorkers. In New York State, over 91,000 nonprofits provide a plethora of services including disaster relief, homeless shelters, food pantries, literacy program, and elder care.[3] The breadth of services available means that those who receive them are not just those living below the poverty line but those with differing races, genders, ages and socioeconomic statuses. In addition to providing services, the nonprofit sector also accounts for a significant portion of the New York State workforce; according to an analysis by the Fiscal Policy Institute, there are 250,000 private sector social service workers in New York.[4]

Nonprofits are forced to compensate for the government’s late contracting by taking out loans, furloughing staff or scaling back services. [5] These actions have the deleterious effect of not only compromising the wellbeing of the individuals employed by the sector but also risking the health of the estimated 2.5 million New Yorkers who utilize the provided services .[6] The real world result of the government’s late contracting is, perhaps, shutting down the local child care center, diminishing the amount of vocational training available to veterans or halting the provision of mental health counseling.

The monumental problems facing human services providers are epitomized by the disastrous 2015 closing of Federation Employment and Guidance Service (FEGS), one of the largest human services providers in New York. In the wake of the closing, HSC released an extensive report both with reflections on the current state of the human services sector and recommendations to prevent a similar scenario to FEGS in the future. One of these recommendations was “timely and reliable payments by government.” HSC identified that due to organizations’ lack of cash reserves, uneven payments on performance-based contracts make it extremely difficult to budget and pay personnel and operating expenses, which obviously do not evaporate even when payments are nonexistent.[7] Furthermore, as recommended by Comptroller DiNapoli, prompt contracting interest should be automatically calculated in order to help ensure that the non for profits receive their owed interest.[8]

Government relies on nonprofits, and nonprofits must be able to rely upon the government’s timely and complete payments in order to fulfill their mission. Ultimately, the government must become cognizant of the fact that by paying contracts late and by not providing interest payments they are harming both the nonprofit human services delivery system and the communities that rely upon the services the nonprofits offer.  Accordingly, HSC continues to advocate meaningful contracting and payment reform.

Contributed by Edith Herwitz of the Human Services Council.

[1] http://www.osc.state.ny.us/contracts/reports/2015/pcl_report.pdf

[2] http://www.bizjournals.com/buffalo/news/2015/06/01/nonprofits-continue-to-wait-on-contract-payments.html

[3] http://www.nycon.org/files/7814/2653/2398/Palm_Card_Template_2015.pdf

[4] http://fiscalpolicy.org/wp-content/uploads/2015/12/15andFunding-Report-Dec2015.pdf

[5] https://nonprofitquarterly.org/2016/06/16/making-nonprofit-management-as-hard-as-possible-absurd-delays-in-contracts-plague-ny-groups/

[6] http://www.humanservicescouncil.org/Commission/HSCCommissionReport.pdf

[7] http://www.humanservicescouncil.org/Commission/HSCCommissionReport.pdf

[8] http://www.osc.state.ny.us/contracts/reports/2015/pcl_report.pdf

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About Human Services Council

The Human Services Council strengthens New York's nonprofit human services sector, ensuring all New Yorkers across diverse neighborhoods, cultures, and generations reach their full potential.
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