Making Nonprofit Management as Hard as Possible: Absurd Delays in Contracts Plague NY Groups

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Over the past year, NPQ has documented some serious factors that can weaken even the largest nonprofits that have contracted with government in the state of New York. Specifically, we published two pieces (here and here) that looked closely at the combination of external and internal factors that led to the demise of FEGS, the biggest social service agency in New York City. The second of the two pointed to problems that lie in the basic business model of heavily contracted groups—problems that include a lack of full cost reimbursement.

Additionally, we have been documenting the considerations of these groups in trying to comply with badly needed new wage requirements for front-line workers. Finally, the deleterious effects of inadequate state contracting practices have been fully documented by studies performed by the Urban Institute and the National Council of Nonprofits. Why, then, would New York state agencies contracting with these nonprofits persist in writing the contracts, the life’s blood of these groups, ridiculously late? 

New York State has had a Prompt Contracting Law since 1991 that requires state agencies to process contracts within 150 to 180 days. Since 2007, the state comptroller is mandated to report annually on progress (or lack thereof) and make recommendations to increase timeliness. Despite all this attention, the majority of contracts with nonprofits are still being processed late, which means the nonprofits are basically working without formal agreements and with late reimbursements.

The report from Comptroller Thomas DiNapoli for 2015 found that 61 percent of the time, state agencies were still processing contracts after the renewal date had passed, with an appalling half of all agencies reporting that their contracts were processed late as often as 90 to 100 percent of the time. Incredibly, this is still an improvement—last year, contracts were late 77 percent of the time, and in 2013 they were late 87 percent of the time. We could see this as progress, but why has it has taken 25 years to get this far on a problem that should be a basic administrative fix?

The state does pay interest payments for late contracts. But in 2015, it paid a pittance: $129,824, as compared to $195,663 the previous year. No one believes that figure represents all the interest paid as a result of late contracting. Also, fewer contracts needed to be renewed due to increased use of multi-year contracting. Still, the logjam persists.

Those state agencies with the highest number of late contracts were the Office of Children & Family Services, the Department of Health and the Office of Temporary Disability Assistance, the report found. In addition, some agencies were late 100 percent of the time, including the Education Department, the Department for Economic Development and the Office of People with Developmental Disabilities.

Michelle Jackson, associate director and general counsel for the Human Services Council of New York, said, “The state relies on nonprofit human services providers to deliver essential programs that contribute directly to the health, safety and productivity of its residents.  But 25 years after the adoption of the Prompt Contracting Law, New York is still executing six out of every ten human service contracts late.” She praised Comptroller DiNapoli for “drawing attention to this issue, which destabilizes nonprofit organizations and forces providers to ‘float’ the government by taking out loans, furloughing staff, or scaling back services, compromising the quality of important programs and services on which countless individuals and families depend.”

Doug Sauer, chief executive officer of the New York Council of Nonprofits, said that despite the progress being made, the problem remains unsolved and could cripple or destroy the state’s charitable partners. NYCON would like to see the legislative and executive branches of New York’s state government back the recommendations of the comptroller:

Make prompt contracting a priority to reduce costs to the state and not-for-profits;

Ensure that prompt contracting interest is paid timely. The Legislature and the Executive should enact the Comptroller’s recommendation that interest be paid with the first payment due on the late contract; and

Expand the use of technology, such as the Grants Gateway, to improve contracting efficiency.

But these recommendations clearly lack the necessary bite to interrupt what is a deeply engrained habit of unprofessional disrespect for contracted partners. Paying a modicum of interest as a penalty obviously does not work to change behavior. It would be illegal to refuse to process the compensation of those responsible for writing the contracts until that work was done, but human service nonprofits are refused prompt payment through delayed contracting as a matter of course. We are interested in hearing from readers about what their recommendations would be in this situation.

  • SophieB

    Here is the big problem with making the Prompt Contracting Law work in New York. The law allows the interest for late contracts to be waived. Although State agencies are no longer allowed to require a nonprofit to sign a waiver of interest (they could until 2007), it can be done by agreement between the two parties. If we’re really honest about it, it is just semantics. Most nonprofits are going to agree to sign the waiver so that are seen as a cooperative provider and future contracts are not jeopardized. Because of the waivers, the interest costs never show up in financial reports as wasted money. Therefore, nobody pays attention to it since there isn’t really a cost involved for the State. I would suspect if State agencies started having to pay the interest and therefore hundreds of thousands if not millions of dollars of additional costs started showing up in their financial reports simply because the agencies were not fulfilling their responsibilities and following the law, we would see a good deal of improvement a good deal faster.

  • Kim Lerner

    I have yet to hear or read an explanation as to why these contracts are late…what is the reason?