“NYC,” Margalit Francus

March 2, 2020; City & State NY

New York City is a city of enormous contracts, and this is not the first time we have seen one of the largest service providers fail. When they do, what follows is a time of frantic reorganization where the government agencies responsible for the contracts try to place the services with other nonprofits. That’s what’s taking place right now in the wake of the failure by fraud of Childrens Community Services.

With the target date of July 1, 2020, Urban Resource Institute, Praxis Housing Initiatives, Children’s Rescue Fund, and Samaritan Daytop Village are negotiating with the city’s Department of Homeless Services to replace Childrens Community Services’ management of 25 homeless shelters, containing families and children, in commercial hotels. This assumption of the funding would come with its own set of risks even if the situation flowed from a relatively innocent set of mistakes, but, of course, it didn’t.

Childrens Community Services has contracted with the city since 2017 and was paid approximately $500 million. The city is suing the nonprofit, along with six subcontractors, for fraud, breach of contract, and unjust enrichment. An investigation by federal prosecutors and the city’s department of investigation found that the contracted services and invoiced supplies were not provided.

Since February, the operations of the Childrens Community Services have been managed by Daniel Tietz, who was the CEO of Bailey House, which provides support for HIV/AIDS patients. Tietz was also with the Human Resources Administration of NYC.

“As we have said, we are ending all business with this provider and we have taken unprecedented action to expedite their phaseout by suing the provider,” Isaac McGinn, spokesman for the city Department of Social Services, said in a statement. “In support of these efforts and affirming our urgent need, at our request, the court recently appointed a temporary receiver to oversee this process. While the receiver helps shut down the organization without disruption, this Negotiated Acquisition is the quickest way for us to identify quality service providers who are prepared to effectively and seamlessly take over their locations and support New Yorkers in need.”

Predictably, the four nonprofits that are negotiating to take over the homeless shelters already have other contracts with the city. Samaritan Daytop Village has the largest, providing $80 million in services for the homeless.

Childrens Community Services’ income for 2016–2017 was $44 million, but with all but $642,000 of that income in government contracts, the end of the contract means the end of the nonprofit. Still, the organizations that carry these contracts forward will have their work cut out for them. As we have pointed out before, few government contracts pay the full costs of the services for which they contract, so taking on more contracts almost automatically means taking on additional fundraising to maintain sustainability. One might imagine that these four nonprofits will see some incentives, at least in the short term, but this is sure to be a big leap for all of them.—Marian Conway