Government-Nonprofit Contracting

About Government-Nonprofit Contracting

An increasing number of 501(c)(3) organizations with federal, state, and local contracts are reporting that their government partners are failing to make payments for services performed under contracts, forcing the nonprofits to make painful cuts to programs, services and staff. Many government agencies are withholding reimbursements, reneging on agreements altogether, or imposing other burdens that harm nonprofits. Making matters worse, many government contracts simply don’t cover the full cost of providing services.

Withheld payments – even if delayed for just a short time – cause all sorts of harm. A survey of nonprofits in New York found that 66 percent of nonprofits had been forced to take out a line of credit due to late payments from government agencies, thus not only diverting valuable staff time, but also adding direct financial burdens on nonprofits.

To learn more about how nonprofits are affected and what can be done to help, visit our Government-Nonprofit Contracting Web Portal or any of the reports listed below.

Related Reports

• The Government Accountability Office (GAO) reported that federal grants often fail to provide nonprofits with enough funds to cover the full costs associated with delivering services, making it harder for nonprofits “to continue to effectively partner with the federal government to provide services to vulnerable populations.” A summary and excerpts of the report are available.
• The Congressional Research Service (CRS) found that “in addition to funding cuts, states apparently have been delaying payments for services they have contracted with nonprofits to provide.” CRS cited a national survey documenting that 35% of responding nonprofits reported declines in overall government support and more than a third reported delayed payments from the government. The CRS warned that “it appears that governments, particularly state governments, may be contributing to the financial difficulties of nonprofit organizations, even to the point of not paying for contracted services.”
• President Obama’s Advisory Council on Faith-Based and Neighborhood Partnerships called for simpler reporting requirements and prompt payments to nonprofits, saying “state and local municipalities are not paying current or recently ended contracts…resulting in many nonprofits being owed substantial funds for services provided.”
• The National Council of Nonprofits released a special report, State Budget Crises: Ripping the Safety Net Held by Nonprofits, documenting how states are delaying contract payments to their nonprofit partners, slashing funds for essential programs, and imposing new fees.
• The Urban Institute’s Center on Nonprofits and Philanthropy and the National Council of Nonprofits conducted the first comprehensive national survey of nonprofits to assess the severity of this problem. The National Council of Nonprofits issued a Special Report, Costs, Complexification, and Crisis: Government’s Human Services Contracting “System” Hurts Everyone, that provides additional context to the Urban Institute’s findings by (a) explaining how the contracting problems affect everyone in America, not just nonprofits, (b) identifying specific practices that contribute to the problems nonprofits are experiencing, and (c) proposing solutions that nonprofits, government officials, funders, and citizens can adopt to improve services, restore value for taxpayers, and benefit communities. Since then, the National Council has continued to promote the collective findings and support State Associations and others advocating for change.

What Nonprofits Can Do

• Tell us your story! Late payments for contracted services is only one of many ways that governments shortchange nonprofits and exploit the contracting relationship. See the five worst government-nonprofit contracting abuses and let us know if you agree, if you’ve seen worse, or if you know of solutions or successes in your state that help prevent these and other abuses. As the nation’s largest network of small and midsized nonprofits with more than 24,000 member organizations, the National Council can raise awareness and impact debates around the country through your help.
• Find your State Association and get involved to address these and other developing issues in your state. Individual nonprofit organizations can amplify their voices by working together through their state nonprofit associations. State Associations in Arizona, Connecticut, Massachusetts and many other states have successfully altered contracting policies via new legislation, guidelines and regulation.