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Jan 22, 2014

Government Contracts Remain a Drag on Nonprofit Health

In 2009 the Urban Institute published the results of a survey that showed that government budget cuts were impacting the nonprofit sector through late payments, inadequate reimbursement for the cost of services, and other behaviors that eroded the financial health of nonprofits.  The Urban Institute repeated this survey to find out how the situation had changed in the intervening years.  Here is its report: Nonprofit-Government Contracts and Grants: Findings from the 2013 National Survey.

While the problems have not disappeared, my impression is that the situation has improved.  Late payments and unilateral changes to contract terms seem less widespread.  The dominant problems remain the complexity in applying for contracts and in complying with contract-mandated reporting.  There even seems to be some improvement in the amount of overhead that is covered by the contract, with the major exception of state governments, which seem to persist in their underpayment of nonprofit contractors.

This is reflected in the greater proportion of respondents who have been able to increase staff salaries and benefits and to serve additional clients.  Disturbingly, reduction in reserves remains necessary for a significant minority.

The National Council of Nonprofits, which collaborated in this survey, also released a companion report which made 12 suggestions for how governments could reduce the burden on nonprofits which provide contracted services for government.  Their full report is A Dozen Common Sense Solutions to Government-Nonprofit Contracting Problems.

Nonprofits are caught in the dilemma of their self-imposed role as providers of last resort for critical community needs.  As I wrote on pp.165ff in More Than Just Money, “nonprofits are committed to their missions and they will work hard o provide public services in the face of reduced governmental support.  But given the benefits we all directly and indirectly received from the services they provide, is it in the public’s interest to rely more heavily on nonprofits’ success in getting donors to write the checks that we don’t want to ask taxpayers to write?”

If you are facing this dilemma, you should take a hard look at your services and which are most critical to meeting the needs of the community.  Are you losing money on too many services?  Is fundraising not keeping up with the needs you see in the community?  Let me help you to sort through these issues through my workshops or retreats.  If you do, you will agree with James R. Klein CEO, Finance Fund, who said of the retreat I facilitated for his nonprofit,”…One of the most introspective and focused discussions of the future we have ever had at a strategic meeting.”