A call for contract justice

New York City Hall.
New York City Hall.
New York City Hall.

A call for contract justice

Here’s why it’s a vital part of labor peace, as well as economic and racial justice.
August 13, 2021

No Justice. No Peace.

Every human services contract awarded by New York City includes a "start" date on which work must begin. However, the city has no legal obligation to honor the contract (i.e., to pay) unless it has been "registered." In fact, it has a legal obligation not to pay.  

It is both not very nice and a violation – at least in spirit – of labor law to require that work be done while being unable to pay for it. So it would seem obvious that contract registration should always happen before the start date. Yet, more than 70% of New York City’s human services contracts are registered after their start date, including more than 12% that are registered after the entire contract term has ended and the work has already been completed! 

Late registration creates enormous cash flow problems for nonprofits. Although registration is not the same as payment – registration only means that the city can pay, when it actually does pay is another matter – it is virtually impossible for nonprofits to borrow against unregistered contracts since lenders worry that, while very rare, contracts that have been awarded can fail to be registered.

Late registration and delayed payments have been endemic under Mayor Bill de Blasio’s administration, but there is little that individual nonprofits can do about it. The city is the monopolistic buyer of human services, giving it the power to mistreat its nonprofit partners at will. Most nonprofits are local and cannot fire the city to focus on better partners in other geographies. All they can do, when times get desperate, is appeal – human being to human being – to functionaries in the city with power; an appeal which is only sometimes successful and comes after considerable anxiety, suffering, time, and money spent.

However, the new labor peace legislation suggests that the City Council is interested in better treatment for human services workers. Better treatment which – the Council must surely realize – is impossible without a corresponding improvement in the city’s treatment of human services nonprofits. Better treatment requires more, more timely, and more predictable cash flow. For human services nonprofits – which already operate on razor-thin margins, have no shareholders and no profits – where will this come from if not the city? The philanthropic tooth fairy? The legislation also offers an opportunity for nonprofits to educate and mobilize their employees – and those like District Council 37 who would advocate on their behalf – for contract justice as a necessary foundation for labor peace and economic and racial justice.

For human services workers interested in how the city has been treating – or mistreating – their organizations (and by extension them since city funding and staff compensation are closely linked), this table of shame shows the extent to which the city has required work from its nonprofit human services partners before even promising to pay for it. For example, 96% of the contracts awarded to the Legal Aid Society were unregistered when the work began, and this "unregistered work" totaled $181 million over 104 contract years. In aggregate, the city coerced unregistered work out of its partners in 71% of the contracts awarded, representing $7.5 billion over almost 29 thousand contract years.

The labor peace legislation also suggests the council does not believe that people do the right thing in the absence of legislation. Presumably they believe this applies to the city itself, so in the interest of consistency, now is the time for the council to pass a companion piece of contract justice legislation to mandate fair treatment by the city of nonprofits it has awarded human services contracts. The legislation needs only four simple elements:

  1. In the event that a human services contract is not registered after being awarded, the city will reimburse the nonprofit for any work that has already been done.
  2. Any work done between the start date and the registration date will be reimbursed by the city at a 10% premium in recognition of the difficulty and cost of funding these pre-registration expenses.
  3. The city will pay interest on invoices/vouchers that are more than 60 days overdue other than in those (rare) cases in which the invoice has been funded through a zero-interest loan from the Fund for the City of New York.
  4. All labor peace agreements will allow for furloughs, layoffs and associated work stoppages to the extent that they are necessary because of late registration or delayed payments by the City.

While there is a lot of posturing about racial and social justice, real progress often requires concrete changes in the machinery of government in small but important ways that go to the benefit of our most vulnerable citizens and those that serve them. It is easy to lose sight of the human consequences of these seemingly technical details, but this excerpt from a recent letter to the city from the leader of a human services nonprofit proves the point (and we’ve seen many like this):

I am angry, frustrated and completely out of patience because we are suffering and have not seen any payment since the beginning of June. I have been pleading with all of you to provide us with the funds that are owed to us as per our contracts and yet nothing has changed. It is unacceptable!

I find it very difficult to understand what is going on here. We have dedicated people who have done their part to work during these challenging times with the expectation they would be paid, so they can live their lives. I have staff who are getting eviction notices because they haven’t paid rent, staff who have had to go to food banks because they ran out of food, and they can’t file for unemployment when they are supposedly employed by us. They are left on a path to homelessness and in complete despair.

They are angry with the city and want to know who to talk to beg for their pay and I am left here to listen to all their desperate pleas without a solution and to be looked upon with disdain for letting them down. It is just not right.

Something must be done. There has to be an actionable solution that supports our staff who have met the demands of their contract with us. It is mid-July and we still have nothing but debt and loss!!

Contract justice is part of economic and racial justice. It's a necessary precondition to labor peace. No justice. No peace.

John MacIntosh
is the managing partner of SeaChange Capital Partners, which help nonprofit work through complex financial and organizational challenges.
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