Nonprofits still facing challenges in city contracting process

If we were looking up the phrase “procurement reform” in the dictionary, the definition would be the Human Services Council Report, “NY Nonprofits in the Aftermath of FEGS: A Call to Action.” New York City spends roughly $4 billion on human service contracts. These nonprofit groups take care of our seniors, children, and disabled. The Federation Employment Guidance Service was a $200 million social service umbrella agency that went bankrupt a year ago, and the Human Services Council – a consortium of nonprofit providers for city services – initiated a task force to determine why. The report identifies multiple problems and prescribes three critical steps for reform. While the report is a “call to action” for all levels of government – city, state and federal – the New York City Council Committee on Contracts is focused on procurement reform on the city level.

The Human Services Council report identifies three hurdles with the city’s contracting process which, taken together are toxic for non-profit organizations trying to provide vital city services. To begin, nonprofits are underpaid. Base rates for services were set over 20 years ago – and have seen no appreciable cost of living or inflation adjustments since then. Over the years, the city eliminated its funding for overhead, administration and indirect costs. For example, six years ago city government eliminated coverage for health insurance. As a result, according to the Human Services Council, these social services agencies are paid roughly 80 cents on the dollar.

The city often turns to non-city experts to service city needs. When the city decides to build a $40 million bridge, for example, they hire a construction company with that expertise. The city would never say to the construction company, “We’re going to pay you $35 million, but try to get philanthropists or foundations to cover the remaining $5 million.” While the city always pays the “lowest responsible cost” for construction, all contractors’ bids include the cost of overhead, indirect and administrative costs as well as the escalation of wages and OTPS over time.

Why does government fund construction contracts fully while simultaneously chronically underfunding human service contracts? Is there a correlation between construction workers – jobs traditionally filled by men – and social service workers – traditionally filled by women? Is there a historical lens of social service workers viewed as undervalued care takers? Four of five human service workers are women – most are women of color.

Adding insult to injury, contract providers are often paid late: at best two or three months after services begin; at worst, over a year after the service is provided. While it’s not a sexy topic, late payments can have a significant impact on nonprofits that are already significantly underfunded. Keep in mind, the Human Services Council reports that the budgets of over half of New York City human services providers are in the red or barely breaking even.

The city addresses the late payments by seeding a Returnable Grant Loan – a no-interest loan to cover operating costs while contracts are finalized. When government expects the nonprofits to begin providing city services prior to a finalized contract and payment, the loan can cover costs until the city begins payment. For a variety of reasons, however, nonprofits still depend on private bank loans to cover cash flow shortages. Even with low interest rates, nonprofits are left with tens, sometimes hundreds of thousands of dollars worth of unfunded interest payments.

At some point, chronic underfunding has to have an impact on either the quality or quantity of services provided.

The final issue raised by the Human Services Council Report is the timing of when nonprofits who actually provide services every day are engaged in crafting the work that government requests of them. At what stage in the procurement process should providers “on the ground” give input into the specifics of a “request for proposal” and the final contract? How can these nonprofits have early input without raising the specter of a conflict of interest? While this administration sees nonprofits as partners in meeting the needs of residents, for so many years, these organizations were not partners in developing contracts to ensure that the work they were asked to provide is current “best practices.”

There is no doubt that the city is taking steps to address the issues that the Human Services Council raises in its report. From expanding the use of the HHS Accelerator, which simplifies and expedites the procurement process for thousands of providers, to increasing the seed funding of the Returnable Grant Fund.

The de Blasio administration is also making great strides to support contract workers by funding nonprofits to pay their workers at least $15 per hour. Additionally, city agencies are bringing nonprofit experts into the contract process sooner to ensure that the most up-to-date programs are funded by the city.

The City Council’s Committee on Contracts will continue to pursue its goal to ensure that the city’s procurement and contracting policies do not increase the difficulties experienced by nonprofit social service agencies. We look forward to collaborating with the Mayor’s Office of Contracts and Office of Management and Budget to address funding and prompt payments.

Helen Rosenthal is a New York City Council member representing the 6th District, and the chairwoman of the Council’s Committee on Contracts.