Commentary: Spotting what’s wrong with New York’s procurement system

When I meet new people in New York nonprofit circles, they sometimes say, “Wait, you’re the procurement guy!” The “procurement guy”? Really? It’s hardly the moniker I aspire to since writing about procurement has always been something extra that I do in addition to SeaChange Capital Partners – offering grants, loans and pro bono advice to nonprofits facing complex challenges.

It started in 2017 when SeaChange got a call from an executive director asking us to talk to his board chair who worried that the executive director was either incompetent or insane given the executive director’s seemingly unbelievable explanation of how New York City contracting works. The executive director had told the board that their nonprofit needed to start work before its contracts were registered, had little idea how long registration would take (but that it could be a year or more), would not see a penny until after registration, could not borrow against the money it was owed and that the city would not pay interest regardless of how long registration took. I spoke to the chair and confirmed that yes, though it seemed a bit like Alice in Wonderland, everything was exactly as the executive director had said.

When a second executive director called in 2018 with the same request, we wrote our first report about procurement – not to help change a dysfunctional system but merely to explain it to boards who might be more sympathetic to their executive director’s plight and better equipped to understand and manage procurement risk.

The report was well received and led to a series of reports and articles in reaction to particular “hot spots” that appeared on our radar when the afflicted nonprofits started calling us for loans in a desperate search for money, including early childhood education and criminal justice. And then there were rare occasions when the mainstream press expressed interest in procurement – such as on day care centers – or in response to a press release by the city or to provide historical context for the system.

This series of ad hoc, reactive reports may have made me the “procurement guy,” but I am less certain that it has put any meaningful pressure on the city, which remains trapped in a Sisyphean game of procurement Whac-A-Mole where any progress is at risk of backsliding. So, at our recent board meeting, SeaChange decided to up the ante by getting more serious about procurement. This is partly because funders and nonprofit leaders have been pressing us to help improve the system rather than merely report on it. We also recognize that nonprofits reliant on city funding – particularly smaller, more vulnerable agencies – find it hard to speak truth to power about procurement in any public forum. (This was made apparent recently when I saw the smiling faces of the executive directors appointed to the city’s inaugural Nonprofit Advisory Council, some of whom lead organizations that are being pushed to the financial brink due to late payments made by the city.)

So, I am pleased to announce the launch of ContractStat, a regular report – starting quarterly – on how the city is doing with respect to procurement. The core of ContractStat will be a database built from daily downloads from PASSPort Public and CheckBook NYC cross-linked to Form 990 data from the IRS Master File and other datasets. This integrated, longitudinal database should allow us to answer better procurement-related questions. For example, how long have contracts been lingering “in progress” or “under oversight review”? How do contract delays vary by organization size, MWBE status, and location? Which groups are owed the most compared to their size? Which council members have districts where nonprofits are suffering most from contract delays? We will also work with nonprofit leaders and investigative journalists when the data suggest that specific bottlenecks are worthy of further investigation through interviews, FOIL requests and anonymized data collected from nonprofits.

ContractStat is not technically difficult, but it will take a while to build. In the interim, here is a review of where the city’s human services contracting stands as of May 1, done the old-fashioned way through PASSPort Public, CheckBook NYC and a few phone calls to double-check the estimates.

In aggregate, 86% of the 2,706 human service contracts started in fiscal year 2024 were registered late, including the 50% that remain unregistered. On average, fiscal year 2024 contracts were 184 days late, with registered contracts being 78 days late and unregistered ones being 293 days late.

As of May 1, nonprofits had done $650 million of work under unregistered fiscal year 2024 contracts: $290 million under contracts that are now registered and $360 million under contracts that remain unregistered and for which they have not been reimbursed.

The late registration of line-item appropriations, or discretionary items, continues to be problematic. All fiscal year 2024 discretionary items were late, of which only 20% have since been registered. Registered discretionary contracts averaged 255 days late and nonprofits did $46 million of work before registration.

Almost no discretionary items were registered until eight or nine months after the start date, with the majority being registered close to the end of the fiscal year in which they began or in the first quarter of the following fiscal year. 

Nondiscretionary items were a little better: 71% were registered late and 82% have now been registered. Nonprofits did $244 million of work against the late nondiscretionary contracts that have since been registered. Nonprofits have so far done $182 million of work against the 18% of nondiscretionary contracts that remain unregistered. Most registration occurred just before the start date or within the next two months.

The majority (92%) of the pre-registration burden associated with still-unregistered contracts is discretionary items and nondiscretionary Department of Homeless Services contracts. In these two categories, more than 50 nonprofits have done more than $1 million of work (often much more) before registration.

Our interviews with nonprofits suggest that the slow payment of post-registration invoices is an even greater problem than late registration. Unfortunately, it’s impossible to determine the full extent of these delays because CheckBook NYC only records the date when the city pays a check, not when it receives or approves the related invoice.

Will ContractStat work? Who knows, but we must try. Nonprofits are owed about $800 million from a combination of still-unregistered contracts and late payments during the toughest operating environment that SeaChange has ever seen. The only way to relieve this burden is faster registration and payments, unless a big-time funder miraculously appears to lend New York’s nonprofits the money they need while waiting to get paid.

Nonprofits face challenges beyond anyone’s control – inflation, higher interest rates, demographic and behavioral change, limited access to credit, competition for scarce government and philanthropic resources – but dysfunctional procurement should not be one of them. Procurement is under our control and the relatively painless federal system for nonprofits proves that it can work. City officials built our system, run our system, staff our system and can fix our system. I hope ContractStat can play a small part in encouraging them to do it.

John MacIntosh is the managing partner of SeaChange Capital Partners, which provides grants, loans, analysis and advice to help nonprofits navigate complex challenges, including mergers, partnerships, financings, restructurings and dissolutions.