Issue of the Week

Breaking The Contract With Nonprofits

by Susan Buttenwieser

The Neighborhood Defender Service, an organization that provides legal defense for people who would otherwise not be able to afford a lawyer, will see 800 fewer clients this year. Twenty-five people will not be defended in court. And fewer young people in Harlem will take part in a program aimed to keep them out of jail.

All because the city is late in cutting a check.

Every year, the Neighborhood Defender Service, which depends on a city contract for nearly their entire budget, waits four or five months, and sometimes as long as eight months to receive payment for services they provide year around. The payment is more than just a simple delay since the organization must take out private loans to pay for electricity, phones, and lawyers. This year they will pay $20,000 in interest that will never be reimbursed.

New York City currently contracts with human service providers for $3.3 billion every year. It's big business for the city and for the organizations that provide housing for people with AIDS, deliver meals to the homebound, run day care centers, and start after-school programs.

But for many nonprofit organizations the city's process of awarding and paying contracts does not work.

In December of 2000, City Project, the organization I work for, conducted a study of the city's contracting practices with community-based organizations. The study revealed a flawed process in which the city routinely delays payments to groups, often forcing them to borrow money in order to provide services.

The average time between the award of a contract and payment to a community-based organization is almost four months. Despite these delays, 96 percent of those surveyed reported that they began services on time. Over half of the agencies had to take out loans, though their interest costs will never be reimbursed.

Each year, human service contractors lose an estimated $6 million in interest payments for loans they take out because of the delays.

Last year, the City Comptroller Alan Hevesi put forward an amendment to the city's contracting rules, which would require the city to pay interest on costs stemming from delays. The idea never became a law.

Many community-based organizations also struggle to keep up with constant shifts in contracting procedures.

For example, last year the Department for the Aging separated case management from other services, which used to be part of the same contracts; the organizations then had to submit two proposals for the same job. Sometimes multiple programs are consolidated, and as a result, organizations that have a history of collaborating in their respective communities are pitted against each other in competition.

In recent years, New York has also shifted oversight away from its city agency to the private companies, which from the view of many organizations, has not been a substantial improvement.

For example, last year the Medical and Health Research Association of New York City obtained a contract with the city Department of Health to administer all the city's HIV prevention. The Medical and Health Research Association had been administering federal money for years, during which some members of the New York AIDS Coalition reported problems like having to install faulty software programs to monitor their work, overburdened support staff, and delays in budget modification approvals. Some organizations were told they had to start their services before they received funding, and one group estimated that that the amount of work needed to maintain the paperwork was so high, that the contract actually resulted in a financial loss to the agency.

There are several reasons why the city process is so complicated and often delays its payments.

Some city agencies are under-staffed. Others have an incredible number of contracts: the Department of Aging must monitor 1,884 different contracts. The city agencies with the most contracts, such as those that work with low-income people, the elderly, or children's services, are some of the smallest and are routinely subject to budget cuts.

New York City's contracting process is supposed to be open, competitive and fair. Too often the organizations and individuals who provide services to the most needy New Yorkers, often find themselves frustrated by the process of just trying to get paid for the work the city asks them to do.

Susan Buttenwieser is the outreach coordinator for City Project's Assistance in Budgeting and Contracting, a program to help nonprofit organizations navigate the city's contracting system.

Read "Contracting Advice For The New Administration" by Kathryn Freed

Read "City Contracts" by Seth Forman

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