Note: This article originally appeared in the OCASDV (Oregon Coalition Against Sexual and Domestic Violence) newsletter in March, 2014.

Does your nonprofit get government contracts?

Or is your nonprofit considering getting government contracts?

The government is increasingly stepping away from providing human services like elder care, and instead they are calling for nonprofits to take up the services slack.

Some nonprofits see government contracting like the holy grail of funding.

Real money for our programs, and it comes every year!

But what’s the downside of government contracting?

Did you know that governments are often really bad about paying on time?

Recently I chatted with Beth Bowsky, a Policy Specialist in the Government-Nonprofit Contracting section of the National Council of Nonprofits.

According to a December 5th, 2013 survey from the Urban Institute, nonprofits say that the complex application process for government contracts and reporting are the two most difficult things about government contracting. But this isn’t the only way that government contracts can be difficult for nonprofits. The government contract often does not cover the full cost of services.

Did you know that governments often won’t pay for the entire cost of providing the service?

You might tell a government entity, “Look, we want to serve seniors in our facility. It costs $110 a day to serve a senior with the various nursing and support staff, as well as medicines, food, and more.” And the government says, “Okay, we’ll pay you $90 per day.”

How does this hurt nonprofits?

Nonprofits feel like they can’t argue with this because they know that the government will give the contract to someone else if they argue. They think, “well, we’ll find the rest of the money somewhere” BUT when the nonprofit has to compromise this way, the quality of the service goes down.

The state government is refusing to pay for the TRUE cost of providing services.

Most nonprofit executive directors are tremendously afraid to speak up about this.

They are afraid that if you speak up and say there’s a problem, it will mean you won’t get the contract again.

And very often they are right.

How is this affecting YOU?

In 22 different US states, nonprofit associations are putting government contracting reform on their agendas. They want to act as a buffer between the nonprofit and the state they contract with, so that the nonprofit is shielded from the wrath of these government entities, and is not forced to lose their contract.

Many nonprofits that get into government contracting do not know how it works. They get the runaround and don’t think that they can speak up.

But it gets worse.social-impact-bonds

There’s a new thing called social impact bonds. What the hell are these?

Oh, well, remember how well “pay for performance” worked out for teachers?

Not so much? Yeah.

Well, now they are creating these things called social impact bonds which is pretty much the same thing for nonprofits and government contracts.

And states are jumping on these like wildfire. Who is doing this? New York City. Boston. Utah. Ohio. Colorado and Minnesota.

Because what we REALLY needed was private investors to front money for nonprofits to provide services, and then the private investors set goals for nonprofits to reach, and then the government pays private investors their money back plus the interest. Huh?

So, it might be 6 months before your nonprofit gets evaluated, and gets the government contract money. Most nonprofits can’t wait this long!

It’s touted as “The way to bring more money into the system” BUT HOW? Adding three levels of added cost? HOW does this save money? and HOW would this make you have better outcomes?

Let’s face it. “Social impact bonds will bring more money into the system” is a thought-terminating cliche. You’re not supposed to question it. But we are.

So what’s the good news?

Recently a new OMB Guidance was passed at the federal level. OMB stands for White House Office of Management and Budget (OMB).  This Guidance was called Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards. What’s the bottom line? This Guidance states that states HAVE to pay indirect costs of providing services when nonprofits contract with them. That means instead of the nonprofit saying “it will cost $110 per day to take care of a person” and the government saying “we will only pay $90 of this,” the government will have to pay the full cost.

Which means?

Less stress on fundraisers to get extra money in! Less stress on executive directors to get this money in. And hopefully higher wages for people doing the work, which ULTIMATELY leads to better quality of service for the people we serve.

And that’s a good thing.