Suggested Article: State Not Processing Contracts With Not-for-Profits on Time

AVRE ED Bob Hanye provided the following article for EDs:

Issues New Regulations to Ensure Organizations are Paid Interest Owed to Them
Provides Breakdown of Late Contracts by Geographic Region and Organization

State agencies report that state contracts with not-for-profit organizations were approved late 63 percent of the time. However, the Office of the State Comptroller's (OSC) data shows that the rate of late contracts may be as high as 87 percent, according to a report released by State Comptroller Thomas P. DiNapoli. This is forcing many not-for-profits to take drastic measures to keep their doors open. DiNapoli proposed new regulations to ensure not-for-profits are paid interest required by law when their contracts are processed late as well as recommendations to reduce late contracting.

"Not-for-profits operate on very thin margins,"DiNapoli said. "Those margins can disappear completely when contracts for services are held up. New York has an implicit compact with these organizations. They provide vital services for vulnerable New Yorkers and the state should ensure they get their funding on time. It's time for the state to live up to its end of the bargain. Our new regulations will help, but state agencies need to step up and act responsibly.

New York relies heavily on not-for-profits to provide services through grant contracts such as health care clinics, workforce development and mortgage foreclosure programs. The state currently has 30,764 active contracts with not-for-profits totaling $14.6 billion.

Persistent problems led the state to adopt a prompt contracting law in 1991 to expedite the contract process and payments for not-for-profits to help them avoid service interruptions and financial hardships. State law requires that these contracts be processed by state agencies within 150 to 180 days. Under a 2007 amendment to the law, DiNapoli's office is required to report annually on how quickly state agencies process contracts for not-for-profits based on data that is self-reported by state agencies to his office.

DiNapoli found in 2008 that 87 percent of not-for-profits "contracts valued at more than $50,000 were not approved by the start or renewal date, forcing not-for-profits to perform services without a contract in place and without any payments. In total, OSC found 5,260 of 6,033 contracts, valued at $2.7 billion, were approved late in 2008 "an average of 184 days late" (see late contracts breakdown by region and organization). In recent months, an increasing number of organizations who were unable to make payroll, faced eviction or risked losing other funding because their state contract was significantly delayed contacted OSC about their problems. Only $144,906 was paid in interest to not-for-profits by state agencies for processing their contracts late in 2008, a 29 percent decrease from last year.

Senator Craig M. Johnson (D-Nassau) said "These critically important organizations fulfill vital services to our communities, while oftentimes operating on the thinnest of margins. This apparent institutionalized lack of sensitivity to them is inexcusable. I thank Comptroller DiNapoli for taking up this cause. With his leadership, I am confident that we will be able to force these much-needed changes.

"It is certainly disappointing to hear how significantly agencies are struggling to fulfill their obligations to renew contracts in a timely manner with not-for-profits, as well as to pay out the interest those not-for-profits are entitled to under law in cases of such delays. The state needs to start living up to its legal and moral obligation to treat these partners in government fairly, Assemblywoman RoAnn M. Destito (D/WF-Rome) said. "I am proud to support Assembly legislation to make permanent the Comptroller's oversight over agency compliance with the Prompt Contracting Law. The Assembly Committee on Governmental Operations held a hearing in Albany on June 15 to identify how we can take the findings of this report, and the experiences of not-for-profit institutions across the state, and work towards a truly equitable system where the community-based organizations who do so much critical work on behalf of our state agencies are no longer financially penalized for doing so.

Assemblyman Jonathan L. Bing (D-Manhattan) said "As the author of the 2007 legislation which attempted to strengthen the prompt payment law, I know the severe burden New York not-for-profits face in these uncertain economic times. These organizations are operating crucial social service functions throughout New York and deserve to know in a timely manner whether the state will be renewing their contracts to avoid suspension or termination of these important programs. I applaud Comptroller DiNapoli for bringing attention to this vital matter."

Ronald D. Soloway, chair of the State Non-Profit Contracting Advisory Committee and managing director of Government and External Relations for UJA-Federation of New York, said "UJA-Federation applauds State Comptroller Tom DiNapoli for his continuing resolve to improve the contracting process for non-profits in New York. This latest report, documenting that up to 87 percent of contracts are not processed on time, is a clarion call to fix this longstanding problem. In this very difficult economic environment, non-profit organizations do not have substantial access to the commercial credit markets and cannot self fund the state's obligations. As such, late contracting threatens the ability of the non-profit sector to meet the needs of the poor and the vulnerable. State government must act now and UJA-Federation is very pleased that Comptroller DiNapoli will take one step shortly by issuing regulations that will clarify requirements that state agencies must pay an interest penalty when contracts are not processed timely."

Susan K. Hager, president and CEO, United Way of New York State, said "United Ways urge Governor Paterson to eliminate lengthy contracting and payment delays to not-for-profit organizations. The not-for-profit sector is in the midst of a 'perfect storm' including major cuts in public funding and philanthropic contributions, loss of valued staff and volunteers, increased pension costs, new state disincentives to charitable giving for wealthy donors, and continued delays for contracts and payments. These challenges converge against the backdrop of a veritable tsunami of requests for help from New Yorkers in need. Not-for-profits look to state leaders for a solution."

Richard E. Barnes, executive director, New York State Catholic Conference, said "New York State Comptroller Tom DiNapoli has again demonstrated his commitment to resolving the problems surrounding the state's contracting for services provided to people of this state. When state government addresses a need of the people, both lawmakers and the recipients of the services expect efficiency in the process of providing those services. Delays in the processing of contracts, and the resulting financial burdens placed on nonprofit providers who have to borrow money to cover the cost of the delays, should not be the enduring hallmark of how this system operates."

After issuing the first Prompt Contracting Annual Report in June 2008, DiNapoli's office initiated a wider probe into the persistent problems that not-for-profits experience when contracting with state agencies. His office examined a sample of 95 late contracts between not-for-profits and state agencies approved over a four-month period in 2008 and found:
• New contracts examined were approved almost nine months after the contract start date;
• Renewal contracts were approved in 233 days, far exceeding the 90-day time frame in state law;
• State agencies failed to notify not-for-profits within 90-days whether their contracts would be renewed leaving these organizations with little time to plan for the funding loss; and
• No interest was paid to organizations. OSC estimated that approximately $102,000 in interest should have been paid to not-for-profits, as required by state law. However, because of ambiguities in the law, state agencies failed to make these payments.

DiNapoli's office has filed regulations that would clarify these ambiguities and should result in increased interest payments to not-for-profits. There is a 45-day comment period before the regulations may be finalized. DiNapoli also made several recommendations to improve the process including:
• State agencies must prioritize not-for-profit contracts and ensure sufficient resources are available to allow for contracts to be approved prior to their start dates;
• State agencies should change the April 1 start dates for grant contracts so that the processing of contracts is not affected by the timeliness of the state budget;
• State agencies should work to clarify and simplify contract submission instructions for not-for-profits through increased outreach and guidance;
• State agencies should document common mistakes made by providers during the contracting process and propose solutions;
• The Prompt Contracting Advisory Committee should continue to meet regularly to identify ways to improve the process;
• The Office of Technology and the Division of the Budget should ensure that future state agency financial management systems are designed to assist state agencies in the timely execution and reporting of grant contracts; and
• State agencies should provide OSC with the notification letters of their intent to renew or terminate contracts, as required by law.