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New Report Shines Light on State Government Contracting Issues Nationwide

by Brenda Peluso

In the good old days, nonprofit human service providers primarily depended on the United Ways for financial support, and state and local governments provided services through large institutions. In the 1960’s, we as a society made the decision to move services into communities. We no longer wanted our loved ones cared for in distant institutions where they were often isolated, neglected and even abused.  In moving to community-based care, our government began to outsource these services to nonprofit organizations which are smaller, more cost-effective and flexible. This outsourcing saves tax-payer dollars and gives local communities more opportunities to impact the quality and types of services offered.

As this system has evolved, the number of private nonprofit and for-profit service providers has grown tremendously. The complexity of the contracts between these service providers and government has also grown and over the last 50 years, states and the federal government have pieced together a system that has redundancies, gaps, and often conflicting reporting requirements. The problems with this contracting system have been exacerbated by the fiscal crises states are currently facing.

A new report, recently released by the Urban Institute and the National Council of Nonprofits, shines a light on the problems that exist within this contracting system. Some of the highlights of the report include:

  • – An estimated 33,000 nonprofits contract with one or more government agency to provide human services.
  • – The average number of contracts held by a nonprofit service provider is six.
  • – Two-thirds of surveyed nonprofits report contracts do not cover the cost of services provided.
  • – Three-fourths of surveyed nonprofits report the complexity of the reporting requirements is a problem.
  • – Half of the surveyed nonprofits report that contracts are changed, sometimes frequently, during the contract period. These changes include reduced reimbursements and changes to service requirements.
  • – Half of the surveyed nonprofits report that because of late payments, they have had to spend down any reserves they may have had, take out loans or increase lines of credit.

These problems are not confined to nonprofit service providers. It is important to understand their ripple effect in the community. When a nonprofit day-care provider can no longer serve as many children, how will the low-income single parent who loses their child’s spot be able to work? When tax-payer dollars are wasted on duplicative audits and paperwork, what opportunities are lost? When human service providers are forced to do fundraising to cover the costs of their government contracts, how does this affect the ability of cultural and environmental nonprofits to compete for diminishing private resources?

The Maine Association of Nonprofits, thanks to the generous support of the John T Gorman Foundation, has begun a process to address the situation here in Maine. On September 22nd, leaders from Maine’s Department of Health & Human Services, United Ways, nonprofit service providers and philanthropic organizations came together to identify ways in which we can partner better together to provide high quality service to our residents in the most cost-effective manner. This is an ongoing effort and we are committed to finding smart solutions.

We recognize the significant burden that an imperfect contracting system places on the provider community and appreciate the willingness of all parties concerned to come together and create a system that is streamlined, rewards excellence, and holds all parties to a higher standard. There is no silver bullet, no quick fix. But Maine has the commitment of its service providers, private foundations, and state government officials to make it better.

A copy of the full report can be found at

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