Managing the Challenges of Government Contracts
I. Rise of Government Contracting
a. Prior to 1960s, nonprofits depended on endowment income, client fees, and charitable contributions.
b. By 1980, federal funds had doubled for social services.
c. In 1981, OBRA reduced federal social spending by 20%, shifting funding to states.
d. United Way and private foundations have limited ability to replace federal funds.
e. State & local government view contracting as less costly way to provide needed public services.
II. Contracting Regime and management implications
a. A regime is “a set of principles, norms, rules, and decision-making procedures around which actor expectations converge in a given issue area.”
i. Characteristics of regimes
1. accepted means of resolving disputes & addressing problems
2. regularized patterns of interaction
3. mutual dependency and continuity
ii. Dilemmas for nonprofit managers--undermines financial stability while encouraging movement away from distinctive mission
b. Cash Flow and Resource Development
i. Nonprofits tend to be significantly undercapitalized, which makes it difficult to weather disruptions in cash flow.
ii. Contracts tend not to cover all of an agency’s costs under the contract requirements.
iii. Possible solutions:
1. obtain line of credit or increase credit line
2. seek private donations
3. tap into principal of their endowments
c. Contract Renewal
i. Delays in naming contract renewals/awards
1. legislative deadlock
2. key administrators who have left or been replaced
3. election underway
4. gain greater compliance from nonprofits
ii. Uncertainty in renewal process
1. amount of award may be less
2. terms of contract may be rewritten
III. Strategic management in age of contracting
a. New role for Board of Directors—shift in power from Board to Exec
i. Recruit new Board members who have contract experience
ii. Require director to submit timely reports
iii. Tour agency facilities regularly
iv. Include consumer/community reps on Board
b. Finding the right executive—must balance efficient utilization of resources against commitment to agency mission.
c. Enlarging the agency constituency—diversify & enlarge organization’s constituency
i. Create affiliate organizations
ii. Alter composition of Board
iii. Join community organizations
iv. Alter rules for membership
v. Create new advisory councils
IV. Strengthening political advocacy and associational activity
a. Enhancing the agency’s political presence
b. Role of nonprofit associations—collective influence with government
i. Service-specific associations
ii. Geographic associations
V. Contracting reform and nonprofit management
a. Simplifying and expediting contract renewal and initial application process
b. Change in reimbursement process (e.g., “prompt payment” regulations)—can bring greater managerial flexibility
c. Performance contracting—pay for specific outcomes
d. Invest in administrative and programmatic infrastructure, especially fundraising
e. Government support for capital costs (low-cost loans, access to bond funds, etc.)
© 2004 A.J.Filipovitch
Revised 20 December 2005