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ASU Lodestar Center Blog

Government contracts and nonprofit organizations: Problems and solutions

There is a long history of nonprofit organizations partnering with the government, usually at the state level, through contracts to help provide for and respond to community needs. Through this powerful partnership, local services have improved, such as: enhanced human services, increased community development, greater economic development, and superior environmental protection.

Although these positive developments are possible, the Urban Institute Center on Nonprofits and Philanthropy and the National Council of Nonprofits are well aware that there are many challenges and problems that have wormed their way into the system. In 2010, the Urban Institute conducted the first comprehensive national survey of nonprofits to assess the problems with government contracts and nonprofits (view the full report here).

Here are the problems they found:

Unreasonably complex applications and reporting: The contracts are ridden with endless amounts of red-tape, bidding complications, and unavoidable inefficiencies that occur through complex bureaucracy. When the applications and reporting requirements are so complex, staff productivity, time and money are spent needlessly.

Changing terms mid-contract: The National Council of Nonprofits reports that 58% of nonprofits had the problem of a government agency changing the terms of a contract halfway through the required services. Often, the agency has little choice in the matter due to budget or funding cuts. Still, changing terms mid-contract does little to help establish trust for a positive nonprofit/government relationship.

Failure to pay: Nationwide, 24% of nonprofits said that said they have a small problem, and 44% that said they have a big problem with government contracts, where the government has failed to pay the full cost of the contracted services, the Urban Institute Study reports (p. 13, Fig 7). Often, if a government agency doesn’t pay the full cost, or is late in payment, the nonprofit organization will be forced to use their own time, resources, and attention in order to deliver the services demanded.

Failing to pay is not a simple problem, though. It takes on many forms. Agencies have artificially limited overhead costs, used inaccurate or outdated rates, required the nonprofit to raise part of the of the funds on a contract, diverted funds through a credit that resulted in unfair payments, and imposed unfunded mandates on the contract.


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Not every government agency are guilty of these. In fact, very few employ these practices. But these are problems that have plagued a number of nonprofits.

As mentioned earlier, the survey by the Urban Institute and the National Council of Nonprofits was published in 2010. However, in 2013, they published a new survey called “Partnering for Impact,” which goes over a possible solution to the problems they found in 2010.

The solution to the “broken contracting system” is the creation of a joint task force made up of authoritative figures from both the nonprofit sector and the government. Apparently both parties are equally dissatisfied with the problems in the contracting system, and wish to seek solutions. A task force will promote communication, reform, and full-scale solution implementation.

These task forces are formed in various ways: through legislature, governors, attorney generals, or nonprofit leaders. Whichever way they are formed, the only way that they will be effective is if they include leaders from both sectors: government and nonprofit. Both sectors must participate equally in the task force so that each side is represented fully.

Nine states have already implemented contracting reform collaborative task forces successfully: Connecticut, Hawai’i, Illinois, Maine, Maryland, New Jersey, New York, North Carolina, and Texas.

None of the states have implemented fool-proof, or 100%, comprehensive collaboration plans, but all of them are on the right track to making sure the contracting system is more efficient, effective, and accountable. The elimination of redundancies, complexities, and compound reporting processes is the main goal of the collaborative task forces. They also want to focus on utilizing technology to help with the bidding process, like eprocurement options.

The Council of Nonprofits concludes their report with these elements in a taskforce: leadership, collaboration, goal orientation, pragmatism, and ongoing improvement.

While many of the problems in the contracting system have been reported on by these organizations, and they still exist to some extent three years later, there are people in the government and the nonprofit sector looking to improve the system for the betterment of their communities.

Jeremy is a freelance writer who works in conjunction with to bring relevant information and news on government contracting to the eager masses. He loves snowboarding in Park City. When he's not shredding the slopes, he's writing about the government, business, and shoelaces.


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