Government-Nonprofit Contracting: From 30,000 Feet to Your Bottom Line

Government-Nonprofit Contracting: From 30,000 Feet to Your Bottom Line Tim Delaney President & CEO Nonprofit Missouri & UMKC s Center for Nonprofit Leadership Nov. 13, 2014 2014 National Council of Nonprofits @NatlCouncilNPs

25,000+ nonprofit members 42 State Associations & Nonprofit Allies 280+ Employees 500+ Board members Coast to Coast, Border to Border

The Problems Nationwide Missouri The Solutions General OMB Uniform Guidance Everywhere Missouri

The Problems

Great Threat Lack of Understanding Health Care Reform Citizen United Indifference/ Ignorance Nonprofit independence March of the States 2013 Localities & PILOTs

Lack of Understanding Passive & Meek

Challenges we ve faced

Together, a successful legacy Abolition Groups Suffrage Groups Townsend Clubs Civil Rights Groups

Lack of Understanding Sources of Nonprofit Revenues (e.g., hospital fees, tuition, ticket sales) One-third of nonprofit community revenues earned from government contracts and grants.

Withholding Money from Nonprofits Special Report Costs, Complexification, and Crisis: Government s Human Services Contracting System Hurts Everyone 1.Failure to Pay Full Costs (e.g., match; GAO) 2.Changing the Agreement Mid-Stream 3.Complexification of Application Process 4.Complexification of Reporting (Oversight) 5.Paying Late SEE: special web portal http://govtcontracting.org/

Magnitude of Government s Reliance on Nonprofits Urban Institute s findings: In 2009: governments had 200,000 contracts with almost 33,000 human service nonprofits $100 billion worth of contracts governments doing their work through nonprofits

Costs & Consequences Who Gets Hurt: All around Nonprofits Donors/Funders Nonprofit Employees Nonprofits without Government Contracts

Government Contracting Problems: The Negative Ripple Effect Nonprofits with Government Contracts Nonprofits without Government Contracts Typically might include: After-school programs Children and family nonprofits Developmental disability Domestic violence shelters Food & nutrition programs Foster homes Health care clinics Health research Homeless shelters Hospitals Mental health nonprofits Soup kitchens The additional competition for limited grantmaking capacity then squeezes the nonprofits without any government contracts. Typically (but not always) include: Advocacy nonprofits Amateur sports Arts groups Associations Cultural institutions Community foundations Environmental groups Historic preservation Land conservation Religious schools Think tanks Watchdog groups

The Problems in Missouri

Withholding Money from Nonprofits 1. Failure to Pay Full Costs (e.g., GAO) 54% problem Missouri = 10 th worst at 61% 2. Changing the Agreement Mid-Stream 43% problem Missouri = 30 th worst at 39% 3. Complexification of Application Process 72% problem Missouri = 22 nd worst at 71% 4. Complexification of Reporting 72% problem Missouri = 14 th worst at 74% 5. Paying Late 45% problem Missouri = 29 th worst at 37% Nonprofits on average owed: $200,000+ by state governments; $108,000 by federal, $85,000 by local governments

Failure to Pay Full Costs Nonprofits Reporting Limitations on Full Costs in Government Contracts and Grants: In Missouri: 48% of nonprofits reported that governments imposed limits on program administrative/overhead costs 20% reported being paid ~zero~ 28% reported being paid between 1-7% 44% reported being paid between 8-10% 92% paid 10% or less In Missouri: 59% of nonprofits reported that governments imposed limits on general administrative/overhead costs 15% reported being paid ~zero~ 34% reported being paid between 1-7% 43% reported being paid between 8-10% 90% paid 10% or less

Compare Overhead Cost Ratios Business Norm Research shows that the average overhead ratio among for-profits and nonprofits alike is about 25-35% to be efficient and effective.

Compare Overhead Cost Ratios Business Norm Research shows that the average overhead ratio among for-profits and nonprofits alike is about 25-35% to be efficient and effective. Government Norm (CA State Govt) 76% of state agencies have indirect cost rates higher than 30%, 81% have rates higher than 20%, and no state agency has indirect cost rate of 10%.

Compounding the problem Off-loading/ Abandoning Programs cutting funding, not human need states: eliminated/reduced services for: Mental illness Disabled Elderly Children

The Solutions

The New OMB Uniform Guidance The BIG Deal How We Got Here Key Changes in the OMB Uniform Guidance How You Can Prepare for Implementation What You Can Do to Ensure the Promise Becomes Reality

(So, What s) The Big Deal? OMB Uniform Guidance

How We Got Here A Happy Advocacy Story An Advocacy Saga with a Happy Middle

How We Got Here Government-Nonprofit Contracting Work 2008 - Recession, late payments, opportunity for reform 2009-2011 Research, scope of the problems, solutions, implementation Abuses identified Recurring problems Solutions

Trend: Failure to pay indirect costs Research: for-profit/nonprofit avg overhead range=25-35% 53% nonprofits report governments limit indirect costs Of those governments a quarter paid = 0 half paid 7% or less three-quarters paid 10% or less

How We Got Here Government-Nonprofit Contracting Work 2012-2013 OMB Draft Grants Reform Purpose: Streamline, reduce burdens, increase accountability Nonprofits Left Out: Main focus was governments and higher education Advocacy Campaign: Conference calls, webinars, surveys/polls, comments GAO, State Associations, national nonprofits National Task Force OMB Listened: Uniform Guidance 12/26/2013

How We Got Here Government-Nonprofit Contracting Work 2014 OMB Uniform Guidance Effective 12/26/2014 (agencies revise regs) Outreach Efforts information and clarity Federal webcast Frequently Asked Questions Oct. 2 Webcast a discussion 2014 New Data and Solutions

Federal Law Congress Appropriates the $$ Executive Branch Manages the $$

Sustainable Nonprofits Are Needed! Report GAO-10-477 (May 2010) OMB Uniform Guidance

Reforms in OMB Uniform Guidance Some highlights (from 700+ pages): State & local governments, tribes, and other pass-through entities using federal funds will be required to reimburse nonprofit contractors and grantees for reasonable indirect costs. In some cases, it expands which administrative expenses can be reported as direct costs, rather than indirect. Eliminates some duplicative audit criteria, and clarifies cost allocation rules.

What = reasonable indirect costs? 1. Apply the nonprofit s federally negotiated indirect cost rate if it already exists. 2. If a federally negotiated indirect cost rate does not already exist, then the NONPROFIT has the power to pick either option: a) To negotiate a rate with the government entity, OR b) To use the default minimum rate of 10%.

Step 1 of 3: Aware of the Reforms

Step 2: Advocacy to Protect the Reforms Federal State/Local Implementation & Compliance State/Local Application to Non-federal Funds

Step 3: Accounting Skills to Secure the Reforms Cost Allocations Common Knowledge Direct Costs Indirect Costs Other Costs Nonprofits Grantmakers Governments Negotiations

REFORMS Administrative Changes Cost Principles Audit Requirements

REFORMS & IMPLEMENTATION Administrative Reforms (A-110) Acronyms and Definitions General Provisions Pre-Award Requirements and Contents Post-Award Requirements for Financial and Program Management Cost Principle Reforms (A-122) Allowable and Unallowable Costs Indirect Cost Reimbursement Direct and Indirect Costs Procurement Requirements Audit Reforms (A-133) New Threshold Additional Government Audits and Internal Controls New Roles and Approaches

APPLICABILITY Key Dates Types of Awards and Subawards Impacted

PRE-AWARD REQUIREMENTS 200.1XX Requirements for Federal Agencies Award Posting RFP Content Standard Application Merit Review Risk Assessments

POST AWARD: PASS-THROUGH ENTITY REQUIREMENTS Single Audits Provide Subawardee Information Perform Risk Assessment for Subrecipient Monitoring Verify Audit Compliance Report in Accordance with FFATA Pay Subrecipient Indirect Cost Rate

REQUIRED INDIRECT COST REIMBURSEMENT With Federally Approved Negotiated Indirect Rate All Federal Agencies All Pass-through Entities 1 Four-Year Extension Option Without Federally Approved Indirect Rate 10% of MTDC De Minimis (Indefinite Use) or Negotiate a Rate Based on Federal Guidelines

DIRECT vs INDIRECT Generalizations Direct: Easily attributable to a specific program Indirect: Organizational or shared across programs Situational Determination Changes in OMB Uniform Guidance

ALLOWABLE vs UNALLOWABLE Allowable Reasonable Necessary Conforms with policies Treated consistently In accordance with GAAP Not used for cost share or match requirement Typical Unallowable Costs Fundraising Most Advertising and Public Relations Lobbying Entertainment, except program related Salaries above established caps

OMB Uniform Guidance: From Promise to Reality Advocacy Efforts to Clarify, Protect, and Fix Recap of what we know Nonprofit rights follow the money Waivers, intimidation prohibited Other Areas of continuing confusion Who triggers negotiations over indirect cost rate? Grant vs. Contract Other

OMB Uniform Guidance: From Promise to Reality Advocacy Efforts to Clarify, Fix, and Protect Tools for Clarifying/Fixing the Uniform Guidance Nonprofit Survey Engagement through State Association National Task Force, Ad Hoc Advisory Committee, other Protecting Nonprofit Rights (a work in progress) Government audits (3 years later) State contracting review process Direct communications government officials What other ideas do you have?

Free Resources http://govtcontracting.org/research-findings

Spread Data, Facts, Research, Trends (free!) Nonprofit Policy Agenda Bi-weekly Advocacy Matters www.govtcontracting.org Top 10 Nonprofit State & Local Policy Issues

Tim Delaney President & CEO tdelaney@councilofnonprofits.org Questions? 202-962-0322 www.councilofnonprofits.org