Every nonprofit leader knows that procurement matters since when and how nonprofits get their funding can be more important than how much they get. Fair procurement is also inseparable from racial and economic justice, as few nonprofits have the financial resources to shield their clients and staff from the risks – layoffs, furloughs, missed payrolls, hollowed-out programs – created by late, unpredictable or otherwise dysfunctional procurement.
There is widespread agreement that procurement was dysfunctional during then-New York City Mayor Bill de Blasio’s administration, which is no surprise given that he showed no sign of having the political will required to change it. He also showed little evidence of caring very much about the city’s nonprofit partners. I have been optimistic that Eric Adams’ administration would be different, though after nine months the results appear to be mixed.
The good news is that procurement has received attention from experienced leaders who have already taken some tangible actions. The officials leading the charge on procurement reform – New York City Comptroller Brad Lander, Deputy Mayor Sheena Wright and Chief City Procurement Officer Lisa Flores – each have direct experience on this issue. Lander was executive director of the Fifth Avenue Committee. Wright led the United Way of New York City, which Checkbook NYC shows had 37 city contracts totaling $234 million during her tenure; 97% of which were registered late with an average delay of more than 10 months. (Checkbook also suggests that the organization is still owed as much as $30 million for work completed before June 30.) Flores was the deputy comptroller for contracts and procurement, where she oversaw the review of all contracts, and led some of former New York City Comptroller Scott Stringer’s work highlighting registration delays.
These leaders have also taken concrete steps that should improve procurement in the future. They publicly highlighted the issue through the Joint Task Force to Get Nonprofits Paid On Time; they made additional information on procurement available through the launch of Passport Public; they cleared more than $4.2 billion in unregistered contracts through the Clear the Backlog initiative, which involved staff being lent from higher-capacity city agencies to those that were struggling; and they have engaged two outside consulting firms to explore the more fundamental changes required to better procurement – for example, changes to the Procurement Policy Board. All of this should be celebrated.
At this point a cynic might ask: “Yeah that’s great, but what does the data say? What are the facts? How is the city really doing?”
Unfortunately, there are limitations to the publicly available data. While Passport Public is a fantastic new tool, it only covers some contracts. (The Mayor’s Office of Contract Services website says it was “working with city contracting agencies to phase in current contracts” but there was no announced timetable and no definitive list of what’s not included.) Checkbook – the other public source of data – is exhaustive but only for contracts that have been registered, making it less helpful for understanding what is going on right now.
With these caveats, the data shows there are contracts that remain unregistered from fiscal year 2022, and in some areas, payment delays against registered contracts from fiscal year 2022 and prior are so large that they pose an existential threat to the nonprofits involved. There are also worrying signs that the registration backlog – largely cleared for fiscal year 2022 – is building up again for fiscal year 2023.
For fiscal year 2022, 24% of contracts remain unregistered. The city has been successful in clearing the backlog of new nondiscretionary contracts (only 5% unregistered); but amendments (16% unregistered) are lagging and discretionary contracts (47% unregistered) remain a huge problem. A disproportionate number of the unregistered nondiscretionary contracts are from the Department of Education and the Mayor’s Office of Criminal Justice.
For fiscal year 2023, the backlog is building. Only 47% of new nondiscretionary contracts are registered or pending; only 16% of amendments are registered or pending; and no discretionary contracts have been registered. Here again the Mayor’s Office of Criminal Justice and the Department of Education continue to show the lowest registration rates.
While discretionary contracts are a miniscule fraction of the city’s budget, they are vital for many of the small community-based organizations. And while nonprofits may be doing better – taken as a whole – those with contracts from the Department of Education and the Mayor’s Office of Criminal Justice appear to be suffering, which is consistent with what we have been hearing from individual organizations.
In an earlier press release, Adams said, “We are putting new streamlined processes into place so we don’t get bogged down in backlogs again – now or in the future.” Well, the future is now and there is no sign of these new processes. Before things get out of hand, the city should consider a Reclearing the Logjam effort focused on the agencies that are struggling. Nonprofits are spending money right now serving New Yorkers under unregistered contracts, and the more time passes, the more pressure they will face.
Despite the attention it has received, registration is only the first step of the process that leads to payment. Unfortunately, it is harder to estimate exactly how the city is doing with payment compared with registration. Registration is an all-or-nothing event that occurs on a given day; payments take place over time and the delay is a matter of degree. While Checkbook shows every check cut by the city, and its associated contract, it does not show when the corresponding invoice or voucher was presented.
Nevertheless, we can use Checkbook to estimate the gap between what nonprofits have spent and how much they have been paid – a decent proxy for delays. On this basis, Checkbook suggests nonprofits have yet to be paid for 27% of the work they have done under registered contracts. Large corporations can easily handle delays of this magnitude given their high profits and access to financing, but most nonprofits cannot. In particular areas, for example early childhood education where the delay appears to be 4 1/2 months, delays have reached the point where they threaten the ability of the partners to pay their staff – let alone continue the work.
It would be a shame if the city were to have largely cleared the registration logjam only to have the problems reappear as payment and invoicing delays. While waiting for the consultants to develop long-term solutions, the city should launch a short-term effort to clear the invoice and payment logjam.
The procurement “problem” will never be “solved” in a large, bureaucratic, short-staffed system prone to backsliding where improvements will often be incremental. It’s a thankless, Sisyphean task requiring continuous focus and political will. However, this administration has the right people for the job, and we should be encouraging and cajoling them to keep working rather than resting on their laurels. Things are likely to get worse for the city’s finances in the next few years, and it’s even more important that nonprofits get paid on time when money is tight.
John MacIntosh is a partner at SeaChange Capital Partners, which helps nonprofits navigate complex challenges. The analysis supporting this piece is here.