Late Payments: How pervasive is the issue?

In tight finacial times for the states, many have had to rely on late payments on contracts, and more specifically late on payments to nonprofits for services rendered to the public.  Several states are in violation of their own prompt pay laws or have passed emergency spending bills to pay on overdue invoices .  But how significant is the issue? One state's comptroller dug a little further to find out.

Last month, New York State Comptroller Thomas DiNapoli concluded that the state's financial crisis is now hurting not-for-profits, he stated in a news release. The Office of the New York State Comptroller found that state contracts with not-for-profit organizations providing services to New Yorkers were approved late - 82 percent of the time in 2009, compared to 63 percent in 2008.

DiNapoli stated, "Contracts for services are being held up and organizations can’t get reimbursed for services they have already provided. It’s wrong to expect organizations that operate on shoe string budgets to float the state."

State law requires that not-for-profit contracts be processed by state agencies within 150 to 180 days. DiNapoli’s office is required to report annually on how quickly state agencies process contracts for not-for-profits based on data that is self-reported by state agencies to his office. Currently, the state has 25,811 contracts with not-for profits totaling $41.9 billion.

But late payments cost the state even more money since interest has to be paid on late payments. Approximately $176,000 was paid in interest to not-for-profits by state agencies for processing their contracts late in 2009.

New York, and the nonprofit organizations it contracts with, is not the only state facing this issue.  The National Council of Nonprofits (NCN) has recognized this as a growing concern since last year.  In their special report, A Respectful Warning Call to Our Partners in Government, NCN stated, "Government officials need to be aware that many nonprofits are unable to deliver the same level of services, let alone more. Nonprofit leaders need to prepare individual nonprofits for a protracted financial shortfall coming at a time when individuals and communities seek more services."

In an effort to streamline and speed up the contracts process for states, DiNapoli suggests states consider the following:

  • State agencies should choose start dates for grant contracts that are later than April 1, the start of the state’s fiscal year, so that the processing of contracts is not affected by the timeliness of adopting a state budget;
  • State agencies need to use the grant contract boilerplate in a consistent manner ensuring that the terms are uniform for all state agency grant programs;
  • Master contracts with the same not-for-profit should be utilized when feasible; and
  • The (state's) Not-for-Profit Contracting Advisory Committee should continue to meet regularly to review recommendations from the not-for-profit community and state agencies.