The Latest Lowdown on Government Money

Does your organization receive government funding? Or are you at least considering it? The federal government is increasingly stepping away from providing human services like elder care, and instead it is calling for nonprofits to take up the services slack. Some nonprofits see government contracting as the holy grail of funding: "Real money for our programs, and it comes every year!"

But what's the downside of government contracting?

Recently I chatted with Beth Bowsky, a policy specialist in the Government-Nonprofit Contracting section of the National Council of Nonprofits, and asked her a few questions about the new surveys and reports that the Urban Institute and the National Council of Nonprofits are working on. Here are some issues you need to consider:

1. Governments are often really bad about paying on time. According to a Dec. 5, 2013, survey from the Urban Institute, nonprofits say that reporting and the complex application process are the two most difficult things about government contracting. But this isn't the only way that government contracts can be difficult for nonprofits. Seventy percent of respondents stated that the government contract often does not cover the full cost of services.

2. Governments often won't pay for the entire cost of providing the service. You might tell a government entity, "Look, we want to serve seniors in our facility. It costs $110 a day to serve a senior with the various nursing and support staff, as well as medicines, food and more." And the government says, "OK, we'll pay you $90 per day."

Nonprofits feel like they can't argue with this because they know that the government will give the contract to someone else if they do. They think, "Well, we'll find the rest of the money somewhere."

But when the nonprofit has to compromise this way, the quality of the service goes down.