Site Search

Government-Nonprofit Contracting Reform

The Office of Management and Budget (OMB) Uniform Guidance is the biggest change in government grant guidelines in over 30 years. The rules require that federal grants and contracts—including those that pass through state and local governments—include a “reasonable amount” for indirect costs. A “reasonable amount”, according to the guidance, is at least 10 percent of direct costs and, in some cases, nonprofits can negotiate a higher amount. 

With the nonprofit sector earning nearly 33 percent of its revenue from government grants and contracts, this new requirement is a game changer. Nina Stack wrote a piece discussing these changes for the Geraldine R. Dodge Foundation blog:

Excerpt from A Social Sector Game Changer:

“Nonprofits that are hired by the government to perform a service and paid through federal dollars are to use at least 10 percent of the direct costs of their grant or contract to pay indirect costs. BOOM! Just as John Madden would say. A mandate for funding that can be used for core operations. Never before has there been such a clear directive and recognition from the federal government.”

To see this change however, industry-wide advocacy is essential to ensure that all nonprofits are aware of this monumental shift and that governments follow the new requirement. Without advocacy, it is very possible that, despite the requirement to add an additional 10 percent or more to pay for indirect costs, legislative bodies at the federal, state and city levels may further reduce project budgets to keep them flat. And this could mean that in order to maintain the same level of services, nonprofits will seek additional resources from the philanthropic sector to make up the difference. Therefore it is imperative that philanthropy remains active in the conversation between nonprofits and government to continue to maintain a balance in the critical services provided by all.

What this means for nonprofits:

• Government contracts are now required to reimburse nonprofits for reasonable indirect costs (administrative, “overhead”) as part of their service-delivery agreement.
• The OMB Uniform Guidance is only a promise of better treatment—nonprofits should know the rules and protect themselves.

What this means for foundations:

• Advocacy is needed! To ensure government partners do not underfund nonprofits due to the new rules, foundations need to help spread awareness and enforce the regulations.

In New Jersey, the New Jersey Center for Nonprofits has been teeing up advocacy, information sessions, and other assistance to help non-profits take advantage of the new rules. For questions and information about the new guidelines, please visit the resources below.

Resources

Federal Register: OMB Uniform Guidance

Community foundations are beginning to deepen and shift how they work, adopting an anchor mission that seeks to fully deploy all resources to build community wealth. Moving into territory relatively uncharted for community foundations, they are taking up impact investing and economic development — some in advanced ways, others with small steps. This report offers an overview of how 30 representative community foundations — including The Seattle Foundation, the Vermont Community Foundation, and the Greater Cincinnati Foundation — are working toward adopting this new anchor mission.

This Democracy Collaborative report was written by Marjorie Kelly, Senior Fellow and Director of Special Projects and Violeta Duncan, Community Development Associate.