Over the past few decades, government has become reliant on nonprofit organizations to deliver government services.  With the growth of contracting out and privatization of government functions, nonprofit organizations have become increasingly dependent on government funds (Smith and Lipsky 1993) and sometimes adapt their missions to meet the service needs of government contracts (Saidel 1991; Van Slyke 2007).  The logic behind privatization is to reduce costs by taking advantage of competition among providers and by producing government services while reducing the size the government (Savas 1987).  However, the competition is not always present (Johnston and Romzek 1999) and there are many consequences of contracting out government services for both government agencies and nonprofit organizations (Kettl 2002; Milward and Provan 2000; Salamon 1981).  These sorts of issues have only been exacerbated by the recent recession as governments faced severe budget constraints and nonprofits providers were left to provide the same level of services, often with fewer resources.  The contracting relationship between government agencies and nonprofit providers is vital in ensuring effective privatization without placing undue burden on the government agency or the nonprofit provider, especially in times of crises.

In 2009, nonprofits averaged about 6 government contracts and grants per organization with state governments providing funding for 41 percent, federal government providing about a third, and local government contracts providing about a quarter of nonprofits’ funding (Boris et al. 2010).  While government funding for nonprofit organizations cuts across levels of government, little has been done to examine how contracting relationships may vary across levels of government.  The recent recession strained not only the U.S. economy and government budgets, but also the contracting relationships between government agencies and nonprofit providers tasked with maintaining the provision of social services at a time of fiscal crises.  In light of the recent recession and contracts with all three levels of government, this paper will examine whether federal, state or local governments have better and more stable relationships with nonprofit providers. 

This paper will use data from the Urban Institute’s 2010 National Survey of Nonprofit Government Contracting and Grants, which is a national survey of 2,153 501(c)(3) human service nonprofit organizations that had government contracts and grants.  Drawing upon this unique dataset, this paper examines how the government-nonprofit contracting relationship fared during the recent recession, in terms of stability and accountability, and how contracting relationships vary by level of government.  

This paper has implications for public and nonprofit managers alike in developing and maintaining effective contract relationships between government agencies and nonprofit organizations. These findings provide insights into government-nonprofit contracting relations: how the government-nonprofit contracting relationships with federal, state and local government partners are affected differently by fiscal stress and how the differences across levels of government influence contracting relationships with nonprofit organizations.  Most importantly, this paper evaluates how budget cuts affect the contracting relationship as government agencies are asked to improve monitoring and accountability efforts and nonprofit organizations are asked to do more, both with fewer resources.