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Testimony of George Schutter on Bill B23-107, the "Non-Profit Reimbursement Fairness Act of 2019"

Tuesday, January 28, 2020
Before the Committee on Facilities and Procurement, The Honorable Robert C. White, Jr., Chairperson

Good morning, Chairman White. I am George Schutter, Chief Procurement Officer of the District of Columbia and Director of the Office of Contracting and Procurement. Today, I am pleased to provide testimony on B23-107, the “Non-Profit Reimbursement Fairness Act of 2019.” As always, I appreciate the opportunity to testify before the Committee on Facilities and Procurement. Thank you for the invitation.

I would also like to thank our non-profit partners for their enduring commitment to serving District residents. Having worked in the non-profit sector for years, I understand the demands and tireless efforts that are required of you, and I sincerely appreciate your work.

REIMBURSING NON-PROFITS FOR INDIRECT COSTS
Mr. Chairman, I believe this legislation addresses an important issue and I generally support consistently reimbursing non-profits for indirect costs. Indirect costs are those expenses not readily identifiable with a specific program or contract yet are necessary for a non-profit’s general operations. These would include, for example, utilities, IT support and software, insurance, and staff training, just to mention a few. The inability of a non-profit to recoup some indirect costs constrains its ability to invest in essential organizational infrastructure and jeopardizes its long-term sustainability. The “Non-Profit Reimbursement Fairness Act of 2019” would help eliminate this problem.

Having reviewed the draft legislation and discussed this issue with non-profit and industry stakeholders, I concur that consistency in the application of indirect cost rates is both best practice and efficient for the District, and appropriate for non-profits. I recommend that indirect cost rates are applied to District grants and contracts in the following manner:

  1. The non-profit may elect to use the de minimus rate of 10%, consistent with OMB’s Uniform Guidance;

  2. The non-profit may elect to use the federal Negotiated Indirect Cost Rate Agreement (NICRA); or

  3. The District contracting officer may negotiate a rate based on a letter from a CPA verifying that the non-profit calculated the indirect cost rate according to OMB’s Uniform Guidance based on the most recent available financial statements.

These options are in line with what we are seeing in other jurisdictions, such as Illinois, Maryland, and New York City, and will allow for the consistent application of indirect rates in the District.

I would not concur with section 3(b) of the bill that references the use of a rate negotiated by other non-profits of similar size, mission, and cost structure. Doing so would insert subjectivity into the process, and further, indirect rates should be a reflection of a specific organization, and not that of other organizations.

PUBLISHING REQUIREMENT

Section 3(d) of the draft bill states that “the components of the direct or indirect cost rates for any contract or grant with the District shall be published by the contracting agency.” I recommend this section be removed or amended, as the breakdown of costs may be considered sensitive commercial information. Sharing this information may deter non-profit organizations from doing business with the District, as they may not be amendable to sharing their indirect cost rates with competitors. If the approach described above is utilized, there would be no reason to publish rates.

CONCLUSION

In conclusion, I believe that the consistent reimbursement of indirect cost rates to non-profit organizations will, on balance, enhance their effectiveness, their fiscal stability, and make the District a place where non-profits want to engage. Policy changes such as these will provide the healthy consistency needed, but must be subject to, and consider, the agencies’ budgets. I look forward to working with our non-profit partners, District agencies, and the Committee on Facilities and Procurement, on this legislation to provide greater consistency to the District’s application of indirect cost rates to non-profits. Organizations that serve vulnerable populations deserve fair and appropriate treatment in the contracting and grant-making processes. This legislation is, in my opinion, a good step toward meeting that goal.

Thank you for the opportunity to testify today. I am happy to answer any questions you may have.