666 CLEARINGHOUSE REVIEW | JANUARYFEBRUARY 2002
For all its flaws, government contractingof social services offers opportunities toimprove services for vulnerable people.This view underlies much recent debateabout the virtues of privatization. Govern-ment contracts also impose significantburden and risk on nonprofit entities.Public interest advocates and nonprofitleaders have common interests thereforein ensuring that nonprofit entities candeliver effective, responsive service whilesustaining themselves as important com-munity resources. Here I set forth a briefoutline of important issues for publicinterest attorneys representing nonprofitentities seeking to strike this balance.1
I. Public Interest Lawyers and Nonprofit Transactional Legal Needs
Throughout the country, nonprofit andneighborhood organizations attempt toaddress the needs of their communitiesdirectly by serving individuals and spon-soring projects to improve their commu-nities. They provide child care, primarymedical care, job training and counsel-
ing, and referral services to low-incomepeople, and they build and rehabilitateaffordable housing, renovate deteriorat-ing commercial buildings, help local res-idents start and manage new businesses,and much more. In doing so, they areinvolved in business, albeit not for prof-it, and they require the same level of busi-ness law representation as for-profit com-panies. All of the community-buildingefforts cited above involve transactionallegal tasks, from incorporating a nonprofitcharitable organization and seeking tax-exempt status, acquiring land through alease or purchase and syndicating interestsin low-income housing tax credits, toforming joint ventures.
Transactional legal advocacy differsfrom litigation, obviously, in that the attor-neys role is to help the client pursue agoal by reaching agreement with otherparties on a mutually acceptable ex-change.2 This is precisely the kind of assis-tance needed by nonprofit entities seekingcreative solutions to pressing problems.Unfortunately, without a resource for find-ing free representation from a legal ser-
Privatizing Better: Representing NonprofitService Providers Contracting with the Government
By Peter Manzo
Peter Manzo is executive
director and general counsel,
Center for Nonprofit
Management, 606 S. Olive St.,
Suite 2450, Los Angeles, CA
1 This article is based primarily on my admittedly limited experience and is meant to behelpful to legal services and especially pro bono private attorneys who may not befamiliar with government contracting for human services.
2 From the perspective of empowering clients, transactional legal services work may bemore client-driven than litigation. In transactional matters, clients presumably know farmore about their business goals and the practical concerns involved than their attorney,they are much more in charge of decisions, and the attorneys role is simply to advise theclient of potential risks and try to protect the enforceability of the benefit the client seeks.
vices organization or a pro bono program,getting legal assistance is catch as catchcan for most nonprofit groups. Most sim-ply do not have the money to pay an attor-ney, and further, unless they find an attor-ney through a board member or otherhaphazard contact, they do not knowwhere to find competent, experiencedlegal assistance. As a result, most smallernonprofit groups forge ahead without legalassistance, often running catastrophic risks.
By representing charitable organiza-tions, public interest attorneys can im-prove the quality of life for low-incomeand disadvantaged people. Besides advo-cating on behalf of nonprofit clients inparticular matters, public interest transac-tional attorneys can work within private-public coalitions on broader issues; theattorneys have knowledge of the law ofpublic benefit organizations and the abil-ity to bridge diverse constituencies suchas neighborhood residents, local govern-ment, and business and civic groups.
The transactional legal needs of com-munity groups are well suited also to theuse of volunteer attorneys from the pri-vate bar, perhaps more so than with civilrights litigation matters. In many cases, pri-vate bar volunteers can bring resourcesotherwise unavailable to public interestattorneys and their clients. Affordablehousing projects, for instance, requireattention from real property, tax, and cor-porate and securities attorneys. By lever-aging efforts of volunteer transactionalattorneys, public interest attorneys canserve far more clients.
For the broad range of communitygroups to find the help they need, pub-lic interest lawyers should partner withprivate bar attorneys to coordinate effortsto match volunteers with needy nonprofitentities. In many cities across the coun-try, bar associations and legal servicesgroups are organizing themselves toaddress this problem. For example, PublicCounsel in Los Angeles brings togetherthe Los Angeles County and Beverly Hillsbar associations to sponsor pro bonotransactional representation for nonprof-
it entities. At the national level, organi-zations such as Power of Attorney, theAmerican Bar AssociationNational LegalAid and Defender Association partner-ship called A Business Commitment,and the Pro Bono Institute support suchprograms and encourage private attor-neys to get involved.3
II. Potential Issue ConflictsPublic interest attorneys representing non-profit entities may confront issue conflictswhen the interests of a charitable organi-zation client conflict with the interests ofa class of clients the legal services pro-gram also represents. For example, legalservices organizations may represent low-income tenants or people who use ser-vices provided by homeless shelters, andmay feel they cannot assist nonprofitaffordable housing and homeless serviceproviders with designing or enforcing evic-tion policies.4 Another potential conflictsituation would be a dispute regarding eli-gibility for services or treatment of an indi-vidual or family by a service providersimilar to the kind of adverse situation thatwould arise if the government itself pro-vided the service. Still another area of con-flict may be the employment practices andlabor policies of the nonprofit, includingresistance to unionization drives.
Unpleasant as evicting tenants, dis-qualifying people seeking services, ter-minating employees, and even resistingunionization may be, nonprofit charitableorganizations are business enterprises andtheir directors and officers owe a fiducia-ry duty to the organization and to thepublic to ensure that they pursue theirmission as effectively as possible andcomply with grant and contract terms.Legal services and pro bono programsmust make very clear to nonprofit clients,in advance, the kinds of matters the pro-grams will not accept. One possibleapproach may be to rule out representingnonprofit clients in litigation matters ingeneral; this would avoid involvement inactual instances of issue conflicts but pre-serve some flexibility for exceptions.
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3 See www.powerofattorney.org; www.abanet.org/buslaw/probono; www.probonoinst.org.4 Counsel might also view this as an opportunity to try to influence the development ofmore fair, compassionate practices than might be established without their involvement.
III. Negotiating Contracts withGovernment Agencies andGovernment Counsel
As the chief executive of a nonprofit thatprovides access to subsidized child careobserved, cutting costs and preserving thegovernments administrative options arekey goals of government agencies in con-tracting with nonprofit entities. Thesegoals and the peculiar role of governmentcounsel color the contract terms andnegotiations.
A. Government Agency InterestsSome believe that government con-
tracts intentionally pay nonprofit con-tractors less than the true cost of provid-ing services. The unstated assumption isthat nonprofit organizations will bringdonated funds and volunteer labor tomake up the difference. For example, LosAngeles County has a public-private part-nership program, which seeks to shift pri-mary care services from county facilitiesto private nonprofit clinics. Payments tocommunity health clinics under this pro-gram are typically well below the actualcost per patient visit.5
Beyond pricing of direct program ser-vices, virtually all government contractsset unrealistically low limits on reim-bursement for the costs of direct admin-istration of the social services and indi-rect costs.6 In many cases the contractsalso deny payment altogether for indirect
costs to organizations that have not gonethrough the arduous negotiation of anindirect cost rate from the source of fed-eral funds.7 This inhibits the ability of non-profit providers to hire and retain ade-quate staffing in program assistant,clerical, and administrative positions; thisoften means that skilled professionalssuch as licensed clinical social workers orphysicians assistants must spend moretime doing administrative and clericaltasks, and less time serving clients, thanwould be optimal. The reimbursementlimits also inhibit nonprofit providers abil-ity to improve systems, equipment, andfacilities to support the level of case man-agement, data collection, evaluation, andfinancial management (not to mentiongood customer service) that governmentand private funders demand and thatclients deserve.8 Whether the purpose isto maximize service to clients, preventwaste and inefficiency, or both, there isgood reason to doubt that this approachis effective.9 Whatever its purposes, thisflawed approach to monitoring servicecontracts is relatively straightforward forgovernment agencies to administer, andthis