Does Government Punish Nonprofits for High Administrative Costs in Contracting Decisions?

Abstract

As government financing of nonprofit organizations to deliver services and implement policies has become a common practice in the public administration landscape, the question of what factors affect government’s source selection has emerged as a significant one. Within this strand of research, how nonprofits’ administrative costs affect their receipt of government contracts is still not fully understood. This article explores that relationship using a large panel data set of U.S.-based international development nonprofits from 1967 to 2014. Different model specifications consistently demonstrate an inverted U-shaped relationship between a nonprofit’s level of administrative costs and its amount of government contracts. In particular, as a nonprofit’s level of administrative costs increases, its amount of government contracts will initially increase, but after its level of administrative costs reaches approximately 16% to 18% of total expenses, further increases in the nonprofit’s level of administrative costs will reduce its amount of government contracts. These findings have implications for both public and nonprofit management.

The Dynamics of Inter-Village Border Governance: A Case Study

“…Because there is still a conflict in determining the boundary between the two villages. Governance is what is important to do is to run the administration and there is certainty that the community gets their rights in government affairs (Abati, 2020;Alzahrani et al, 2017;Elston & Dixon, 2020;Kruyen & van Genugten, 2017;Radjab et al, 2019;Zhao & Lu, 2020).…”

Social Public Purchasing: Addressing a Critical Void in Public Purchasing Research

“…However, indirect purchases are less regulated than contracts (Beam and Conlan 2002) and are generally awarded with limited scrutiny, as is the case for Medicaid grants (Breton 1965). Some scholars therefore suggest that governments should be more transparent and critical regarding their award criteria (Ashley and Van Slyke 2012; Dong and Lu 2019; Zhao and Lu 2020).…”

“…One way in which governments reduce this inefficiency is to require a singular criterion for purchases. Related to contracts, that criterion is often the lowest price bid for awarding contracts, and related to grants it is the highest number of beneficiaries (Arrowsmith et al 2011; Beam and Conlan 2002; Cravero 2017; Hettne 2013; Zhao and Lu 2020). This incentive structure creates unintended outcomes.…”

Civil servants' preferences for nonprofit contractors: A conjoint analysis

“…Second, on the methodology side, because of data‐based and methodological limitations, most previous empirical studies have relied predominantly on cross‐sectional analyses, with their findings generally suffering from the reverse causation problem and omitted variable bias. Indeed, Zhao and Lu (2020) provide the only empirical study using a panel data set of U.S.‐based NPOs from 1967 to 2014, but their fixed‐effects and random‐effects model specifications control only for a small number of time‐varying variables, including program expenses, fundraising expenses, and organization size, thereby omitting many other potential time‐varying confounding variables (e.g., board size or external collaboration). In other words, previous studies have provided only suggestive findings rather than empirical evidence of causality.…”

“…A growing body of literature is now investigating the funding relationships between governments and NPOs by analyzing how NPO characteristics affect the scale of revenue received from governments (e.g., Ashley & Van Slyke, 2012; Dong & Lu, 2019; Garrow, 2011; Lu, 2013, 2015; Stone et al, 2001; Suárez, 2011; Zhao & Lu, 2020). These studies show that multiple factors, including professionalization, collaboration, cooptation, and prior funding history, affect the extent to which NPOs receive government funding.…”