Overspending in Office of Homeless Services could prompt change to Philly’s contract process

Philadelphia has for decades allowed some city departments to grant contracts to nonprofits without going through the usual competitive bidding process.

But following intense scrutiny of overspending in the city’s Office of Homeless Services through its contracts with charities, the practice is now under threat — government watchdogs are probing its use and one lawmaker is floating legislation to end it.

“We have to make the process more fair, more equitable, and ensure that we are getting providers into the system that can provide quality service to the people of Philadelphia,” said City Councilmember Katherine Gilmore Richardson, the Democratic majority leader, who will introduce legislation Thursday to end the bidding exemption.

Any change to the city’s contracting procedures is likely be cheered by advocates for greater transparency in government. But eliminating the special carve-out for nonprofits could draw pushback from philanthropies and even some department heads who say the city’s Byzantine contracting process is already too cumbersome.

In order to procure services from businesses and other third parties, the city is typically required to issue a request for proposals detailing their service needs, then select the most qualified vendor offering the best price. The goal of the process is to eliminate political interference and fraud while ensuring taxpayers are receiving the best value for their dollars.

With the practice known as the nonprofit exemption, Philadelphia has long attempted to make it easier for city departments to contract with charities by allowing agencies that work in emergency management to forgo the usual process and directly execute contracts.

The Office of Homeless Services falls under that exemption, and it often enters into agreements with organizations that provide housing and shelter to the city’s homeless.

That office is currently the subject of at least three separate investigations into financial mismanagement after it overspent its budget by about $15 million over the last four years, in part due to the department’s contracting practices.

» READ MORE: How Philly’s Office of Homeless Services overspent $15 million: ‘Things got away from everybody’

One of the investigations named the nonprofit exemption as a problem. Inspector General Alexander DeSantis, whose office released a report on the overspending last month, wrote that through the exemption’s use, the Office of Homeless Services entered into dozens of contracts with less than typical involvement from other agencies, such as the Procurement Department.

DeSantis added in his report that the exemption meant the office’s contracts “were not driven by pricing competition” and allowed for Homeless Services leadership to “work with their vendors on more of an informal and relationship-driven basis.”

Following the release of DeSantis’ report, City Controller Christy Brady said her office is reviewing all city contracts with nonprofits that were exempt from standard practices. She said its use can be a “gateway to other issues,” including a lack of transparency around contracting and the elimination of oversight from other departments.

Brady also criticized the use of the exemption earlier this year when her office released an evaluation of a $22 million city grant program that was intended to rush money to nonprofits doing antiviolence work amid a surge in gun violence.

But according to Brady’s office, the city botched the rollout and the contracting, leading to a lack of a “fair, open and transparent bid process.”

» READ MORE: Philly poured $22M into an anti-violence grant program. It picked some groups unable to deliver on their proposals.

While the money for the grant program was budgeted under the Managing Director’s Office, the city’s Health Department entered into a contract with Urban Affairs Coalition to oversee community organizations’ spending. The Managing Director’s Office is not one of the agencies that is allowed to contract with nonprofits without using a competitive bidding process — but the Health Department is.

“These processes cannot be allowed to continue,” Brady said in an interview.

But city officials who lead agencies have long said they need a mechanism to execute contracts quickly, especially in emergencies.

Liz Hersh, the former director of the Office of Homeless Services, said the agency used the nonprofit exemption because many of the programs are “site-based,” meaning a nonprofit owns a housing site and is therefore the only vendor that the city could contract.

She said eliminating the exemption would represent a significant shift in procedures.

“It would have to really take some pulling apart the threads to see where a [request for proposals] might be helpful,” she said.