Covering the (Data)Bases: How Nonprofits Manage Anticipatory Compliance Via for-Profit Contracts

Introduction

Contracts shape nonprofit human service organizations’ relationships, roles, and strategies by attaching action to resources. In devolved governance systems, contracts function as accountability mechanisms that tie nonprofit subcontractors’ performance to government resource provision. Much contracting literature examines public-private contracting vis-à-vis top-down, government-nonprofits contracts. Yet, as market- and evidence-based governance reforms expand, nonprofits increasingly compete with for-profit companies for government contracts and, considered here, enter contracts with them to support service provision and satisfy government performance demands. As for-profit companies’ presence in governance grows, we need to know more about why nonprofits enter contracts with them and how nonprofit-for-profit contracts shape nonprofit service provision and to what ends for organizational life and client experiences and outcomes.

Methods

Findings draw upon a qualitative case study of two child welfare nonprofits engaging with an artificial intelligence product, secured via for-profit contract, to meet compliance demands while implementing a federal evidence-based policy. Twenty-four months of data (September 2024 – 2026) include approximately 300 observation hours and 100 interviews with nonprofit administrators and caseworkers and state administrators. Thematic analyses of interviews examine accounts of the emergence, considerations around, and use of for-profit contracts to meet state contract and federal policy requirements, while temporal observational analyses consider how nonprofit and state workers make sense of contracts collectively.

Findings

Though federal policy does not currently require compliance data for reimbursement, nonprofit leaders and state administrators believed it may one day and designed compliance strategies accordingly. Amidst high stakes uncertainty about which data would be required, when, and what consequences would result without it, nonprofits sought compliance strategies that covered as many (data)bases as possible: easy to scale, cost-effective, and generating standardized data across many metrics. Accordingly, both nonprofits integrated an artificial intelligence product into their compliance efforts via for-profit contracts. As policy implementation progressed, federal compliance requirements remained ambiguous; states responded by presenting stricter performance-based requirements to nonprofits; and contract re-negotiations with the for-profit company arrived. Nonprofits used their unique positions to renegotiate for-profit contracts that supported evolving compliance and financial needs. One nonprofit leveraged its position as a resource-strapped, early company client – one engaging the tool in practice with child welfare clients –, for a discount, but did not negotiate guardrails around the company’s use of organizational data. The other leveraged its growing reputation as a national compliance thought leader to negotiate a contract that supported tool use differently than the company’s preference and stipulated that organizational data could not be used to train company products’ algorithms.

Conclusion

Nonprofits’ compliance binds, and their negotiations of them, are nested in multi-level power dynamics, wherein federal requirements and state responses to them shape nonprofit subcontractors’ (un)intended organizational actions and client impacts. Nonprofit-for-profit contracts represent an emergent organizational survival tactic with less understood consequences for clients. As non-profit-for-profit contracts grow, so too does the hollow state’s footprint, raising questions for nonprofits and workers about under what conditions organizational and client data are shared with for-profit companies in everyday governance and how best to safeguard both.