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Office of Mental Health

New York State Consolidated Budget and Claiming Manual Subject: Appendix W Prompt Contracting Section: 47
For the Periods:
January 1, 2009 to December 31, 2009
July 1, 2009 to June 30, 2010
Issued: September 9, 2009

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As a reminder, Chapter 166 of the Laws of 1991 added Article XI-B to the State Finance Law which promoted prompt contracting with not-for-profit (NFP) organizations and mandated by law prompt contract timeframes. If the NFP does not receive its first contract payment on time (i. e., in strict accordance with the contract payment schedule), the Department of Mental Hygiene will incur an interest penalty that will be payable from the State Operations appropriation. Since an annual report must be provided to the Governor's Office of Management and Productivity and the State Legislature regarding compliance with the timeframes for processing contracts and interest liabilities incurred, it is especially important that all NFP's receive their first contract payment on time.

A recent amendment to the Prompt Contract Law (PCL) adds some limited flexibility to the original provisions set forth in Article XI-B of the State Finance Law, and provides for a smoother flow of program services and payments. The revisions should enable State agencies to process contracts and payments for NFP's in a timely manner without incurring unreasonable interest liabilities. The revisions provide more reasonable timeframes for processing local grant awards (i. e., Legislative Member Items) and federally funded contracts; allow State agencies and NFP's to agree to waive interest payments in certain circumstances; eliminate interest penalties for contracts executed and funded in whole or in part for services rendered in a prior fiscal year; and limit the amount of time any one agency may suspend the law's timeframe to 4 ½ months in any State fiscal year.

The Division of the Budget has issued Budget Bulletin H-1016 which explains the revisions to the Prompt Contracting law. The key provisions of the budget bulletin are summarized below.

  1. Waiving Interest - A State agency is permitted to process a contract with a NFP agency with a retroactive start date without being interest liable if the NFP agrees to waive interest.

    Example: Funds for Member Items are appropriated April 1 but the recipient NFP agency is not identified until four months later. In the meantime, through their own choice, the NFP began providing services on April 1. The new provision of the law permits the State agency to process a contract with a retroactive start date of April 1 without incurring interest, but only after the NFP signs a waiver that removes the State agency from being interest eligible since it would otherwise appear that the State agency was four months later in processing the contract.

  2. Suspending Prompt Contracting - Prompt contract timeframes may be suspended for up to 4 months if a State agency, OSC, the Division of the Budget, or the Attorney General determines that extenuating circumstances exist which prevent the State agency from complying with the PCL timeframes. State agencies are required to notify the NFP of the suspension in writing, and submit a copy of the notification to OSC, the chairman of the Assembly Ways and Means Committee, and chairman of the Senate Finance Committee. The notification must specify the length of the suspension.

    Example: A statewide Deficit Reduction Plan ("DRP") is issued, and because of the chaos usually associated with it, a "time out" from the prompt contract timeframes for processing contracts is called by the State agency. A written notice suspending the timeframes would be issued to the NFP. If such a notification is not issued, the State agency could be interest liable.

  3. Federally Funded Programs - The new provision delays interest liabilities for federally funded contracts until four months after the State agency receives its federal funds, or after the contract's first payment due date, whichever is later.

    Example: OMH could delay processing its CMHS Block Grant funded contracts until it has received its Notice of Block Grant Award from the federal government, and then take up to four months to process the contracts. However, OMH has been processing contracts to OSC and having them pre-approved ("executory"). This ensures that the contracts are processed within the prompt contract timeframes.

  4. Timeframes for Local Grant Award - The timeframes for processing Member Item contracts begins on the date DOB informs the State agency with lists identifying the recipients of such contracts. The State agency then has four months from the DOB identification to process the contract to OSC, and as required by the current law, the AG and OSC have one month to complete the approval process, for a total timeframe of five months from identification. Without this new provisions, State agencies would have incurred interest liabilities because by the time the Member Items are identified, the timeframes for processing the contract have already epired.
  5. Contracts Supporting Prior Year Services - Interest liabilities have been eliminated where State agencies execute contracts that are funded entirely or partially with current year appropriations to pay for services rendered in a previous fiscal year.

Finally, as a reminder, if the DMH agency determines that a significant and substantive difference exists between itself and the NFP in the negotiation of a contract or renewal contract, or if the DMH determines that the NFP is not negotiating in good faith, then the DMH may suspend the written directive and any subsequent interest payments or subsequent advance payments required to be provided. Upon such suspension, the DMH is required to provide the affected NFP with written notification of such determination and the reasons (see Prompt Contracting Law, Section 179-W[3]).

Comments or questions about the information on this page can be directed to the Community Budget & Financial Management (CBFM) Group.