Nonprofit organizations come under scrutiny from a variety of stakeholders because of their reliance on charitable donations or because they have tax-exempt status. To ensure that your purchasing practices pass muster when reviewed by the media, donors, the Internal Revenue Service or other interested stakeholders, it’s important to create procurement policies that avoid any potential conflicts of interest or lack of transparency.
Some nonprofits require that purchases above a certain dollar level be put up for bid, with the organization receiving multiple bids for different vendors. This helps reduce the chance that a purchasing agent, department head or executive director can reward a contract to a friend, family member or business associate that offers a personal reward or outright bribe. This also prevents a longtime supplier from raising rates or reducing services each year because it knows it has no competition.
Low Bid vs. Best Bid
Your procurement policy can require that your organization take the lowest bid on projects, services or goods, or allow you to take the best bid. The best bid might not be the cheapest, but it might provide better value to the organization. For example, one sports marketing firm might offer to run a charity’s 10-kilometer road race for a lower fee than another firm, but the higher bidder might have more experience running road races and have more contacts who might buy sponsorships. In some cases, a nonprofit might allow a contract to go to a business other than the lowest bidder as long as the contract is within a certain percentage of the lowest bid and the purchasing agent, department head or management can show reasons why the lowest bid is not the best bid.
Requests for Proposals
As part of your procurement policy, create and issue a request for proposals for projects, services or goods larger than a specific dollar amount. An RFP is a standard procedure businesses use that communicates to potential bidders the same objective requirements for a contract. RFPs help nonprofits make apples-to-apples comparisons of bids.
To prevent favoritism, or the appearance of favoritism, ask your board members and management staff if they have any friends, family members or business partners that sell goods or services you purchase. Many nonprofits have policies that prohibit the organization from transacting business with companies that have close ties to key stakeholders. Before you approve large contracts, share the names of potential business partners with your key stakeholders to determine if any of them have a conflict.
Because nonprofits are not in competition with other companies for profits, they are more at liberty to disclose business information with the public. Make your procurement policy readily available to the public on your website. Include information regarding large purchases in the treasurer's report given to your board of directors at board meetings.
You may want to give preference to businesses that use “green” business practices. This can include companies that have publicly stated and demonstrable initiatives to reduce energy and water use, recycle, use organic and non-toxic materials or reduce packaging.
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