AB 944 adds Section 8596.1 to the Government Code to give nonprofit organizations that hold contracts with California state agencies a clear, limited process for modifying how they deliver services during a declared state of war emergency or state of emergency. The bill lets nonprofits request operational changes so long as the contract’s purpose is maintained, requires any approved change to be memorialized in a contract addendum, and bars spending beyond the contract budget unless the parties agree to a formal modification.
The measure also establishes notice and documentation duties for nonprofits when programs close or services are disrupted, prescribes how invoices should reflect closures under cost-reimbursement and fee-for-service arrangements, and directs state agencies to ensure funding is available to cover canceled services or reduced service levels. It creates a discretionary, written-request process for nonprofits to seek similar flexibility when no emergency has been declared.
At a Glance
What It Does
Authorizes nonprofits to request temporary modifications to service delivery during a declared emergency, requires approved changes to be recorded as contract addenda, and prevents budget overruns without a modification agreement. It sets out notification, documentation, and invoicing rules tied to program closures and reduced service levels.
Who It Affects
Nonprofit contractors with state agency contracts (both cost-reimbursement and fee-for-service), state contracting officers and fiscal teams, program auditors, and front-line hourly employees paid through those contracts.
Why It Matters
The bill creates a predictable, specified route for keeping state-funded programs solvent and staff paid during disruptions, while imposing documentation rules intended to limit overpayments and preserve audit trails—shifting operational and fiscal responsibility onto both nonprofits and agencies.
More articles like this one.
A weekly email with all the latest developments on this topic.
What This Bill Actually Does
The bill creates a statutory mechanism for nonprofits that contract with California state agencies to seek temporary changes to how they deliver contracted services when a state of war emergency or state of emergency exists. A nonprofit may ask its contracting agency to allow a different method of service delivery so long as the contract’s purpose is still met.
If the agency agrees, the parties must prepare and sign an addendum that spells out the modification’s terms—effectively converting an emergency operational change into a documented, limited contract amendment.
AB 944 limits financial exposure by stating that nonprofits may not exceed the contract budget unless they and the state agency enter into a separate agreement modifying the budget. The bill requires nonprofits to notify every state funder when a program or site is closed or otherwise impacted, explaining whether the closure is location-specific or due to an executive order and why service levels are affected.
That notice obligation creates a paper trail the state can use to coordinate funding decisions and oversight during the disruption.The statute prescribes specific documentation and invoicing rules for closures. Nonprofits must identify and retain documentation for all expenditures tied to a closed program, distinguishing costs that continue (fixed and regular costs) from costs that will not be incurred because the program stopped.
The bill treats hourly employees specially: nonprofits must pay anticipated wages during the closure. For billing, cost-reimbursement contracts follow existing monthly invoicing but must be prepared to supply additional, itemized documentation; fee-for-service contracts require invoicing equal to one-twelfth of contracted annual units, accompanied by documentation showing which services were expected but not delivered.Finally, the bill creates a fallback process when there is no declared emergency: a nonprofit that cannot provide services may submit a written request for flexibility to the impacted state agency, and the agency may approve that request where reasonable under the described circumstances.
That provision leaves room for agency discretion and situational judgment while providing a formal channel for relief short of a declared emergency.
The Five Things You Need to Know
The bill requires any approved operational change during a declared emergency to be memorialized in a signed contract addendum between the nonprofit and the state agency.
Nonprofits may not exceed their contract budget unless the nonprofit and the state agency enter into a separate modification agreement authorizing additional spending.
Nonprofits must document all expenditures tied to closed programs, pay fixed ongoing costs normally, and pay anticipated wages to hourly employees during closures.
Cost-reimbursement contracts remain on the monthly invoice schedule but must supply separate documentation for closure-related expenses; fee-for-service contracts should invoice one-twelfth of annual units and document undelivered services.
If no emergency is declared, a nonprofit may still submit a written request for flexibility and the state agency may approve it after determining the request is reasonable.
Section-by-Section Breakdown
Every bill we cover gets an analysis of its key sections.
Emergency-driven modification and addendum requirement
This subsection allows nonprofits to request modifications to how they provide services during a state of war emergency or state of emergency, conditioned on preserving the contract’s purpose. If the agency agrees, the agreement must be recorded as an addendum to the contract. Practically, that forces agencies to treat emergency operational changes as formal contract documents rather than informal accommodations, creating a discrete record for oversight and future audits.
Budget ceiling: no exceeding contract amount without modification
The statute bars nonprofits from spending beyond the contract’s budget unless the parties execute a modification agreement. That preserves fiscal discipline: operational flexibility is allowed, but financial flexibility requires explicit agency approval. For contracting officers, this means tracking approved addenda vs. budget-modification agreements to avoid unauthorized expenditures.
Mandatory notification to all state funders
Nonprofits must notify each state agency that funds them when a program or site closes or is impacted, stating whether the closure is site-specific or mandated by executive order and explaining the cause of reduced service levels. This distributes situational awareness across multiple funding streams and obliges nonprofits to communicate disruptions proactively, which affects multiyear, multi-agency programs and shared-service arrangements.
Documentation and payroll rules for closed programs
This subsection sets out a granular documentation regime: nonprofits must identify expenditures tied to closed programs, continue paying fixed and regular costs, and continue anticipated wages to hourly employees. It also requires exclusion from invoicing of expenses that will not be incurred, while making the contracting agency responsible for costs that were incurred prior to closure. The rule creates a line between continuing obligations and savings resulting from a shutdown, which will be important for auditors and for reconciling payments.
Invoicing protocols: cost-reimbursement v. fee-for-service
The bill requires cost-reimbursement contractors to file monthly invoices but to be responsive to additional documentation requests about closure-related costs. Fee-for-service contractors must invoice one-twelfth of annual service units and provide documentation about services that were expected but undelivered. Agencies will therefore need to reconcile unit-based payments with actual service delivery and may require new invoice review processes.
Agency funding obligation and non-declared-disruption requests
Section (d) directs any state agency receiving closure notice to ensure funding is available to pay for canceled services or reduced service levels, effectively assigning agencies a funding-responsibility role during disruptions. Section (e) permits nonprofits to submit written requests for flexibility when there is no declared emergency and gives agencies discretion to approve those requests when reasonable. Together, these provisions balance a mandate for agencies to secure funds during formal emergencies with a discretionary, case-by-case process when emergencies are not declared.
This bill is one of many.
Codify tracks hundreds of bills on Government across all five countries.
Explore Government in Codify Search →Who Benefits and Who Bears the Cost
Every bill creates winners and losers. Here's who stands to gain and who bears the cost.
Who Benefits
- Nonprofit contractors: Gain a clear statutory path to change how they deliver services during emergencies without immediate contract breach exposure, plus a formal mechanism to keep programs funded and staff paid.
- Front-line hourly employees paid under state contracts: Receive anticipated wages during closures by the bill’s payroll rule, reducing immediate income loss when programs shut down.
- Program beneficiaries and service recipients: Benefit from higher chances of service continuity because agencies and nonprofits are required to coordinate funding and document closures to preserve programs.
- Contracting officers and fiscal teams at state agencies: Receive structured documentation and an addendum process that creates an auditable trail for emergency adjustments, reducing ad hoc decision-making.
Who Bears the Cost
- State agencies and fiscal offices: Must 'ensure that funding is available' for canceled services and may absorb additional costs or reallocate budgets during emergencies, increasing short-term fiscal pressure and administrative workload.
- Nonprofits (administrative burden): Must assemble detailed documentation, maintain separate invoices for closure costs, and manage addenda and modification agreements—tasks that create compliance costs, especially for small organizations.
- Auditors and oversight bodies: Face heavier review responsibilities to verify that continued payments conform to the bill’s distinctions (fixed costs, excluded costs, pre-closure expenses), increasing audit complexity.
- Taxpayers or the state budget: May ultimately bear the cost of continued payments for canceled services and wages, particularly if agencies must cover incurred costs before closure or authorize budget modifications.
Key Issues
The Core Tension
The bill tries to balance two legitimate goals—keeping state-funded services running and staff paid during disruptions, and preserving fiscal oversight to prevent inappropriate spending—but it forces agencies and nonprofits to resolve a classic trade-off: speed and continuity in an emergency versus financial control and administrative scrutiny. There is no unambiguous mechanism in the text to reconcile those goals under time pressure.
The bill sets operational expectations but leaves several implementation questions unresolved. "Ensure that funding is available" is a strong directive, but the statute does not specify whether agencies must reprogram funds, draw on contingency reserves, or seek supplemental appropriations; each option has different legal and fiscal consequences. That ambiguity shifts pressure to agency budget offices and the Department of Finance to interpret funding obligations during emergencies, and creates potential timing problems for nonprofits that need cash flow immediately.
The documentation and payroll rules reduce the risk of inappropriate payments but also create a nontrivial administrative burden, particularly for smaller nonprofits that lack enterprise accounting systems. Requiring anticipated wages for hourly employees raises practical questions about intersections with collective bargaining agreements, unemployment insurance rules, and federal cost principles for programs receiving federal funds.
The statute’s distinction between costs incurred prior to closure (which the agency must pay) and costs not incurred requires careful payroll and procurement accounting to avoid disputes over when costs are considered "incurred."
Finally, the bill grants agencies discretion to approve flexibility requests when no emergency is declared, but it does not set objective standards or timelines for agency responses. That discretion may produce inconsistent treatment across agencies or geographic areas and could incentivize strategic behavior—either by nonprofits seeking favorable terms or by agencies delaying approvals to limit fiscal exposure.
Try it yourself.
Ask a question in plain English, or pick a topic below. Results in seconds.