The bill adds Section 8596.1 to the Government Code to give nonprofit contractors explicit authority to request changes in how they deliver services during a state of emergency or state of war emergency, provided the contract’s purpose is still met. If an agency accepts the request, the two parties must execute a written addendum; contractors may not exceed the original contract budget without a separate agreement.
The text also requires nonprofits to notify funding agencies of closures or impacted programs and to document all related expenditures with specific billing rules for cost-reimbursement and fee-for-service contracts.
Why it matters: the measure formalizes ad-hoc COVID-era practices that many nonprofits and state agencies already used, but it also transfers new administrative and fiscal duties onto contracting agencies and raises audit and funding questions. Compliance officers, contract managers, and budget staff will have to adopt new documentation workflows, and agencies may face pressure to find or reallocate funds to cover canceled services or ongoing fixed costs during closures or disruptions.
At a Glance
What It Does
Authorizes nonprofit contractors to request temporary changes to service delivery methods during declared state emergencies or war emergencies, and requires an addendum if the agency agrees. It sets documentation and invoicing rules for closures, requires agencies to make funding available for canceled or reduced services, and permits nonprofits to request similar flexibility when no emergency is declared.
Who It Affects
State agencies that contract with nonprofits (for example, departments that fund social services, public health, and workforce programs), nonprofit providers on cost-reimbursement or fee-for-service contracts, contract administrators, and state auditors and budget offices responsible for paying invoices and reconciling closures.
Why It Matters
The bill codifies a procedure for maintaining funding and operations during disruptions, which can stabilize nonprofit cash flow and preserve client services. At the same time it creates potential fiscal exposure for agencies and introduces new documentation and dispute points that will affect audits and contract management practices.
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What This Bill Actually Does
Section 8596.1 establishes a two-track system for flexibility in state–nonprofit contracts. First, during a declared state of emergency or state of war emergency, a nonprofit may ask its contracting state agency to alter the way services are delivered so long as the contract’s underlying purpose is still achieved.
Approval must be memorialized in a contract addendum; absent an express modification agreement, the nonprofit may not spend beyond the budget in the original contract.
The bill imposes a specific notification and recordkeeping regime when a program is closed or its service level is affected. The nonprofit must tell each funding agency whether the closure is location-specific or driven by executive order, explain why service levels are impacted, and collect and retain documentation tying expenditures to the closed program.
The statute distinguishes between fixed/regular costs (which continue to be paid) and costs that will not be incurred because of the closure (which must be identified and excluded from future invoices). It also directs agencies to pay costs that occurred before the closure.Billing procedures differ by contract type.
Cost-reimbursement contractors still submit regular monthly invoices but must be prepared to supply extra documentation at the agency’s request—such as what services were expected but not delivered and associated costs. Fee-for-service contractors are instructed to bill at one‑twelfth of the contracted annual units for the month and to document services that were not delivered.
These mechanics are intended to preserve cash flow while giving agencies the records they need to justify continued payments.Finally, the bill creates a fallback for non-declared disruptions: when a provider cannot perform but no official emergency exists, it can submit a written request for flexibility. The agency may grant that request if it judges the accommodation reasonable under the circumstances.
That discretion places considerable interpretive weight on agencies and creates a path for temporary relief outside formal emergency declarations.
The Five Things You Need to Know
During a state of emergency or state of war emergency, a nonprofit may request a change in service delivery methods so long as the contract’s purpose remains intact.
If the state agency agrees to a modification, the parties must prepare and sign a written addendum; nonprofits may not exceed the contract budget without a separate modification agreement.
Nonprofits must notify each funding state agency of closures or impacted programs, state whether closures are location-specific or due to executive order, and explain why service levels are affected.
The bill requires documentation rules: continue paying fixed/regular costs, pay hourly employees the anticipated wage during closure, and exclude expenses that will not be incurred going forward from invoices.
Cost-reimbursement contractors must supply regular invoices plus any additional documentation agencies request about closure-related costs; fee-for-service contractors must invoice monthly at one‑twelfth of contracted units and document services not delivered.
Section-by-Section Breakdown
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Emergency flexibility and addendum requirement
This subsection gives nonprofits the explicit right to request changes to how they deliver contracted services during a declared state of emergency or war emergency, conditioned on maintaining the contract’s purpose. If the agency accepts the request, both parties must execute an addendum setting terms and conditions. Practically, this formalizes informal emergency modifications and creates a discrete legal document that will be the contract of record for auditors and payment staff.
Mandatory notification of closures or impacted programs
The nonprofit must notify each state agency that funds it when a closure or program impact occurs, and must state whether the closure is specific to a location or caused by an executive order and explain the reason for reduced service levels. This provision centralizes communication obligations and reduces the risk that an agency learns of disruptions only through clients or media.
Rules for documenting expenditures during closure
Contractors must identify and retain documentation for all expenditures tied to closed programs. The bill instructs agencies to continue paying fixed and regular costs, requires paying hourly workers their anticipated wages during the closure, and directs nonprofits to exclude expenses that will no longer be incurred from invoices. The subsection also makes clear that costs incurred prior to closure remain payable by the agency—an important timing rule for accruals and reconciliations.
Separate invoicing formats for contract types
This provision differentiates billing mechanics: cost-reimbursement contractors file normal monthly invoices but must provide additional documentation on closure-related expenditures when requested; fee-for-service contractors may invoice one‑twelfth of annual contracted units and must document units that could not be delivered. Agencies will need systems to accept these separate document streams and reconcile them against program performance metrics.
Agency funding obligation and non-declared disruption requests
Subdivision (d) directs state agencies that receive notice of a closure to 'ensure that funding is available' to pay for canceled services, closed programs, or reduced service levels, effectively imposing a funding responsibility on agencies. Subdivision (e) permits nonprofits to request flexibility even when no emergency has been declared; agencies may approve such requests if they determine the accommodation is reasonable. Together these provisions create both a mandatory funding expectation and discretionary relief outside formal emergency declarations.
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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 pathway to preserve cash flow and adapt service delivery when emergencies or disruptions prevent normal operations, and receive explicit rules about which costs can continue to be claimed.
- Frontline employees of contracted nonprofits: the bill requires payment of anticipated wages for hourly staff during closures, reducing sudden income loss for workers tied to program shutdowns.
- Service recipients (clients): by enabling alternative delivery methods and continued funding, the measure increases the chance that essential services remain available in some form during disruptions.
- Contract managers and legal teams in state agencies: receive a defined process (addenda and documentation standards) to approve and record emergency adjustments, which can reduce ad-hoc decision-making and legal uncertainty.
Who Bears the Cost
- State agencies and budget offices: must ensure funding is available to pay canceled services and ongoing fixed costs, potentially requiring reallocation of budgeted funds or drawing on contingency resources.
- State auditors and contract compliance units: will face increased administrative work to review closure documentation, verify eligibility for payments, and adjudicate disputes over what expenditures are allowable.
- Nonprofits’ administrative staff: must maintain detailed documentation, prepare supplemental invoices and explanations, and manage addendum workflows—raising compliance costs for providers, especially smaller ones.
- Taxpayers or other state programs: could indirectly bear costs if agencies shift funds to cover contracted vendors during emergencies, reducing funding available for other priorities.
Key Issues
The Core Tension
The central dilemma is straightforward: the bill protects service continuity and nonprofit financial stability during disruptions by preserving payments and allowing delivery changes, but those protections create open-ended fiscal obligations and audit risks for state agencies; resolving one problem (provider insolvency and service interruption) increases the likelihood of another (unfunded liabilities and compliance disputes).
The bill balances provider continuity against fiscal oversight, but it leaves several operational questions unresolved. The requirement that agencies 'ensure funding is available' does not specify an appropriation mechanism or timeline, so agencies may have to reprogram funds or identify emergency reserves—actions that can trigger internal policy constraints or require higher-level approvals.
Similarly, the instruction to pay hourly employees 'anticipated wages' raises practical issues: how to calculate anticipated wages, whether benefits and payroll taxes are included, and how auditors should treat wages for staff who perform other billable work once programs resume.
Another set of implementation risks concerns audit exposure and moral hazard. Allowing continued payments for fixed costs and anticipated wages could be viewed by auditors as an elevated risk of ineligible costs unless agencies adopt strict documentation standards.
The bill gives agencies significant discretion when no emergency is declared—approving requests that are 'reasonable under the circumstances'—but it provides little guidance on what counts as reasonable, creating potential inconsistency across departments and disputes with providers. Finally, although the statute requires addenda for agreed modifications, it does not set deadlines for agencies to respond to requests or resolve disputes, leaving open the possibility of delays that undermine the bill’s objective of rapid emergency flexibility.
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