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Grants/Contracts Differences

Federal agencies use procurement contracts and various forms of financial assistance (grants, cooperative agreements, and others) to transfer funds to people and organizations to reach the agency’s authorized mission.

In a legal sense, both financial assistance and acquisition awards are types of contracts:

“A contract is a promise or a set of promises for the breach of which the law gives a remedy, or the performance of which the law in some way recognizes as a duty.”
Restatement (Second) of Contracts §1 (1981)

Both vendors and grantees enter into binding relationships with the Government—and they are required to meet the conditions of either the procurement contract or the financial assistance award.

The Federal Grant and Cooperative Agreement Act of 1977 (P.L. 95-224, 31 USC 6301 et seq.) establishes the basic distinctions between procurement contracts, grants, and cooperative agreements.

Procurement Contract Grant Cooperative Agreement
An executive agency shall use a procurement contract as the legal instrument reflecting a relationship between the United States Government and a State, a local government, or other recipient when— (1) the principal purpose of the instrument is to acquire (by purchase, lease, or barter) property or services for the direct benefit or use of the United States Government; or (2) the agency decides in a specific instance that the use of a procurement contract is appropriate. An executive agency shall use a grant agreement as the legal instrument reflecting a relationship between the United States Government and a State, a local government, or other recipient when— (1) the principal purpose of the relationship is to transfer a thing of value to the State or local government or other recipient to carry out a public purpose of support or stimulation authorized by a law of the United States instead of acquiring (by purchase, lease, or barter) property or services for the direct benefit or use of the United States Government; and (2) substantial involvement is not expected between the executive agency and the State, local government, or other recipient when carrying out the activity contemplated in the agreement. An executive agency shall use a cooperative agreement as the legal instrument reflecting a relationship between the United States Government and a State, a local government, or other recipient when— (1) the principal purpose of the relationship is to transfer a thing of value to the State, local government, or other recipient to carry out a public purpose of support or stimulation authorized by a law of the United States instead of acquiring (by purchase, lease, or barter) property or services for the direct benefit or use of the United States Government; and (2) substantial involvement is expected between the executive agency and the State, local government, or other recipient when carrying out the activity contemplated in the agreement.
31 USC 6303 31 USC 6304 31 USC 6305

The distinction between grants and cooperative agreements revolves around the presence or absence of substantial involvement. In research activities, substantial involvement is likely to be found when a Federal employee is actively assisting, guiding, coordinating, or participating in the project. This substantial involvement most commonly takes the form of either (1) managing the allocation of resources between sub-projects, sites, or institutions or (2) being actively involved in the conduct of the research. Normal oversight and stewardship are not substantial involvement.

There are many differences between procurement contracts and grants. The chart below contains a number of them, and it may help define which instrument you wish to apply for.

Grants Contracts
Used to advance a public purpose Used for the direct benefit of the Government
Supports or stimulates an activity Purchases or acquires goods or services
Partnership between Government and recipient Government buyer and third-party seller
Awarded after reviewing technical merit Awarded after cost/price analysis
No Independent Government Cost Estimate Independent Government Cost Estimate required
Performed in as competitive a manner as possible Strict adherence to the Competition in Contracting Act
No formal protest process Formal protest process (within agency and GAO)
Cannot be used for classified work Must be used for classified work
May support part of a project’s cost Must support all incurred/negotiated costs
Congress determines the activity to be in the public interest Contracting Officer must secure good value for the Government
Recipient may terminate at any time Government may terminate (for cause or convenience) at almost any time
Multiple awards from one solicitation/FOA Usually one award from one solicitation
Governed by regulations in Title 2, CFR Governed by Federal Acquisition Regulation
OMB oversight from Office of Federal Financial Management OMB oversight from Office of Federal Procurement Policy
Use standardized government-wide forms for applications and reports, not for awards Standard forms for signatures, awards, amendments and modifications
Opportunities and applicationsExternal link SolicitationsExternal link
Public has access to services or knowledge Government has use of goods or services
Requires best efforts in research Requires delivery of promised goods or services determined by contract type
Payment based on budget periods Payment schedule may be negotiated by contract type
Required annual reporting (may be more frequent in rare circumstances) Reporting may be required whenever negotiated
Non-performance may be default, or it may be reasonable Non-performance is default
More flexible standard of scope of work More rigid standard of scope of work
Easy to amend or revise Modifications must meet strict standards
Research grants are usually renewable Procurement contracts are usually not renewable
No precise contours of work and timetables Schedule of milestones and deliverables
Simplicity and economy in execution and administration are in both parties’ interests Both parties have different interests and need to negotiate and formalize how they will be reached
Grants for basic research may last for a very long time Contracts end when the good or service is delivered and accepted
Costs must be reasonable, allowable, allocable, and consistently treated Costs are negotiated
No regulatory limit on subawarding—but avoidance of “pass-through” entities is prudent Limitations on subcontracting
Questions and answers about solicitation are between asker and answerer Questions and answers about solicitation must be made public
Research grants use advance payment (with some exceptions) Payment is made after delivery
Applicant defines the scope of work Government describes the scope of work
Requirements could convert a grant into a contract Very difficult to convert procurement contract into a grant
Publications encouraged Publications may be restricted
Recipient owns intellectual property Intellectual property may become the Government’s property
Continuation awards to move between budget periods Modifications to exercise option years
Continuation awards in response to progress reports Option years exercised by Government choice
Reports may be considered “deliverables” Inspection and acceptance of deliverables required
Terms of award Clauses in contract
Payments made to grantee May pay vendor’s creditor directly
Key personnel can change effort within limits Any change to key personnel requires approval
Automatic waiver of prior approval in some circumstances No automatic waiver of prior approval
No claims against Government Claims against Government may be filed
Last modified: 10/25/2013 7:01:27 AM