Government Grants or Contracts: What is the Difference?

It is a very common question made by businesses, what is technically the difference between government grants or contracts. Essentially the difference has nothing to do about the dollar value or the type of entity applying for them or even the type of work that is to be performed. Rather, the difference has to do with the legal concept of default. The fundamental difference between a government grant or contract lies in the question whether the entity is legally obligated to produce a certain set of results bound to a contractual relationship or whether the entity is simply granted moneys to perform certain tasks or services.

A contract is a legally binding document where the entity and government agree to a specified set of promises where a product or service is delivered in exchange for money or other considerations. On the other hand, a grant is basically funds that are “granted”, or given, to an entity to perform a service or deliver a product in the reasonable hopes that this will be delivered and beneficial to the government is some way. If the service or product is delivered meeting the reasonable expectations then this is great, and more funding is possible. If not, then no legal ramifications are expected but future grants will likely be denied.

To summarize, the difference between government grants and contracts is the legal aspect of default that is integrated into contracts. If an entity does not deliver a product or service as stipulated in the contract then the entity will default and be expected to compensate in some way or expect legal action. On the other hand, if delivery of service or product fails under a grant situation, then the minimum one can expect is denial of future funding.

Knowing what conditions you are working under, whether contract or grant, is very important. If you are under a contract based condition and have concerns regarding attaining goals or milestones then ensure that the contract has a “best efforts” clause.