Grant, Cooperative Agreement, or Contract: Three Instruments, Three Sets of Rules

The short answer. A grant and a cooperative agreement are both instruments of federal financial assistance governed by the Uniform Guidance at 2 CFR Part 200. The difference between them is the degree of federal involvement: under a cooperative agreement the agency anticipates “substantial involvement” in carrying out the activity; under a grant it does not (2 CFR 200.1). A contract is a procurement instrument governed by the Federal Acquisition Regulation, under which the government purchases goods or services for its own direct benefit. The distinction is fixed by the Federal Grant and Cooperative Agreement Act of 1977 and is not the agency’s to relabel.

The statutory test

The 1977 Act directs agencies to use a grant or cooperative agreement when the principal purpose of the relationship is to transfer something of value to the recipient to carry out a public purpose authorized by law, and to use a contract when the principal purpose is to acquire property or services for the direct benefit or use of the federal government.

The test turns on purpose, not on the nature of the work. A nonprofit that conducts a community health survey because a federal program exists to fund community health surveys holds a grant. A nonprofit that conducts the same survey because a federal agency needs the data for its own operations holds a contract.

Grants

A grant is the least intrusive instrument. The agency reviews the application, makes the award, and thereafter confines itself to oversight: receiving reports, approving budget revisions where prior approval is required, and monitoring compliance. Programmatic decisions belong to the recipient within the approved scope.

The governing rules are the Uniform Guidance, the agency’s implementing regulations, the terms in the notice of award, and any program-specific statute. Disputes are resolved through the agency’s administrative process.

Cooperative agreements

A cooperative agreement carries the same rules with one addition: the agency will participate. The notice of funding opportunity will describe the anticipated federal role, which may include approving key personnel, reviewing and approving work plans or curricula, participating in site selection, collaborating on evaluation design, or attending meetings as a working member of the project.

Recipients sometimes read “substantial involvement” as a warning. It is more usefully read as a description of the workload. A cooperative agreement will consume more of the project director’s time in agency communication than a grant of the same size, and that time is an allowable and budgetable cost. The instrument should be identified before the budget is built, not after.

Two practical differences follow. First, changes that a grantee could make unilaterally may require agency concurrence under a cooperative agreement, and the notice of award will say so. Second, the agency’s involvement does not shift responsibility. The recipient remains accountable for compliance and for the outcome, even where the agency approved the approach.

Contracts

A federal contract places the nonprofit in the position of a vendor. The government defines the deliverables, sets the price or the pricing method, and takes title to the work product. The Uniform Guidance does not apply. The Federal Acquisition Regulation does, along with agency supplements, and the contract’s terms are enforced through the contracting officer rather than a program officer.

Contracts carry requirements that assistance instruments do not: cost accounting standards above certain thresholds, specific invoicing formats, more rigorous audit rights, and, where applicable, requirements under the Service Contract Act. A nonprofit that has only held grants and accepts its first federal contract will find that its financial systems need adjustment, and that “indirect cost rate” and “overhead rate” are calculated differently and are not interchangeable.

The distinction also bears on a subrecipient-versus-contractor determination at the next tier down. A nonprofit that holds a federal contract and engages a partner organization is procuring, not subawarding, and the partner is a subcontractor governed by the flowdown clauses of the prime contract.

Identifying the instrument

The notice of award states the instrument type. The Assistance Listing entry on SAM.gov states the type or types of assistance available under a program. The notice of funding opportunity states which instrument the agency intends to use and, for a cooperative agreement, describes the anticipated involvement.

Where the documents are silent or inconsistent, the question to the program officer is a legitimate one and should be asked before acceptance. An organization that accepts an award without knowing whether it is a grant or a cooperative agreement has agreed to terms it has not read.

Regulatory references: Federal Grant and Cooperative Agreement Act of 1977, 31 U.S.C. 6301 through 6308; 2 CFR 200.1 (definitions of “Federal financial assistance,” “grant agreement,” and “cooperative agreement”); 2 CFR 200.201 (use of grant agreements, cooperative agreements, fixed amount awards, and contracts); Federal Acquisition Regulation, 48 CFR Chapter 1.

This article is general information about federal grant administration. It is not legal advice.