What Is a Government Contract? And How Does a Contract Differ from a Grant?

This post was originally published on May 9, 2018 and updated on August 28, 2019.

We expect to hit some turbulence in this blog post, so we have turned on the proverbial fasten seat belt light.

The seemingly simple question, “What is a government contract?”, requires a complex answer. We have divided this blog post into four sections: (1) basic definitions, (2) five differences between grants and contracts, (3) examples of a grant and contract to illustrate these differences, and (4) resources for more information.

Basic Definitions of Grants and Contracts

First, is there even a difference between federal grants and federal contracts? Yes, the Federal Grant and Cooperative Agreement Act of 1977 set out to guide U.S. Federal government agencies in their use of funds – particularly by distinguishing between contracts, grants, and cooperative agreements.

• Contract – When the U.S. Federal government acquires (i.e., purchases or procures) goods or services from a non-federal entity.
• Grant – When the U.S. Federal government transfers anything of value from the Federal government to a non-federal entity to carry out a public purpose authorized by U.S. law.
• Cooperative Agreement – Very similar to a grant agreement. For this post, treat them as the same, and we have a resource at the end to explain the difference.

Have you noticed a critical contextual clue yet? We are referring specifically to the U.S. Federal government’s use of grants and contracts. The terms “grant” and “contract” are used across the private, public, and nonprofit sectors both domestically and internationally to carry out business. For our purposes, we are focused on the use of these terms when the U.S. Federal government is one of the parties involved.

5 Differences Between Grants and Contracts

To further clarify these definitions, here is a table contrasting the two:

The above table is based, in part, on the National Oceanic and Atmospheric Administration’s Connecting the Channels: Partnership in Grants Management presentation.

Examples to Help Us Land this Plane

Example of a Contract: Say the Department of Health and Human Services (HHS) was tasked to manage an e-government initiative that enabled all federal agencies to post grant opportunities on one website. That way, members of the public could find and apply for federal grants in one place rather than tracking them down across different agency sites.

HHS would put out a Request for Proposals (RFP) for companies to submit proposals. Then, HHS would review proposals and award a contract for the development and maintenance of this website. In this example, HHS knows it wants Grants.gov, so it procures services from a private sector company to develop that website.

Example of a Grant: In 2016, the 21^st Century Cures Act (Cures Act) was “designed to help accelerate medical product development and bring new innovations and advances to patients who need them faster and more efficiently” (21st Century Cures Act, FDA.gov). Sub-agencies within HHS, such as NIH, FDA, and the Substance Abuse and Mental Health Services Administration (SAMHSA), then published funding opportunity announcements on Grants.gov soliciting research and care consistent with the public purpose authorized by the legislation.

Eligible entities from the private and nonprofit sectors submitted grant applications, then these were reviewed and awarded by the grant-making agency. For the Cures Act, SAMHSA has awarded 57 grants totaling $485 million for the Opioid State Targeted Response grants as part of “HHS’ comprehensive five-pronged strategy to address the opioid crisis” (HHS provides states second installment of grant awards to combat opioid crisis, HHS.gov).

Hopefully, these two examples illustrate that a federal agency uses a contract to purchase goods or services (in this case a grant application system) for the work it is responsible to manage. Whereas a federal agency uses grants to solicit research and innovative ideas from non-federal entities to use their expertise to advance a public purpose (in this case opioid treatment through state governments).

We’ve Landed. Where to Next?

• If you are looking to grow your business with the U.S. Federal government as a customer, begin with USA.gov’s Introduction to Federal Government Contracting. This “Contracts vs. Grants” tutorial by the Small Business Administration is also a great resource.
• If you are considering a foray into the world of federal grants, begin with the Grants Learning Center and continue with the rest of our What Is a Grant? blog series—specifically What Is a Grant?
• If you are still wondering why we left out cooperative agreements, the What Is a Cooperative Agreement? post is for you.