Subawards vs. Contracts

Subawards and Contracts
Know the difference, avoid the pitfalls

By Rita Lewis

Subaward or contract? What’s the difference, and why should you – the grant writer, the grant winner, the grant manager – care?

The distinction is one of the finer points about grants that everyone, sooner or later, needs to master. Whether you’re involved with a large research grant or a small award from a community foundation, subawards and contracts play significant, but unique, roles that affect proposal writing, project management, and accounting.

The particulars
Simply put, subawards are program awards to subrecipients, and contracts are payments to contractors for goods or services. To elaborate…

OMB Circular A-133, the federal government’s guidance on the matter, groups subrecipients with award recipients. Like grant recipients, subrecipients measure performance against program objectives, comply with award requirements, use funds to carry out program activities, and makes programmatic decisions. Collaborating partners often receive subawards to carry out grant activities for the applicant.

Contractors, on the other hand, provide goods and services “that are ancillary” to program operations. Contractors are not subject to compliance requirements of the grant. There is more distance in this relationship, often characterized as procurement.

The Environmental Protection Agency provides several examples of subawards vs. contracts in this PDF.

  1. If State University gives funds to City College to conduct a research project, it’s a subaward – City is making decisions about how to design and conduct the research. But if State pays City to review research studies that State selects, it’s a contract – City is simply providing a service, not making programmatic decisions.
  2. Paying an accountant for payroll services is a contract; the accountant provides support for the grant program, but isn’t directly involved in program activities, and operates in a “competitive environment.”

The pitfalls
What if you name someone a contractor when they’re actually a subaward recipient, or vice versa? Is that so bad?

According to the Federal Assistance Law Division, it is: misclassification can result in disallowed costs and unnecessary audits. The Office of Sponsored Programs at Oregon State University warns its grant recipients that improper distribution of funds to outside entities could lead to disapproval of its procurement system, more frequent audits, or perhaps even loss of an award.

What if an alert reviewer spots mistakes in your grant proposal, or your budget? Grant competitions are so fierce that you can’t afford mistakes. If the request for proposals is unclear, call a program officer for clarification.

It’s on you
A few points to remember:

  • A subaward is “under” the main grant award; the grant recipient receives the funds and passes them through to the subrecipient.
  • A contractor provides goods or services to the grant recipient, and a subcontractor provides goods or services to the contractor. To avoid confusion, don’t misuse the terms.
  • As the White House OMB circular points out, the “substance of the relationship is more important than the form of the agreement,” and grant recipients must sometimes make a judgment call about whether to employ a subaward or a contract.

For more guidance on subawards and contracts, see OMB Circular A-110, and guidelines from NC State University and the National Institutes of Health.


 

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