What Is a Grant Agreement?
A grant agreement is an award of money by a sponsoring agency to provide research, technical assistance, or evaluation services for a specific program pursuant to a competitive, merit-based review process. Most often, the money being awarded is of a public nature, and the agreement outlines the terms and conditions of the award and expectations of the awardee once the money has been awarded to them. The purpose of a grant agreement is the expression of intent to make a public sector monetary award to someone to carry out a specified activity of interest to the sponsor. Grant agreements are voluntary and no one can force another person to enter into one. Individuals, corporations, and nonprofit organizations can all be recipients of grants. For example , a nonprofit called Smith Foundation may regularly apply for grants to give children in need in its area Christmas gifts. It may receive funding from the local charity offer such a grant to be used expressly for these toys. Similarly, the government may offer grants or awards to nonprofit groups to develop new technologies or programs that can later be used in the commercial realm. A not-for-profit may then receive funding from the government for the research and development of a smartphone app that will help the elderly navigate emergency rooms. Universities and other places of public learning may also receive grants and agreements to conduct scientific research of various kinds, such as a grant designed to coordinate a nationwide study of pain levels in patients suffering from arthritis.
Key Elements of a Grant Agreement
While every grant is different, most contain certain consistent elements. First and foremost, they include a description of the scope of work. This crucial document component encompasses the project’s goals, objectives, key participants, and proposed methodology. It addresses the tasks that will be performed and the deliverables that will be provided. If selected for funding, this plan provides a clear and concise picture to the grantor on how the money will be spent and what will be achieved. Alternatively, it serves as a useful document for the recipient in determining whether the funds have been expended in accordance with the agreed upon use.
Establishing a budget is another key component of a grant agreement. This is vital not only to the grantor so that it knows what costs the recipient will, or will not, be seeking reimbursement for, but also to the recipient so it can determine whether the costs to be incurred are consistent with its existing costs. The budget is usually hard capped, meaning the total amount of funds available for reimbursement cannot be exceeded.
A timetable elements the award documents what tasks will be performed and when. Drafting the timeline can be critical. This element is sometimes used in determining whether grant requirements have been complied with. Further, while grant dollars are hard capped, there is typically a "period of performance" during which expenses can be reimbursed. This "period of performance" is the time specified in the award where the costs that have been approved for reimbursement can be incurred.
The grant agreement will also contain a number of Reporting Requirements. For example, grant recipients are typically required to file both financial and performance reports. These are used by the grantor to ensure that its funds were spent appropriately and that the grant recipient accomplished the goals and objectives set forth in the award. It is important to keep in mind that while a grant agreement typically requires interim reporting, it may not count that reporting toward the total cost of the award. In other words, if the initial agreement has a not to exceed budget of $100,000 and the recipient incurs $50,000 in reported expenses, the remaining amount may not be reduced to $50,000. There may be another reporting requirement that will reduce the total award amount.
Types of Grant Agreements
Grant agreements can take many forms and are not confined just to government grants. Individuals, corporations, and private sector organizations are also increasingly awarding grants. The types of grants available can be divided into the following categories.
Federal Grants:
These grants are awarded by federal departments and agencies such as the National Institutes of Health, the National Science Foundation, the United States Department of Agriculture, and the National Endowment for the Humanities, to name a few. Federal grant proposal processes tend to be very competitive. Only the most innovative ideas and proposed research tend to receive funding. These proposals also have the word "Grant" in the title. For example: "Grant No. XXX-XXXXX."
State Grants:
State governments also award grant funding. It should be noted that states also provide funding through other forms, such as tax incentives. These grant proposals are similar to those awarded by federal agencies, and therefore they use the same title language as described above.
Corporate Grants:
Many corporations offer grant funding as part of their Corporate Social Responsibility, or CSR, program. While smaller companies may only occasionally offer small grants, many larger, publicly held companies offer sizeable corporate grants for a variety of purposes. A sample list of corporations that offer awards is identified here.
Foundation/Philanthropic Grants:
When seeking funding from foundations, there are several key differences as compared to government grants. To begin with, the language used on the application may vary. In some cases, it may be referred to as a "Proposal" or an "Invitation Letter." Some foundations require applicants to submit an "Intent to Apply" (sometimes called a Letter of Inquiry or a Request for Proposals). Most foundations do not require an MOU or a Grant Agreement. That being said, any such agreement that is furnished to you should be reviewed for issues such as required insurance coverage, indemnification, prohibited uses of grant funds, and reporting requirements.
Legal Advice Around Grant Agreements
When entering into and executing a grant agreement, it is important to consider the legal terms and clauses that are included in such agreements. Certain legal words and clauses can impose significant obligations or protections that are not always apparent in the day-to-day execution of a grant agreement by the parties involved.
Indemnity – it can be fundamental to the law of contract that a party may, if properly advised, contractually indemnify another party for all or part of a liability that would normally fall directly on the other party. Broadly, it may be said that an indemnity is an undertaking by one person to save another from being liable for the loss or loss of profit arising from a particular event.
Where an indemnity is well drafted, it will have the effect of taking the risk of a particular event away from the party which would otherwise have borne it and placing it instead on the indemnifying party. An example of an indemnity in a grant agreement may be: "If as a result of the Grant, an Intellectual Property Right has arisen to which a Grant Recipient has title ("Grant IP") and a third party claims that the Grant IP infringes an Intellectual Property Right of the third party, then the Grant Recipient grants to the Corporation at no cost to the Corporation a full, complete , free and unfettered license to use the Grant IP in accordance with this Agreement". It is important to understand the implications of entering into such an indemnity and this may require independent legal advice.
Intellectual Property – In the execution of a Grant Agreement, there are likely to be a number of issues revolving around intellectual property rights. Ownership of intellectual property rights arising as a result of the grant may be retained by the grant recipient but the grantor (or the funder) may also be granted an unrestricted royalty-free license in the grant recipient’s rights to use, reproduce and sub-license any intellectual property created as a result of the grant. Where the funds are provided, say, by way of a loan (rather than a grant of funds), it is likely that a form of security over the right to any royalties or license which may arise will be taken to ensure an adequate return on investment.
Termination – generally, either party may terminate the grant agreement for any reason at any time on one month’s written notice to the other. Alternatively, in certain circumstances, a party may terminate a grant for any default by or breach of the terms and conditions of such grant by two weeks’ written notice to the other party.
It is important to bear in mind that the provisions set out above are examples only and may not apply to every grant agreement. It is always necessary to carefully consider the terms and conditions of a Grant Agreement before execution and to take legal advice where appropriate.
Common Issues and Solutions
One of the most common problems that can arise in grant agreements is a conflict over compliance issues. Existing grants conditions, such as circulars, may be difficult to interpret, poorly worded or contradictory to the terms of the grant agreement itself. Unclear terms of reference can lead to uncertainty over what is an allowable cost and what is not, who can be paid what, what can and cannot be funded out of a grant and how the money can be used. Again this can lead to arguments as to what can be legitimately paid from within the scope of a grant agreement. Sometimes, when an organisation or individual has never received a grant agreement before, they may not understand what is required of them and may not have the right systems and controls in place. Poor record keeping can also complicate matters swiftly.
Funding bodies may also dispute whether some work is within the scope of a grant agreement and may even want to recover money that has already been spent. This often happens when the purpose of the grant programme has changed, or the funding body chooses to re-focus on a different area. Changes in circumstances, not however provided for in the terms of the grant agreement, may also mean that the funding body thinks the original intentions of the grant agreement are no longer appropriate.
Subcontracting of work can also produce a range of challenges. The grant agreement may require certain conditions to be satisfied before a subcontractor is appointed. The grant recipient may be under pressure from a subcontractor because of the terms of their appointment, or a subcontractor may be unhappy with the terms of the grant agreement. A poorly drafted subcontract can also lead to a joint liability between the grant recipient and the subcontractor.
The approach to an intervention will largely depend upon the attitude of the funding body, but they can take a hard line. At worst, the funding body could terminate the grant funding and/or require repayment, sometimes at fairly short notice.
It is important to read all the small print of the grant agreement and any associated funding documents carefully and seek advice promptly if there is any uncertainty over their interpretation. Even apparently minor amendments can have a significant impact and so it is worth checking back in with the funding body every so often to clarify any points or obtain further guidance to avoid later problems.
Grant Agreement Best Practices
Best practices for grant agreements include precise, unambiguous language that clearly lays out obligations, rights, and dispute resolution processes. The agreement should always be reviewed by legal counsel to ensure both understanding and compliance; even if a donor/client does not find this necessary, it is the proponent’s responsibility to provide such review for their own protection . Grant agreements should be regularly updated as soon as agendas change or circumstances warrant an amendment, to ensure they always reflect the most up-to-date information and provide the best overview of the work being done.