Categories of Government Contracts

Often when people think of doing business with the government, the first thing that comes to mind is the selling of goods or services. Procurements, especially large endeavors, are typically the type of transactions we associate with government spending. However, governments “spend” in ways other than procurements, particularly through grants and cooperative agreements. The U.S. federal government specifically uses three major types of instruments for spending: procurements, grants, and cooperative agreements.

Procurements are the most well known type of government spending. A federal procurement is the purchase of goods and/or services from a private entity (or from another federal agency). While a variety of vehicles exist for effectuating procurements, they are almost always memorialized in a contract that outlines the terms and conditions of the transaction. The Federal Acquisition Regulations are the primary governing rules of procurements, although often these same regulations can apply to grants and cooperative agreements. Typically, determining whether a transaction is a procurement is easy: if the government expenditure is for a product or service for government use, then it is a procurement. Despite the unique contract terms that appear when dealing with the federal government, the actual transaction is much like a commercial transaction: a buyer purchasing a good or service from a seller.

Grants are probably the second most well known type of government spending. Determining whether a transaction is a grant is a two pronged test: 1) is the expenditure in support or stimulation of an activity and 2) what will be the government’s role or involvement in the project the money is being used for. If there is little to no government involvement then the transaction is a grant. A federal grant is an award of financial assistance from a federal agency to a recipient to carry out a public purpose of support or stimulation authorized by a law of the United States. Federal grants are not federal assistance or loans to individuals. The primary regulation governing grants (and cooperative agreements) is 31 U.S.C. §§ 6301-6308, The Federal Grant and Cooperative Agreement Act. Unlike procurements, grants and cooperative agreements are typically used for research and development projects in which the government has an interest.

Cooperative agreements are likely the least known type of government spending. They are very similar to grants in that the expenditure is in support or stimulation of an activity; however, whereas the recipient of a grant deals with virtually no government involvement, a recipient of a financial award that requires a cooperative agreement to be negotiated and executed will have significant government involvement in the project. With cooperative agreements, often the financial award is a large amount for a sophisticated project that will require significant expenditures to a variety of parties. The government will enter into a cooperative agreement with a single entity (the prime recipient) and then the prime will make its own awards to other participants (subrecipients) or vendors. The government will work with the prime recipient to negotiate the terms of the cooperative agreement and will exercise rights to audit, to require reports, and to generally review every aspect of the project. Normally, the government’s role is to assist the prime and monitor that the expenditure is being used in the manner that it was intended and that the parties are conforming to the proper regulations regarding costs, audits, reports, flow downs, and the other required government imposed rules.

In summary, the federal government uses procurements, grants, and cooperative agreements to make expenditures. Procurements are contracts between the government and a private entity for the purchase of a good or service for use by the government. Grants and cooperative agreements are financial assistance awards where the determining factor is what the government’s involvement will be. With grants, there is little to no government involvement and with cooperative agreements there is substantial government involvement. The rules related to all three of these vehicles are complex and varied and sometimes overlap, so whenever you are considering bidding for a federal award of funds, be sure to know what type of award it is (procurement, grant, or cooperative agreement) and then review the rules that will apply to the transaction.