The terms grant, contract, award, subaward, subgrant and subcontract are often used interchangeably as funds move among institutions involved in federally supported research and education. As a result, the various organizations that administer the funds often are uncertain about the reporting requirements for the money they are expending. The following guidance is intended to help VA-affiliated nonprofit corporations (NPCs) correctly identify federal funds as they are received so they may managed and reported appropriately.

From the discussion below, it will quickly become apparent that the key to appropriate management is accurate identification of awards as grants or contracts. Use the schematic chart provided as Attachment 1 as a tool to help navigate the determination process discussed below.

1. Grants and Cooperative Agreements: A federal grant or cooperative agreement provides a sum of money to assist, stimulate or support an activity. Money associated with grants and cooperative agreements retains its identity as federal assistance regardless of whether it is awarded directly to the grantee or subgranted one or more times. OMB Circular A-133, Audits of Institutions of Higher Learning and Other Non-Profit Institutions, Section 210, Subrecipient and vendor determinations (Attachment 2) provides guidance on distinguishing between a subgrant and a contract under a grant. In the case of a grant or subgrant, the benefit generally flows from the government to the grantee or from a pass through entity (grantee) to the subgrantee or subrecipient. The ultimate beneficiary is the public.

2. Contracts: A federal contract is used by the government to acquire, buy, purchase or procure goods and services from contractors. Essentially, the federal government is the buyer, and the contractor is the seller.

1. Direct grants and cooperative agreements: When a federal agency (NIH, CDC, DOD, DOE, etc.) makes a grant directly to an NPC, the award consists of federal funds which must be treated in accordance with specific requirements such as OMB Circular A-110, Uniform Requirements for Grants and Agreements with Institutions of Higher Education, Hospitals and Other Nonprofit Organizations.

An NPC that receives one or more federal grants or cooperative agreements must develop a Schedule of Expenditures of Federal Awards at the end of its fiscal year. If total expenditures under the grants (and any subgrants) add up to $500,000 or more, the NPC must undergo an A-133 audit.

2. Pass through grants (subgrants): Often a federal grant is made to an organization that subsequently uses some or all of the money to make subgrants to other organizations. The primary grantee, which may be a state or local government unit, a university, a private company or a nonprofit, in effect becomes a “pass through entity.” OMB Circular A-133, Section 400 (d), Pass through entity responsibilities (Attachment 3), assigns to the pass through entity responsibility for informing subrecipients/subgrantees about the nature of the money being provided and the requirements imposed on the subrecipient/subgrantees.

If a pass through entity does not volunteer information that defines the type of money being provided (federal or non-federal) and the relationship between the pass through entity and the NPC (subgrantee or contractor under a grant), it is incumbent on an NPC to inquire. Often, the best way to ensure a response is by calling the primary grantee's attention to OMB Circular A-133, Section 400 (d) (1), Pass through entity responsibilities (Attachment 3).

The first paragraph of an agreement between a pass through entity and a subrecipient/subgrantee should define the type of money being provided and the relationship between the organizations. For example, “This is a subgrant of federal financial assistance between Organization A (hereinafter referred to as Primary Grantee) and Organization B (hereinafter referred to as Subrecipient or Subgrantee).”

An NPC that receives one or more federal subgrants (or grants) must develop a Schedule of Expenditures of Federal Awards at the end of its fiscal year. As noted above, if total expenditures under the subgrants (and any grants) add up to $500,000 or more, the NPC must undergo an A-133 audit.

When an organization receives a contract from the federal government to provide goods or services, the contract document explicitly states that it is a federal contract and it is readily apparent that the recipient is a federal contractor. The award received from the government pursuant to the contract must be managed by the primary contractor in accordance with Federal Acquisition Regulations (Title 48 Code of Federal Regulations).

If an NPC receives a contract directly from the federal government and the contract is cost reimbursable (as opposed to fixed price), the contract expenditures generally must be reported on the Schedule of Expenditures for Federal Awards under Circular A-133. Amounts expended under direct fixed price contracts and under subcontracts generally are not reported on this schedule.

Contracts and Subcontracts Under Grants

Often, a primary grantee will contract with another organization such as an NPC to perform some of the work being done pursuant to a grant. That is, using grant money, the primary grantee will buy goods or services from a contractor. This is called a “contract under a grant.” In a contract under a grant, the primary grantee develops the scope of work and determines who can perform it best by relying on its own procurement procedures.

For example, a university (the primary grantee) may contract with an NPC (the contractor) to perform some of the data analysis required for a research project for which the university received an NIH grant. Because the university is making a purchase (not making a subgrant or providing assistance), the NPC is a contractor, though not a federal contractor. The NPC will not report expenditures pursuant to the contract under a grant on the Schedule of Expenditures for Federal Awards.

To carry this one step further, the NPC (the contractor) may in turn decide to contract with another entity, such as a private sector company, to perform especially complex data analysis. In this case, the private sector company is a subcontractor of the primary grantee (the university in this example). However, the subcontractor (the private sector company) has no contractual relationship with the primary grantee (the university). Again, the NPC will not report expenditures pursuant to the subcontract on the Schedule of Expenditures for Federal Awards under Circular A-133.

Keep in mind that A-133, Section 210 (d), Use of judgement in making determination (Attachment 2), recognizes that these relationships are not always clear cut. Many primary grantees are ambiguous about relationships with subgrantees and contractors in their award documents. Therefore, it is often best to obtain clarification from the primary grantee/pass through entity regarding the nature of the award. It is extremely important that an NPC keep its accountant informed about the work it is doing in order to ensure accurate reporting. How to report grants and contracts on an Internal Revenue Service Form 990 is often subjective, but the final determination should be based on analysis of the best information available.

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Other useful information is available on the NIH Grants web site located at http://grants.nih.gov/grants

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