Grants and Contracts Basics

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Digital Square aims to enable the global digital health community to move beyond the stasis caused by perpetual piloting of experimental projects, strengthen the existing ecosystem for digital health investments, and encourage new investments from traditional and nontraditional donors.

Pursuant to the above, Digital Square supports identifying and accelerating the use of global goods at the country level while supporting development of new technologies through the global goods investment process.

PATH is the prime recipient for the Digital Square grant. Therefore, Digital Square Investments in Global Goods is provided through subawards from PATH (e.g., subagreements or subcontracts for grant or contract funding, respectively, as appropriate per the solicitation type and scope of work). Due to the collaborative nature of engagement with subawardees, PATH frequently employs a cost-reimbursement (CR) payment mechanism in order to allow for more significant modification over the term of the subaward, if required. For more information, please review the Global Good Investment Process for implementers.

This page will introduce key elements of the grants and contracts described above.

Solicitation Types

A solicitation is an attempt for an entity to obtain services. There are two types of solicitations: a request for application (RFA) or a request for proposal (RFP). The type of solicitation indicates the type of contracting vehicle (e.g. grant or contract), and therefore will characterize the purpose of funding and expected relationship between entities.

Request for Application
An RFA will result in a grant to support programmatic objectives.
Request for Proposal
An RFP will result in contract to procure goods or services.

Contracting Vehicles

The contracting vehicle characterizes the purpose of funding and the relationship between entities. There are two types of contracting vehicles: grants and contracts.

Each contracting vehicle may be implemented through a variety of legally binding documents once fully executed by designated signatories from each contracting entity.

It is helpful to use the terms “grant” and “contract” appropriately to avoid confusion. Although both terms indicate legality, grant implies a collaborative arrangement between parties to define the scope of work. While a contract indicates a scope of work prescribed by one party to be completed by another party. This simple distinction will communicate a significant difference to the audience about the expectations of the relationship between entities.

Grants

A grant is a type of legal instrument of financial assistance to carry out a public purpose.[1] A cooperative agreement is a type of grant agreement that often requires the funder’s prior approval in specific areas that are determined and identified by the funder.[2]

The purpose of a grant is to transfer funds in order to support or carry out a public purpose. The relationship between entities is defined by collaboration to achieve programmatic objectives. This means that the recipient may have its performance measured against programmatic objectives; has responsibility for programmatic decision-making; and is responsible for adherence to funder requirements. The recipient’s primary responsibility is to satisfy the direct beneficiaries.

Grant Payment Types

  • Cost Reimbursement
A cost reimbursable (CR) grant provides payment based on actual costs. CR grants can be easily modified and allow for changes in scope, term, and budget. This payment type also lends itself well to multi-year grants for which quick start-up is needed, but the scope of work for later years is not fully defined. Reconciliation of costs via financial reporting also make it possible to issue advances (up to 20%) when needed and ensure recipients have adequate cash on hand to complete activities.
  • Fixed Amount
A fixed-amount grant provides the funder a specific level of support without regard to actual costs incurred by the recipient[3] —for example, a grant based on milestone (i.e., payment is based on completion of an activity). Following funder review of a detailed budget to assess the validity of proposed expenses, prices are assigned to each milestone or deliverable by the parties. The assigned prices cannot change once confirmed in the fully executed grant.
This payment type is suitable for short-term projects with well-defined scopes. Accountability is primarily based on performance and results.

Contracts

A contract is a legal instrument to acquire goods or services for the funder’s direct benefit or use.

The purpose of a contract is the exchange of funds for good or services. The relationship between entities is defined by procurement, with the funder as a buyer and vendor as a seller; furthermore, it is directive and transactional. The contractor’s primary responsibility is to satisfy the funder.

Contract Payment Types

  • Cost Reimbursement
A cost reimbursable (CR) contract provides payment of allowable incurred costs to the extent (e.g., total cost or ceiling) prescribed in the contract.[4] This payment type also lends itself well to multi-year grants for which quick start-up is needed, but the scope of work for later years is not fully defined. Reconciliation of costs via financial reporting also make it possible to issue advances (up to 20%) when needed and ensure contractors have adequate cash on hand to complete activities.
  • Fixed Firm Price
A fixed firm price (FFP) contract provides payment that is not subject to any adjustment on the basis of the contractor’s cost experience in performing the contract.[5] Accountability is primarily based on performance and results. Payment is based on funder acceptance of the designated outputs.

Contracting Tiers

There are different levels of contracting, which are defined by how far an entity is from the original source of funding (i.e., a tier). After first, second or third tier, the term used to describe the entity within a tier will also indicate the contracting vehicle. The level of technical involvement and oversight by a pass-through entity will vary depending on the funding type.

If an entity is engaging in a subaward, the entity may be referred to as a pass-through entity. A pass-through entity will describe an entity at any tier between the funder(s) and the last point of funding.

Grants and Contracts 1.png

First Tier

The first-tier entity receives funding directly from the funder and is referred to as a prime awardee. In a grant, the funder may be referred to as a donor and the awardee as prime recipient. In a contract, the funder may be referred to as a buyer and the awardee the prime contractor. The prime has a direct relationship with the funding entity—hence, first tier. For example, PATH is the first-tier or prime awardee for Digital Square.

Second Tier

If the prime recipient or contractor requires external inputs to accomplish the work required by the funder, the prime may, if allowable per the terms of the grant (as a recipient) or the contract (as a contractor), engage another entity to perform the designated work. This makes the prime a pass-through entity, as funds are passing through it to another entity.

The second-tier entity that receives funding from the prime is referred to as a subawardee. The prime will determine the contracting vehicle (e.g., grant or contract) which in turn will indicate whether the subawardee is a subrecipient receiving a subagreement or subcontractor receiving a subcontract.

If the prime employs a grant (i.e., subagreement), the subrecipient should expect a greater level of technical oversight. If the prime offers a contract (i.e., subcontract), the subcontractor should expect a limited level of technical oversight.

The subawardee’s relationship to the original source of funding is one step removed—hence, second tier. These entities do not have direct relationships with the funding entities. For example, funding provided by Digital Square through the Procurement Processes and Global Good Investment Process are to second-tier awardees or subawardees.

Third Tier

If a subawardee requires external inputs to accomplish the work required by the prime, the subawardee may, if allowable per the terms of the grant agreement (as a subrecipient) or contract (as a subcontractor), engage another entity to perform the work.

The third-tier entity that receives funding from the subawardee is also referred to as a third-tier subawardee. The subawardee will determine the contracting vehicle (e.g. grant agreement or contract), which in turn will indicate whether the third-tier subawardee is a subrecipient that receives a subagreement or subcontractor that receives a subcontract.

If the subawardee employs a grant (i.e., subagreement), the third-tier subawardee should expect a greater level of technical oversight. If the subawardee offers a contract (i.e., subcontract), the third-tier subawardee should expect a limited level of technical oversight.

The subawardee will follow its internal policies to the extent allowable by the funders and flow down all funder and prime provisions from its subagreement or subcontract from the prime awardee. The relationship to the original source of funding for the new subawardee is two steps removed—hence, third tier. For example, funding provided by a subawardee, who is funded by a Digital Square investment, to another entity is a third-tier subawardee. Since the prime does not have a direct relationship with the third-tier subawardee, generally, third-tier subawards carry greater risk for the prime.

Summary

Please see below for a summary of terms introduced in the solicitation types, contracting vehicle and contracting tiers sections above.

Grants and Contracts 2.png

Terms and Conditions

The terms and conditions and subsequent donor rules and regulations in a grant agreement or contract will be determined by the funding entity and contracting tier. The governing document for project implementation will be the fully signed grant agreement or contract, which will detail these requirements. For example, see below for a summary of compliance requirements by funding type for the United States Agency for International Development (USAID), Bill & Melinda Gates Foundation (BMGF), and Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ), respectively.

USAID

Contracting Vehicle Grant (Assistance) Contract (Acquisition)
Definitions 2 Code of Federal Regulations (CFR) 200 Subpart A Federal Acquisition Regulation (FAR) Part 2
Governance 2CFR200, Standard Provisions (US/Non-US) FAR, USAID Acquisition Regulation (AIDAR)
Cost Principles 2CFR200 Subpart E FAR Part 31; 2CFR200 Subpart E
Audit 2CFR700 FAR52.216-7; 2CFR200 Subpart F

Bill & Melinda Gates Foundation

Contracting Vehicle Grant
Definitions Glossary of Terms, Tax Status
Governance Strategies, Making Investments, Investment Policy, Evaluation Policy, Open Access Policy, Commitment to Grantees
Cost Principles Indirect Cost Policy

GIZ

Contracting Vehicle Grant Contract
Governance Procurement & Financing, Framework General Terms & Conditions, Consultancy Services
Cost Principles Financing Cost Management, Financial Guidelines Financing Cost Management, Financial Guidelines
  1. Exec. Order No. 31 U.S.C. 6302, 6304, 2 C.F.R. § 200.51.
  2. Exec. Order No. 31 U.S.C. 6302-6305, 2 C.F.R. § 200.24.
  3. Exec. Order No. 31 U.S.C. 6301-08, 2 C.F.R. § 200.45.
  4. 48 FAR § 16.301.
  5. 48 FAR § 16.202-1.