In most of our articles on this page, we talk about how you can write a proposal for a grant. In the last decade, some bilateral donors have moved away from grants though. They deliver more and more of their aid in the form of contracts. But what does that actually mean and what are the differences between a grant and a contract? Learn everything you need to know in this article.
The main difference between a grant and a contract is the expectation the donor has of the agreement. In a contract, you agree on specific results and outcomes that your organization has to achieve. If you cannot achieve them, you might have to face repercussions. Contracts are normally used in the private sector when two parties make a deal about something that should be done. One party agrees to pay a certain amount of money and the other party agrees to do the task.
A grant is based on similar premises, but it is understood that the organization executing the project or program cannot guarantee the success. There will be certain rules on how money can be spent and the grantee has to do his or her best, but there will be no legal repercussions in case of failure. The grantee might not win a grant again if they cannot deliver on their proposal, but they will not be punished for their failure.
Why do donors want to use contracts instead of grants?
Specifically, in the last decade, the pressure on development cooperation has become much higher. While industrial nations have spent billions of dollars on development cooperation, the results were not always satisfying. In many cases, the residents of the donor countries demand more accountability now and do not want to keep sending money without being sure of the results. Contracts seem to be a good tool for these cases because they bring the private sector into the game and could make development cooperation more effective.
At the same time though, development cooperation should not be a business. Concentrating only on results and holding organizations responsible for potential failures does not consider the nature of development cooperation as something different than a business. Entering into a contract is much riskier than accepting a grant and thus excludes many small organizations that do not have the safety net for this kind of venture.
What does this mean for NGOs?
Luckily, for now, contracts are only common in bilateral development cooperation and much less so when working with foundations or other private donors. Nevertheless, the trend shows that accountability is more important than ever. Even when you are working under a grant, you should be very careful to document exactly what you are doing and what your results and outputs are.
If you want to enter into a contract agreement, it is best to do so in partnerships with other NGOs. The administrative structure that is needed to succeed in these kinds of arrangements is very complicated. If you do not have the first-hand experience with it, you should get someone on board who does. Also, this way you can share the high risk that is associated with contracts.
