Government Contracts Monitor

Government Contracts v. International Grants

January 8, 2009

Ever wondered how a government contract differs from a grant or cooperative agreement?  Both are just contracts with the Federal Government, right?  Not quite.

The fundamental difference is that in procurement, the Government is acquiring a good or service for the use of the United States Government – whereas, with grants, the Government is primarily assisting another entity.  However, grants are not just “gifts” – they are a form of contract that comes with certain strings attached.

According to Harold L. Cohen, Deputy Assistant General Counsel for Democracy, Conflict and Humanitarian Assistance at USAID, the application of the grant-specific rules depends upon what kind of entity the Government is granting funds to.  During a brown-bag lunch with the Federal Bar Association’s Government Contracts Section, Mr. Cohen explained that there are three groups of international grantees that his program typically works with: (1) non-government organizations [e.g. Peace Corps, Catholic Relief Services, etc.]; (2) public international organizations [e.g. United Nations, International Committee of the Red Cross]; and (3) foreign governments.

The rules affecting US-based NGOs are similar to those affecting many government contractors.  Grants are usually competitively awarded, NGOs are subject to Government audits, and certain sourcing restrictions apply.  However, Cohen pointed out that NGOs operating overseas must be cautious about international tax and compliance issues related to working outside of the United States, and may want to consider subcontracting or teaming with a local NGOs to manage grants.  For the complete rules see here.

Issuing grants to public international organizations and foreign governments also raises a host of unique legal issues.  For one, these entities rarely allow U.S. Government audits.  Nor are they bound to U.S. law – USAID is often forced to link to UN resolutions or to interpose entire statutes into grants to these entities. 

Other unique problems arise in the world of international grants – for one, international grantees must carefully comply with laws preventing aid to terrorist groups in the Middle East and elsewhere.  The Foreign Corrupt Practices Act is another area of concern.  Mr. Cohen also noted that his office has dealt with the seizure of U.S. grant-property by foreign governments – an issue that raises difficult sovereign immunity issues for the Government.

This article was authored by Samuel W. Jack, Jackson Kelly PLLC.