Grants and contracts - Refugee Council
March 9, 2012

Grants and contracts

A guest post by NCVO

Over the last ten years, voluntary and community organisations have played an increasingly significant role in delivering public services. Now about 1/3 of the income community and voluntary organisations receive is to deliver public services.

This funding obviously represents opportunities for organisations to grow their work. However, it’s not without risk. In the next few weeks, these blogs from NCVO’s Public Service Delivery Network explain some of the basic facts and risks to help you decide whether delivering public services is suitable for you.

Grants and Contracts: what’s the difference?

Originally, most money for public services has come in the form of grants income. Changes in the law though (Public Contract Regulations 2006) have encouraged public bodies to manage these relationships through contract rather than grant funding. This creates clearer accountability and changes the way the risks and liabilities of delivering services are shared, and even whether VAT should be paid.

Truthfully, it can sometimes be hard to distinguish the difference between grants and contracts, especially as many grants are changed into contracts over a period of time. In law, it isn’t what you call the agreement that matters: it’s what’s in the content that determines the legal status. So the first rule is: always read carefully.

Grants are funds given to support the work in organisations which add value to the work of a public body, but aren’t their core business to deliver. Contracts on the other hand tend to be for services which public bodies – under government statute – have to ensure are delivered.

Legally, grants tend to have very little weight beyond the agreement to deliver a service, and perhaps to pay back any surplus money at the end. Contracts on the other hand have to adhere to the complexities of Contract Law and will therefore include sanctions, liabilities and demands for guarantors. Failure to deliver a contract therefore results in heavier penalties than failure to deliver a grant. Organisations have to understand the implication of this.

To be sure whether you’re signing a grant or contract, look at this contract checklist (PDF 49kb) or read more about the difference between the two.

Always make sure you know what you’re signing, and if in doubt, speak to a solicitor or ask a voluntary organisation with more experience of contracts and law.

You can also join NCVO (organisations under £10,000 join for free) and organisations with an income under £500,000 can access free legal advice through our helpline. See membership details to join now.