Grants: What’s the Difference Between a Vendor / Contractor / Subcontractor?
Recently, a foundation financial manager posed this question: “When we spend federal grant funds, we struggle with determining if we have a vendor relationship or a sub-grantee relationship with the entity. When is a contractor a sub-grantee or a vendor?”
Well, what does define a vendor / contractor / subcontractor? What makes a sub-grantee / sub-awardee / sub-recipient? And why are there so many darn synonyms for each of those concepts!? And are you supposed to hyphenate those words or not? Grammar discussions aside, let’s stick with vendor vs. sub-recipient (hyphenated!) for sanity reasons. In short, vendors sell you goods and services and sub-recipients complete (part of) the project. Confused yet?
Recipient, vendor and sub-recipient: What is the difference?
The Recipient is the organization receiving the award (aka: the grant…the money!). In the Federal contract world, a recipient is sometimes called the “Prime Contractor” because they have the full responsibility for the funds.
The Sub-recipient is involved in substantive activities of the award project. The recipient passes on some or all of its duties to the sub-recipient, who performs substantive work on the award project to accomplish the project’s purposes. All the terms and conditions from the grant award flow down to sub-recipients through the sub-award.
A Vendor, in contrast, is just a contractor who provides goods and/`or services to the recipient so the recipient can accomplish the project’s purposes. Selected terms and conditions might be passed through to the vendor.
Here’s an example: Homeless Shelter ABC gets a $1M federal grant to run a food program. Happy day! That’s a huge grant!
Homeless Shelter ABC sub-awards $200K of the grant funds to Homeless Shelter XYZ so their shelter can run a food program too, and more people will be served. Shelter XYZ is performing a part of the whole grant project. Shelter XYZ is given a copy of the grant award contract as an attachment to their contract. Shelter XYZ is required to follow all the terms of the grant award and reports back to Shelter ABC. Shelter ABC monitors XYZ’s progress since ABC is ultimately responsible for the whole $1M. Shelter XYZ is an example of a sub-recipient.
Now, Homeless Shelter ABC contracts with 123 Food, Inc. to buy food for their food program. They also contract with Manpower, Inc. to hire temporary staff to serve the food. Shelter ABC uses grant funds to pay 123 Food, Inc. and Manpower, Inc. 123 Food, Inc. and Manpower, Inc. are examples of vendors. They aren’t performing the project; instead, they are supplying goods and/or services to the recipient so the recipient can perform the project.
There are times it isn’t quite as clear. And honestly, half the time I think the plethora of synonyms for everyone creates half the confusion. The other time it gets tricky is when the project is very technical and a lot of technical grant requirements are passed through to the vendor. In those cases it can start to seem like it’s a sub-award even though its not. The takeaway is to think about whether you’re buying goods and services (even if very technical) or whether you’re outsourcing the responsibility for delivering the outcomes expected entirely. In the end that is usually the deciding factor.