Contracts vs. Grants: What's the Difference?

Federal Contracts vs. Grants

The federal government distributes money in several ways. The two most common are contracts and grants, and they serve very different purposes.

Federal Contracts

A contract is when the government buys something — goods or services — from a private company. Just like when you hire someone to fix your roof, the government is purchasing a specific deliverable.

Examples: - Building military aircraft (Lockheed Martin, Boeing) - Providing IT services to federal agencies - Constructing highways and bridges - Supplying office equipment or uniforms

Key characteristics: - The government specifies exactly what it wants - Companies compete through a bidding process - Payment is tied to delivery of goods/services - Governed by the Federal Acquisition Regulation (FAR)

Federal Grants

A grant is financial assistance given to support a specific activity or purpose. Unlike contracts, the government isn't buying something — it's supporting someone else's work.

Examples: - Research grants to universities (NIH, NSF) - Community development grants to cities - Education grants to school districts - Environmental cleanup grants to states

Key characteristics: - Recipients apply for funding - More flexibility in how money is used - Focus is on outcomes, not specific deliverables - Governed by the Uniform Guidance (2 CFR 200)

Other Types of Federal Spending

• --Loans: Money lent that must be repaid (student loans, SBA loans)
• --Direct Payments: Payments to individuals (Social Security, tax refunds)
• --Other Financial Assistance: Insurance, guarantees, and other mechanisms

How to Tell Them Apart on This Site

On The Federal Spending Digest, each award is tagged with its type — Contract, Grant, Loan, Direct Payment, or Other. You can filter by type on any browse page.