Who This Page Is For
You manage grants, compliance or programs at a nonprofit or NGO, and you are about to sign an agreement with another organization that will be paid out of a funded project. Somebody has to decide whether that organization is an implementing partner or a vendor. You may not have a legal office or a sponsored-programs team to ask. This page gives you a way to make that call yourself, and to make it before anything is signed.
The Short Answer
Subaward and procurement contract are two answers to one question: what is this organization actually doing for the project?
A subaward funds another organization to carry out part of the funded program itself. A procurement contract buys goods or services you need for your own use, and it creates an ordinary buyer and seller relationship.
Settle it before you sign. The two carry different rules on profit, reporting and budgets, and a wrong call can mean reworking your budget later.
How They Differ
Procurement is also the discipline of buying well: getting the best balance of price, quality and performance while cutting the risk of fraud, waste and abuse. The table below compares the two arrangements.
| Feature | Subaward (subrecipient) | Procurement contract (contractor) |
|---|---|---|
| Relationship | Funding relationship, much like yours with your funder | Buyer and seller |
| Purpose | Carry out part of the funded program | Supply goods or services you need |
| Profit | Generally not allowed | Generally allowed |
| Reporting | Financial and performance reports | Generally no reporting on how the money was spent |
| Records access | You, the funder and auditors can see records | Buying from them does not bind them to the program's compliance requirements |
| Costs | Must follow cost-allowability rules | Chosen through a competitive process |
| Judgment | Decides how the work is done | Delivers to your specification |
| Closeout | Follows the award closeout process | An ordinary buyer and seller relationship, not a funding one |
These rows come from one source of grant rules. Other funders may differ, so check your own funder's terms.
Profit is one useful sign, though not a decisive one. A subrecipient generally may not earn a profit, while a contractor generally may.
A useful shorthand: a subrecipient shapes the program and carries a real share of the funded effort. A contractor supplies something to the project, usually billed by the hour, by the day or at a fixed fee.
How to Decide
Look at what the partner will really do, not at what the paperwork calls it. Put these questions to the arrangement.
- Who decides how the work is done? If the partner exercises real judgment over how the funded work is carried out, lean toward a subaward. If it simply delivers what you specify, lean toward procurement.
- Who decides who benefits, and how will you judge it? If the partner itself decides who is eligible to receive assistance under the program, that points to a subaward. If the partner's performance is judged by whether the program's objectives were met, that points toward a subaward. If it is judged by a fixed deliverable arriving to specification, that points toward procurement.
- Is it a normal business for them? A party selling the same goods or services it sells to many customers in a competitive market looks like a vendor. A party brought in to help carry out the funded program does not.
- Is the work ancillary? If the goods or services sit at the edge of the program, and buying them does not bind the seller to the program's compliance requirements, that points toward procurement.
Then ask the framing question: how does what the partner will do relate to what you committed to your funder to accomplish? If they deliver part of that commitment, it is a subaward.
No single test settles it, and not every sign will show up every time. Weigh them together and go with the substance.
The call is made agreement by agreement, not organization by organization.
Worked Example
This is an illustration. A health NGO is funded to reduce maternal deaths. Its budget covers a health survey and some office equipment.
For the survey, the NGO engages a local research firm. It does not want a bare data set. It wants the firm to design the method, choose which villages to sample and interpret the findings using its own professional judgment. The firm is carrying out part of the funded program, so this is a subaward. The firm is a subrecipient. It may not earn a profit on the funds, it reports on spending and performance, and it gives the NGO, the funder and auditors access to its records. Because the firm has no negotiated indirect cost rate of its own, the agreement records which rate applies.
Later the NGO needs computers and printers for the project office. The same firm also sells IT hardware, the way it does for many other customers. The equipment is ancillary to the program, the specification is fixed, and the firm takes on no program obligations by supplying it. This is a procurement contract. The firm is now a vendor, it can earn a profit, and it does not report on how it spends what it is paid. The NGO still owes a fair, competitive process here.
The same organization, two agreements, two answers.
Other cases usually fall out the same way. Paying another organization to deliver some of the funded services to the same population is generally a subaward. So is paying one to develop part of a product, such as training materials or technology, using its own expertise. An independent evaluator carrying out all or part of a required evaluation is generally treated as a subaward too. Everyday supplies and equipment are procurement.
Common Mistakes
Getting the classification wrong at award. If a partner is treated as a contractor and turns out to be a subrecipient, the indirect costs that were left out have to be added back. The direct cost budget is then reworked, and the money available for direct project costs shrinks. It is better to decide before signing.
Treating a partner's label as permanent. A vendor on one project is not automatically a vendor on the next.
Picking a favorite vendor. Procurement expects real competition under your own written procedures and your funder's standards. A fair process is transparent, meaning rules and opportunities are visible and applied evenly, and objective, meaning bidders are scored against criteria set beforehand. Competition tends to bring better value, checks favoritism, strengthens your bargaining position and gives funders confidence. Some funders require advance approval before you go non-competitive above a set threshold, and one example is $150,000.
Match the tool to the need. Use a Request for Quotes when you know what you want and need prices and terms. Use a Request for Proposals when you have a problem and want vendors to propose solutions. The right scale depends on your location, your staff and technology, and how much you buy relative to your budget. Write a procurement conflict-of-interest policy covering biased ground rules, unfair advantages, personal or organizational conflicts and any hint of influence-peddling.
Forgetting what flows down. A subaward should say plainly that it is one, spell out the key facts of the funding and be updated by formal modification if the amount, period or indirect rate changes. It should also require records access for you, the funder and auditors.
Before You Decide
Run this list before anyone signs.
- Is the partner exercising programmatic judgment, or delivering a fixed output?
- Have I checked whether the partner is allowed to earn a profit on this arrangement?
- For a subaward: is it clearly labeled as a subaward?
- For a subaward: is the indirect cost rate recorded?
- For a subaward: do the terms include financial and performance reporting?
- For a subaward: do the terms give you, the funder and auditors access to records?
- For a subaward: do the terms include closeout?
- For a procurement contract: did I run a competitive process with a Request for Quotes or Request for Proposals?
- For a procurement contract: if I plan a non-competitive award, have I confirmed whether my funder requires advance approval?
- Have I checked for conflicts of interest, biased ground rules, unfair advantages or influence-peddling?
- Does the budget reflect the right costs for this classification, so direct costs do not have to be reworked later?