11.2 Distinctions Among Gifts, Grants, and Contracts

Policy Statement

University of Illinois System and university funds used to carry out the primary missions of teaching, research, instruction, and public service include financial support from outside entities. Such outside financial support must be clearly identified as gifts, or as funding for sponsored project activities, in order to ensure appropriate management of the funds and compliance with any terms and conditions.

Reason for the Policy

Proper funds administration is dependent on recognizing the distinctions among gifts, grants, and contracts.

Applicability of the Policy

This policy applies to outside financial support used to carry out the primary mission of the system.

Procedure

General Definitions

Gifts

A gift is a voluntary contribution made to the system or one of its universities, for which the contributor receives no bargained-for benefit, and requires nothing in exchange beyond an assurance that the intent of the contribution will be honored. Some corporations and foundations refer to unrestricted gifts as "grants"; however, the system considers a contribution for which minimal donor restrictions specify how the funding must be spent or administered, to be a “gift.” All gifts are processed and administered by the University of Illinois Foundation (UIF).

Even if the donor outlines, in a letter or agreement with the system or one of its universities, general restrictions on how the funding is to be used, the contribution is considered a gift so long as the donor receives no consideration. University units are strongly encouraged to provide stewardship reports to donors, indicating how gift funds are spent, and may also supply, upon donor request, reports that summarize how the funds were used. Donor gifts with restrictions are used at the full discretion of the recipient for the purposes defined by the gift fund. Unused funds are not returned to the donor.

If a donor requests a letter to be used with an unrestricted research gift, it is suggested that this sample unrestricted gift letter will be used.

Sponsored Program Activities, Agreements, and Documents

Funds for sponsored program activities (research, instruction, public service, and other types of sponsored activities as outlined in 16 Sponsored Programs) are processed as either a "grant" or a "contract," and are solicited and accepted to enhance the teaching, research, and public service missions of the system.

How the system and its universities define and use these funds is based on a written agreement with the sponsor, relevant laws, The General Rules Concerning University Organization and Procedure of the system, and various guidelines, such as those from the National Association of College and University Business Officers (NACUBO).

Sponsored agreements primarily take the form of grants or contracts. Sponsored program activities documents will consist of one or more of the following items:

• Proposal (typically) submitted in a sponsor-required format.
• Scholarly terms or a Statement of Work, to define a line of scholarly or scientific inquiry (i.e., a defined scope or objective).
• Formal deliverables such as periodic progress reports and/or performance objectives (i.e., reporting requirements), and their respective scheduled delivery dates.
• Specified terms regarding fiduciary responsibility or payment contingencies.
• Specified terms regarding disposition of property upon conclusion of the project.

Grants

A grant is an award of funds by a sponsor intended to achieve some general or specific purpose. A grant agreement generally provides greater discretion than a contract in the conduct of the sponsored project activity, and provides less specificity in the intended outcome of the activity. When properly accepted in writing by a university’s sponsored programs office, a grant agreement is considered legally enforceable.

Federal agencies award financial assistance in the form of grants or cooperative agreements when the principal purpose of the award is to accomplish a specified public purpose (e.g., Federal Assistance Programs) of support or stimulation authorized by federal law. Grants are also awarded by state agencies, local governments, foundations, associations, corporations, and other private entities.

Grants differ from gifts in that they entail specific reporting requirements, and differ from contracts in that they do not typically involve specific deliverables. Some corporations and foundations may refer to unrestricted gifts as "grants," but the specific requirements outlined in the agreement determine whether the system or one of its universities distinguishes the funding to be a gift or a grant (see Gifts above). Corporate or foundation "grants" that are deemed philanthropic in intent and meet the criteria for a gift, as outlined within this policy, are processed as gifts by UIF.

Contracts

In general, a contract (or procurement contract as known by federal case law), is an agreement between two or more parties that creates a legal obligation to do or not to do something. For a contract to be binding, the terms must be clear, there must be something of value given to the party making the promise, the parties must agree, and each must be competent to enter into the arrangement. In the context of sponsored programs, a contract defines specific rights and obligations of the contracting parties with regard to matters such as research results and deliverables, publication rights, inventions, public dissemination of results, and liability. Contracts are processed by the relevant university’s purchasing and contract management office.

In projects sponsored by federal or state agencies, contracts have a distinct meaning, to be distinguishable from grants. While grants and cooperative agreements are legal mechanisms used to transfer financial assistance to support a program, contracts are used to procure goods and services for the direct benefit of the government agency. So, for instance, when the system or one of its universities receives a federal contract, it is obligated to provide goods or services for the direct benefit of the government.

Distinctions Between Gifts and Sponsored Activities

The following chart outlines some of the differences between gifts and sponsored activities. If it is not entirely clear whether money received is a gift or is in support of a sponsored project (for example, a grant), the appropriate university Sponsored Programs Office will review the documentation in accordance with 11.1 University Gifts.

FACTOR	GIFT	GRANT	CONTRACT
Source	Individuals, family, corporate and other foundations, donor advised funds, corporations	Government agencies, non-profit organizations, corporations	Government agencies, non-profit organizations, corporations
Purpose	Gifts are used in accordance with the intent of the donor and for the purpose of the gift fund to which they are processed.	Funds are provided in support of an institutional goal or public purpose designed by the Principal Investigator (PI).	Procurement mechanism for purchasing a specific service or product
Proposal Process	Informal process, with proposals created for certain donors, programs, and/or projects. Would likely contain a summary of the project or program costs, as a fundraising “ask”; no deliverables or quid pro quo included.	Formal process, usually including a statement of work and budget. May be in response to a request for proposals or other funding announcement that could be broad or specific.	Formal process, usually including a statement of work and budget. May be in response to a request for proposals or other funding announcement that could be broad or specific.
Scope of Work / Budget	N/A	The PI defines the scope of work that is included in the award document.	Joint or sponsor-defined scope of work that is included in the contract.
Document	Most gifts have no formal documentation. If documentation exists, it may be a gift letter, or other governing document outlining the intent of the gift. All endowments must have a governing document.	Award letter or grant agreement.	Contract.
Value Exchanged / Deliverables	Nothing beyond an assurance that the intent of the gift will be honored. The donor receives no consideration in exchange for the gift.	Deliverables are provided as outlined in the scope of work including a final report or other tangible deliverables. Acknowledgement of the sponsor in any publications.	Goods or services are delivered on specific dates, which may be referred to as "milestones" as defined in the contract.
Reporting	Courtesy reports to the donor about the impact of the gift are encouraged, but generally not required.	Specific reporting requirements as defined in the agreement, which might include progress reports and a final report.	May require progress reports, which may coincide with milestones as defined in the contract.
Facilities & Administrative (F&A) Cost Rates	N/A	F&A costs are typically assessed at the system’s federally-negotiated rate, a reduced rate, or no rate, as determined by the sponsor’s written policy.	F&A costs are typically assessed at the system’s federally-negotiated rate, a reduced rate, or no rate, as determined by the sponsor’s written policy.
Deadline / Period of Performance	N/A	Specific period of performance is defined.	Specific period of performance is defined.
Excess Funds	Gifts cannot be returned to the donor, unless exceptions are made when the gift is made (e.g., contingent project dates or program milestones must be met).	The sponsor may require return of unspent funds	The sponsor may require return of unspent funds
Penalty for Non-Performance	No financial penalties, but the reputational risk of non-compliance can be severe.	Sponsor may terminate the award and require the return of some or all funds.	Sponsor has the right to stop or terminate the contract for non-performance.

For additional information or assistance, contact the relevant pre- and post-award office.