Understand the Differences
In the complex world of federal grants and contracts, it is crucial to understand the various relationships between organizations and the vendors or partners they work with. For small businesses in programs like SBIR, STTR, or other federal funding opportunities, navigating the nuances between subawards, subcontracts, purchased commercial services, and consortia can be challenging. These relationships are significant to project management, cost allocation, allowability, and compliance. In this article, we’ll break down the key differences between these common types of vendor relationships and explain their implications for businesses working with federal funding.
Subawards
A subaward is a formal agreement between a prime recipient and a third-party organization (the subrecipient) tasked with carrying out a portion of the work specified in the original grant or contract. Subawards define the relationship when the subrecipient will contribute to the intellectual or scientific development of the project or when they will help meet the project’s objectives through their research, expertise, or technology.
A subaward contains a meaningful portion of the scope of work. The subrecipient must deliver specific outcomes or milestones related to the science. In addition, the prime award terms and conditions are passed through to subawards. Passing through requirements means the subrecipient must adhere to federal reporting, audits, and compliance regulations.
Subrecipient costs must follow the same federal cost principles as the prime agreement, tailored to their entity type (nonprofit, small business, etc. ). Subawards perform a defined part of the scope of work.
Subcontracts
Subcontracts, like subawards, are agreements that transfer a portion of the work from a prime contractor to another entity. However, subcontracts differ from subawards primarily in the work’s nature. Subcontracts define the relationship’s primary purpose as acquiring specific goods or services from another party. A subcontractor generally doesn’t contribute to the scientific or technical objectives of the project.
The subcontractor invoices for goods or services as detailed in a subcontract. As the contract outlines, subcontractors are often responsible for delivering specific tasks or products. They generally do not have the exact regulatory requirements for subrecipients under subawards.
In simpler terms, subcontracts are more transactional, emphasizing the procurement of goods or services. In contrast, subawards involve a collaborative approach to achieving the objectives of a federally funded project.
Purchased Commercial Services
Purchased commercial services refer to agreements where a business buys goods or services available commercially in the marketplace. These services are typically off-the-shelf solutions, such as software licenses, equipment, or consulting services. They are generally not part of the project’s intellectual or scientific development.
What sets these purchases apart is that they serve a general business or operational function. These services are typically subject to market rates, and purchasing decisions focus on cost and competitive pricing.
For example, a business acquires cloud computer services. These purchases are for a commercial service. Unlike subawards or subcontracts, there is little oversight regarding how these services contribute to the project’s goals. They have to meet the applicable standards at a reasonable price.
Consortium
A consortium is a formal group of organizations collaborating on a shared project or initiative. Participants may include academic institutions, businesses, nonprofit organizations, and other entities, each contributing their unique expertise to the overall effort. Consortia are common in extensive research and development projects, especially in biotechnology, advanced manufacturing, and defense.
Consortia pool resources and expertise for a specific goal in the context of federal funding. Each member organization typically plays a distinct role in the project. A consortium agreement outlines how the participants will collaborate, share data, and divide responsibilities, including financial and intellectual property arrangements.
One of the distinguishing features of a consortium is that members have equal shares. However, depending on the funding structure and the work’s nature, consortium members can receive subawards or subcontracts. The main benefit of a consortium is leveraging complementary strengths and resources from multiple organizations to address complex challenges. Drawbacks may occur in managing the relationships, where subawards, subcontracts, and other factors create conflicts of interest, impact operational agreements, etc.
Other Vendors
In addition to the relationships mentioned above, there are several other types of vendor interactions that businesses may encounter in federal projects:
Consultants
A consultant is typically an individual or firm hired to provide expert advice or specialized knowledge to the project. Consultants get paid based on a fixed fee or an hourly rate. They do not get involved in the project’s day-to-day execution. Their role is more advisory, helping guide the project in areas requiring specialized expertise.
Collaborators
While often used interchangeably with subrecipients, collaborators may not necessarily receive formal subawards. These entities work alongside the prime contractor but do not necessarily receive funding through a formal contract or subaward. Instead, they may share resources, information, or expertise without the formal reporting and compliance requirements of subrecipients.
Contractors
A vendor contract is any agreement where a business purchases goods or services from an external provider. These are typically simpler agreements than subcontracts, where the primary goal is to obtain specific goods or services rather than achieve project milestones or outcomes.
Key Differences at a Glance
| Type of Relationship | Primary Purpose | Nature of Work/Services | Regulatory Oversight |
| Subaward | Collaborative research or technical development | Intellectual/scientific contributions | Extensive, similar to the prime award |
| Subcontract | Procurement of goods or services | Delivery of specific products or services | Governed by procurement regulations |
| Purchased Commercial Services | Acquisition of off-the-shelf products or services | General goods or services | Governed by procurement regulations |
| Consortium | Collaboration on shared project goals | Joint work among multiple partners | Cooperative agreement between members |
| Consultant | Expert advice or knowledge | Specialized advisory work | Limited oversight, per agreement |
| Collaborator | Shared work, typically without formal funding | Assistance in specific aspects of the project | Limited formal oversight but shared responsibilities |
| Vendor Contracts | Purchase of goods or services | Off-the-shelf, non-project-specific | Governed by standard commercial procurement rules |
Conclusion
The distinction between subawards, subcontracts, purchased commercial services, consortia, and other vendor relationships is not just a matter of terminology. These categories significantly affect project management, cost allocations, accounting, and regulatory compliance.
As small businesses navigate the world of federal funding and complex partnerships, understanding these relationships is crucial for ensuring compliance and optimizing project execution. It is also essential to document the vendor type you determine. Documentation provides support in the proposal and budget negotiations. Many small businesses have created increased compliance requirements by improperly classifying vendors as subawards instead of subcontracts, subcontracts instead of purchased commercial services, etc.
By recognizing the differences in roles, responsibilities, and oversight, businesses can more effectively collaborate with the right firms and maximize available resources.
