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Funding Frameworks: Understanding Grants, Gifts, and Contracts in Cross-Sector Collaborations

April 9, 2024—Innovation needs brilliant minds and groundbreaking ideas to blossom, but it also needs the dollars to translate those ideas into useful technologies, products, and services. In university-industry partnerships, funding can come in different forms, each with its own aims, rules, and expectations. Understanding these different mechanisms can help guide successful partnerships, ensuring that the money dedicated to fuel discovery leads to the tangible impacts all parties are looking for.

Common terms for the types of funding in cross-sector partnerships include gifts, grants, and contracts.

Gifts are generally an irrevocable contribution of money or property from an individual or corporate donor to a university, with no expectation of direct benefit or deliverables in return. Gifts (which may also be called donations) are often motivated by philanthropic or personal reasons and may include a desire to provide funding for a particular area of research, build facilities, or support student learning. For smaller funding levels and in instances where no intellectual property of commercial value is expected to be realized, gifts can make the process of funding universities easy since a much simpler agreement is used.

Gifts have the least strings attached and are a welcome funding source for projects that may not be eligible for the more requirement-heavy funding mechanisms. However, funders may have expectations that are unspoken, which could have implications for the partnership relationship. Ensuring that both organizations understand the objectives, priorities, and intent for the funding can strengthen relationships and lay the groundwork for future collaborations.

Grants are one of the most familiar funding mechanisms in the academic community. Often awarded by government agencies or other research-funding bodies, grants are awards given to specific projects or initiatives. Especially in the context of government-funded grants, this type of funding is competitive and awarded based on merit and alignment of the proposed project with the objectives and priorities of the funder. Grants often include lengthy application and evaluation processes, which may not be suited for projects that are short-term or require immediate funding. Most grants must be closely managed to ensure compliance with the funding agency’s reporting requirements and to meet deadlines for milestones and deliverables. It’s important to understand that grants, like contracts, can come with stipulations on what they can fund, and often entail regular check-ins and reporting requirements to maintain funding eligibility. They have requirements related to intellectual property, and, depending on the agreement, funding levels may or may not be negotiated.

Contracts and grants tend to be more alike than different, and experts say the better term for a structured, negotiated instrument is the sponsored project agreement. Grants and contracts are awarded based on specific criteria and are typically intended to fund projects or initiatives with defined goals and outcomes. Sponsored research agreements come into play after a proposal is developed by a university researcher, and usually conform to a specific budget and timeline that involves deliverables; these may include reports and financial accounting.

Sponsored project agreements can help protect interests of the organizations while enabling groundbreaking R&D. Defined timelines, deliverables, and terms set boundaries and expectations for all parties. However, creating and negotiating the agreement can be time consuming and resource intensive. In some cases, long negotiation times or other difficulties can make sponsored project agreements feel transactional. Legal obligations and protections are important, but emphasizing collaboration, transparency, and trust during the process puts the spotlight on the beneficial aspects of the project. Frequent, open communication and a culture of curiosity and discovery can help strike the right balance between necessary protections and the potential to solve challenges together.

Why it matters

Grants, gifts, and sponsored project agreements enable funding for important research. Each funding mechanism brings both merits and hazards, but successful partnerships leverage the right instrument by targeting the envisioned outcome, shared goals, and necessary guardrails to support collaborations. For more information on the different types of funding mechanisms in cross-sector partnerships, see UIDP’s Contract Accords, which outline 17 aspects of industry sponsored research agreements.

We want to hear from you. How has your organization used grants, gifts, and contracts to achieve its research goals? Let us know on our LinkedIn profile.

The 3-Minute Read is a UIDP member information piece and does not represent the opinions of our members or representatives. We welcome your comments on our LinkedIn profile.