Federal Grant

How It Works

Grants are transfer payments governed by the Uniform Guidance at 2 CFR Part 200, not procurements under the FAR. The government provides money to support an activity (scientific research, Medicaid operations, highway construction, Pell Grants for students) rather than buying something for its own use. Grants come with conditions: recipients must use the money for the stated purpose, follow cost principles (2 CFR 200 Subpart E), submit quarterly financial and annual performance reports, and undergo Single Audits under 2 CFR 200 Subpart F if they spend more than $750,000 in federal awards in a year. In FY2023 the federal government obligated roughly $1.2 trillion in grants, far exceeding contract spending. The Department of Health and Human Services alone distributed over $700 billion, dominated by Medicaid pass-through payments to states (~$616 billion federal share). The Department of Education (~$100 billion including Pell Grants, Title I, and IDEA special education), Department of Transportation (~$85 billion in highway and transit formula grants), and Department of Agriculture (~$150 billion including SNAP pass-through and farm programs) are the other top grantmakers. Grants come in three main flavors: (1) formula grants allocated by statutory formulas such as population, poverty rate, or highway lane-miles (e.g., Title I education funding, Federal-aid Highway Program); (2) project or competitive grants where applicants submit proposals reviewed by agency panels (most NIH R01 research awards and NSF awards work this way); and (3) block grants that give states broad discretion within a program area (Community Development Block Grants, TANF, SSBG). Grant data is published on USASpending.gov with a typical 60-90 day reporting lag, and Grants.gov hosts the active solicitations where applicants submit proposals electronically.

Related Terms

• Federal Contract, A legally binding agreement between the U.S. government and a private company to provide goods or services, from fighter jets to IT consulting.
• Obligation, A legally binding commitment by the government to spend money, the point at which funds are formally committed to a contract, grant, or other agreement.
• Cooperative Agreement, A type of federal financial assistance similar to a grant, but with "substantial involvement" by the government in carrying out the funded activity.
• USASpending.gov, The official U.S. government website that tracks all federal spending, contracts, grants, loans, and other financial assistance, searchable by agency, recipient, and location.