What is the difference between contracts and grants?

Depending on the agency, SBIR projects are awarded either as grants or contracts. In 2015 the combined SBIR and STTR budget across all of the participating agencies was $2.5 billion dollars. Of that a little over half was provided to small businesses in the form of contracts; while the other half was provided as grants. 

The SBIR.GOV has a detailed page to explain the differences between contracts and grants. Following is an excerpt of this page:

"The Federal government uses grants to accomplish a public purpose; advance a national objective; address a public problem or stimulate a particular activity desired by the awarding agency. Grants are very flexible, allowing considerable latitude to the Principal Investigator or PI. Investigator-initiated research projects that align with an agency’s mission are awarded as grants. There are three agencies that participate in the SBIR and STTR programs that uniquely award grants. These are the Department of Energy, the National Science Foundation, and US Department of Agriculture. With grants the PI does their best to complete the research and achieve the desired aim.

By contrast contracts are more demanding. A contracting agency is looking to procure a good or service that will be of direct benefit to the Government. There are six contracting agencies that participate in the SBIR or STTR program with the largest being the Department of Defense and the National Aeronautics and Space Administration. The other contracting agencies are the Department of Commerce, the Department of Homeland Security, the Department of Transportation, and the Environmental Protection Agency. There are also two agencies that use both Grants and contracts. These are the Department of Health and Human Services and the Department of Education."

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