A grant agreement crystallises the terms under which one party agrees to grant funds to the other, mostly for achieving a social purpose. Grant agreements are executed between organizations (usually not-for-profits/trust/societies) which are seeking funds/grants and organisations like CSR of for-profits/ HNIs/philanthropies that are making the grant.
What can an NPO expect in a grant agreement and how to review it ?
We give below some standard components of a domestic grant agreement (within India) with tips to review it congenially for an NGO:
Purpose of the grant: Grant agreements must clearly articulate the purpose for which the grant funds are provided and the manner in which it can be used. Giving specifics like a budget, program components, beneficiary numbers etc is recommended over generic language to avoid any dispute later.
Amount of grant funds: The agreement should mention the total amount of the grant that will be given to the grantee, exact disbursement dates and the manner in which the same will be transferred to the grantee.
Grant Period: The parties should agree on a term period that will be reasonably required to achieve the purpose for which the grant is provided. This will also ensure that the grantee completes the purpose/project for which the grant is given during this period.
Disbursement of funds: Grant funds are typically given in tranches rather than in a form of a lump sum payment. The disbursements are subject to the grantee showing that it has exhausted the funds under the previous tranche. It is common practise for the grantor to reserve the right to modify future disbursements if the grantor finds that the grantee has not adequately achieved the milestones or outcomes from the previous tranches.
Utilisation of grant funds: Obligations are imposed on the grantee to provide periodic reports to the grantor showing progress towards achieving the agreed results and outcomes. Grantees are often expected to share the annual financial report signed by an independent auditor along with a fund utilisation statement. Grantees must therefore ensure that they have the resources to prepare these reports and plan their activities so as to prepare the grant reports within the specified timelines. Often failure to comply with reporting terms for the utilization of funds may result in penalizing the grantee.
Audits: The grantor would reserve the right to conduct audits, reviews and site visits during the term of the grant period. However, grantee must insist that reasonable prior notice be given.
Termination: Termination must always be mutual i.e may be initiated by either party. However, the grantor may hold the right to terminate the agreement with immediate effect if the grantor has reason to believe that the grant funds are not being used in the intended manner or for the purpose intended or for breach of the terms and conditions of the grant agreement. In event of such termination by the grantor, the grantor will not make any further disbursements to the grantee and may even provide for any unspent funds to be returned to the grantor. Often the termination clause is one-sided. Review it to balance the interests.
Indemnity: It is important to have a properly drafted mutual indemnity clause so that the parties can indemnify each other for any losses or liabilities caused by the other or resulting from any act or omissions of the other party or other party’s breach or misconduct. We often find that the indemnity is one sided.
Confidentiality: A confidentiality clause will ensure that each party’s proprietary information is protected from any unauthorised disclosures made by either party. Parties must remember that there are certain global and domestic laws governing data privacy which must be adhered to at all times.
Intellectual Property: Since grant agreements are executed for carrying out projects that have an impact on the society at large, any IP created or developed by the grantee during the grant period can be either - shared between the parties or marked as open source, public source or freeway intellectual property. It will be important to build in clauses preventing commercial use of IP generated, acknowledging the other party in any reports or publications and placing any restrictions on using each other’s names, logo etc.
Force Majeure: This clause has gained enormous significance due to the pandemic. The lockdown witnessed many parties of a contract enforcing the force majeure clause as the objective of the contract could not be carried out due to a regulation from the government which was out of the control of the parties. For example, if a grantee requires a field survey to be conducted and the Government declares a lockdown, the grantee can invoke the force majeure clause. This clause will relieve the parties from performing their obligations under the agreement without any liability for the duration of the force majeure event.
Dispute Resolution & Jurisdiction: Lastly, a grant agreement would have a dispute resolution clause to resolve any disputes that may arise between the parties during the term. Also, if the parties are situated at different geographical locations, the parties should decide as to which of the courts will have jurisdiction over the disputes arising out the grant agreement.
A grant agreement need not be one-sided. While it must ensure that that the grantee complies with applicable laws, achieves intended outcomes and reports fund utilization meticulously, it must not exploit the position of the grantee as a receiver of funds.
Pacta reviews and drafts grants documentation for non-profits. Do reach out to us in case you need assistance on your grant agreements.