Commonly folks have asked me what the technical difference is between a contract and a grant. The difference is not about the dollar value or who the buying entity is nor the kind of work being done. Instead it is about the legal concept of default. In my eyes, the corner stone of whether something should be called a grant or a contract lies in whether one is legally bound to produce results as one is in a contractual relationship or whether you are simply granted funds to do something. Did you get that nuance? Perhaps that is oversimplifying it.
Essentially, a contract is a legally binding document in which the parties make promises to deliver a product or service in exchange for consideration (usually money.) A grant on the other hand is when one party grants funds to another party to do something, in reasonable hopes that the task can be accomplished. If the task is accomplished - great, everyone is happy and it could lead to more grant funding! On the flip side, if the task is not accomplished there are most likely no legal ramifications (assuming you have broken no other laws) as would be the case in a contract.
If we were to compare and contrast the two mechanisms we would say that a contract has two parties exchanging promises where one party delivers and one party pays. A grant however has two parties where one party gives the money and one party performs the objectives in hopes of achieving them. Do you see the difference now?
In summary, the difference between the two mechanisms - grant vs. contract mainly deals with the legal concept of default. If you do not deliver under a contract you are in "default" and can reasonably assume some justifiable action may be taken against the party that did not hold up its end of the deal. However, if you do not deliver under a grant, minimally you can rest assured that you will not deal with financial or legal repercussions.
However, from a business perspective, if you do not produce under either mechanism it is fairly likely that you will not receive those kinds of funds again in either a grant or a contract form. So as much as you might not be heading off to jail, you may find yourself wondering where your next meal is coming from and defending your good name.
Accordingly, if you are in the Government Contracting arena it is always wise to make sure you understand which instrument you are working under. If you are faced with using a contract rather than a grant and you have some concern surrounding whether you can attain a goal or the task at hand, you will definitely want to use a "best efforts" type contract. This will allow you to operate as if it were similar to a grant where you have high hopes of attaining said goal, but ultimately not guaranteeing you can deliver.