Higher-education giving: Seven steps to create a grant agreement that will honor your donor intent

The first principle of effective higher-education grantmaking is to be clear in both your personal conversations and your grant agreements with colleges and universities. Amir Pasic, dean of the Lilly Family School of Philanthropy at Indiana University, notes that “crafting the gift agreement to reflect the donor’s intent, and describe how the organization plans to use the gift, is a vital piece of the puzzle.

But remember that even the best-crafted gift agreement can only go so far. The real work is accomplished by building strong relationships with the key faculty and administrators responsible for implementing the project you want to fund. This article explores seven strategies you might consider taking to improve the lines of communication between you as the donor and university decisionmakers, specifically in the area of grant agreements.

1. Cover the basics in your grant agreement

Collaborating to reach agreement about the details of your donation before the gift agreement is written makes it more likely that the folks with whom you’re speaking will follow through. Ask that the university put all the agreed-on terms in its final proposal to you, which you can then accept and integrate into your gift agreement. This makes the shared mission and shared obligations obvious to all involved parties and will provide more clarity for future faculty and administrators.

A complete gift agreement should include:

  • The amount of your gift
  • How and when it will be paid
  • A clear statement of purpose
  • A description of how—and on what timeline—the grantee will fulfill that purpose
  • Your reporting requirements
  • The kind of involvement you would like to have in the funded program (e.g., meeting scholarship recipients)
  • The conditions under which your grant will be renewable (if appropriate)
  • The circumstances which will lead to termination

2. Include a contingency plan

You should always include a contingency plan that either provides for a different—and specific—use of your funds in clearly defined situations, or that requires the institution to request permission from you or a designated representative before a grant is “repurposed.”

3. Consider a reversion clause

In addition to a contingency plan, donors may well consider including in their grant agreements a reversion clause detailing how a gift will be returned to the donor if a grantee fails to adhere to restrictions in the original grant agreement.

4. Always draw up an original agreement

Don’t automatically accept a grant agreement from a university—these documents are designed to protect the university’s interests, not yours. Drawing up an original agreement is well worth the time and expense it takes. While there are outstanding university development officers who are careful to tease out a donor’s ultimate intentions, you should also put in the time needed to delineate precisely what your philanthropic goals are.

“People who don’t have goals get used by people who do,” warns Tom Lewis of the T. W. Lewis Foundation. “If you don’t have goals as a donor, you’re easy prey.”

5. Never waive your right to a cy pres review by the courts

In many instances, universities automatically include a clause essentially banning a third-party arbiter (such as the state’s attorney general or a court) from stepping in to mediate should a donor-intent dispute arise. Look for language in a grant agreement stipulating that if it becomes “illegal, impossible, impractical, or wasteful” to continue as is, the university is free to change the grant agreement however it wishes.

“I strike this language every time I see it,” notes Fred Fransen, a philanthropic consultant in the higher education space and founder of the consulting firm, Donor Advising, Research & Educational Services. “I then substitute my own wording, emphasizing donor rights. To date, no university has ever insisted on restoring the original language. It seems that universities recognize that they have no moral right to take advantage of donor generosity or inexperience.”

6. Ask questions

Don’t hesitate to ask questions, even in later stages of the process. “Higher-education philanthropy is so incredibly complex,” says Mason Rummel. “Recognize that. Don’t assume there are any dumb questions. If you have a question, ask it. Don’t hold back because no one else is asking it.” Donors to public institutions should understand clearly the relationship between the university and the university’s foundation. Donors to all colleges should understand how indirect costs are assessed, and develop written policies to address them. Some donors refuse to cover any indirect costs. Others, including the Gates and Templeton Foundations, cap their coverage at a maximum rate.

7. Always use the term “grant”

Finally, while the terms “gift” and “grant” are used interchangeably in practice, it is advisable for individual donors to adopt the typical foundation use of “grant” for all donations that include binding terms. Research universities, in particular, make a clear distinction between “gifts”—which are deemed irrevocable, unrestricted, and free of donor expectations—and “grants” for which donors have prescribed a precise scope of work to be performed in a specified time period. The latter are revocable if conditions are not fulfilled and it is understood that subsequent funding is dependent on the donor’s receipt of satisfactory reports.