The commissioning process will usually result in a financial relationship either through the giving of a grant or the winning of a contract.
A grant is a gift or donation – the commissioner giving it has no right to receive anything in return but may attach terms and conditions specifying how the grant is to be spent. Spending the grant on anything else would be a breach of trust. Any surplus funds are subject to the same restrictions unless the terms of grant say otherwise.
A contract is a legally enforceable agreement between the commissioner and the other party where the other party agrees to provide services in return for payment. A payment under a contract is a fee not a grant, and is subject to VAT. In general terms, a contract will be more enforceable than a grant agreement. This may be an important consideration if the ability to enforce the terms of the financial relationship is a key issue for you. Equally, the other party may enforce the terms of the contract against you.
Either grant or contract may provide you with a sufficient basis to meet the level of accountability that you need.