It's "sort of" a gift? In the eyes of the IRS, it's either a gift or it's not. If your grandson applied for and/or was awarded on the basis of merit something that the private foundation is calling a scholarship, it's not a gift. (And you are also calling it a scholarship.) If it's used for qualified education expenses (in the case of scholarships, this includes tuition, required fees, and certain course-related expenses), it's tax-free, and the no double-dipping rule applies. If it's used for non-qualified expenses, it's taxable and must be included in your grandson's gross income.
Se IRS pub 970, Chapter 1 (Scholarships), and Chapter 8 (Qualified Tuition Program).