Subpart 3.4 - Contingent Fees

Parent topic: Part 3 - Improper Business Practices and Personal Conflicts of Interest

3.400 Scope of subpart.

This subpart prescribes policies and procedures that restrict contingent fee arrangements for

soliciting or obtaining Government contracts to those permitted by 10 U.S.C. 3321(b)(1) and 41

U.S.C.3901.

3.401 Definitions.

As used in this subpartBona fide agency means an established commercial or selling agency, maintained by a contractor for

the purpose of securing business, that neither exerts nor proposes to exert improper influence to

solicit or obtain Government contracts nor holds itself out as being able to obtain any Government

contract or contracts through improper influence.

Bona fide employee means a person, employed by a contractor and subject to the contractor’s

supervision and control as to time, place, and manner of performance, who neither exerts nor

proposes to exert improper influence to solicit or obtain Government contracts nor holds out as

being able to obtain any Government contract or contracts through improper influence.

Contingent fee means any commission, percentage, brokerage, or other fee that is contingent upon

the success that a person or concern has in securing a Government contract.

Improper influence means any influence that induces or tends to induce a Government employee or

officer to give consideration or to act regarding a Government contract on any basis other than the

merits of the matter.

3.402 Statutory requirements.

Contractors’ arrangements to pay contingent fees for soliciting or obtaining Government contracts

have long been considered contrary to public policy because such arrangements may lead to

attempted or actual exercise of improper influence. In 10 U.S.C. 3321(b) and 41 U.S.C.3901,

Congress affirmed this public policy but permitted certain exceptions. These statutes-

(a) Require in every negotiated contract a warranty by the contractor against contingent fees;

(b) Permit, as an exception to the warranty, contingent fee arrangements between contractors and

bona fide employees or bona fide agencies; and

(c) Provide that, for breach or violation of the warranty by the contractor, the Government may

annul the contract without liability or deduct from the contract price or consideration, or otherwise

recover, the full amount of the contingent fee.
3.403 Applicability.

This subpart applies to all contracts. Statutory requirements for negotiated contracts are, as a

matter of policy, extended to sealed bid contracts.

3.404 Contract clause.

The contracting officer shall insert the clause at 52.203-5, Covenant Against Contingent Fees, in all

solicitations and contracts exceeding the simplified acquisition threshold, other than those for

commercial products or commercial services (see parts 2 and 12).

3.405 Misrepresentations or violations of the Covenant

Against Contingent Fees.

(a) Government personnel who suspect or have evidence of attempted or actual exercise of improper

influence, misrepresentation of a contingent fee arrangement, or other violation of the Covenant

Against Contingent Fees shall report the matter promptly to the contracting officer or appropriate

higher authority in accordance with agency procedures.

(b) When there is specific evidence or other reasonable basis to suspect one or more of the violations

in paragraph (a) of this section, the chief of the contracting office shall review the facts and, if

appropriate, take or direct one or more of the following, or other, actions:

(1) If before award, reject the bid or proposal.

(2) If after award, enforce the Government’s right to annul the contract or to recover the fee.

(3) Initiate suspension or debarment action under subpart 9.4.

(4) Refer suspected fraudulent or criminal matters to the Department of Justice, as prescribed in

agency regulations.

3.406 Records.

For enforcement purposes, agencies shall preserve any specific evidence of one or more of the

violations in 3.405(a), together with all other pertinent data, including a record of actions taken.

Contracting offices shall not retire or destroy these records until it is certain that they are no longer

needed for enforcement purposes. If the original record is maintained in a central file, a copy must

be retained in the contract file.