Overview
FAR Subpart 3.4 establishes policy and procedures to prevent "influence peddling" in government contracting by restricting the use of contingent fees. It aims to ensure that contracts are awarded based on merit rather than improper influence, while allowing for legitimate commercial selling and employment arrangements.
Key Rules
- General Prohibition: Contractors are generally prohibited from paying contingent fees—commissions or percentages dependent on securing a contract—to any person or entity to "help" them win government work.
- The "Bona Fide" Exception: Contingent fees are permitted only if paid to:
- Bona fide employees: Staff under the contractor’s direct supervision and control.
- Bona fide agencies: Established commercial selling agencies that do not use improper influence or claim to have special "insider" access.
- The Warranty: Every negotiated contract (and by policy, sealed bid contracts) must include a contractor warranty stating they have not paid prohibited contingent fees.
- Improper Influence Defined: Any influence that induces a government official to act on a basis other than the merits of the matter is considered improper.
- Clause Requirement: Contracting Officers must insert FAR clause 52.203-5 (Covenant Against Contingent Fees) in solicitations and contracts exceeding the Simplified Acquisition Threshold (SAT), unless they are for commercial products or services.
Responsibilities
- Contracting Officers (CO): Responsible for ensuring the correct "Covenant Against Contingent Fees" clause is included in solicitations and evaluating any reported violations.
- Chief of the Contracting Office: Must review evidence of suspected violations and take action, such as rejecting bids, annulling awarded contracts, or initiating suspension/debarment.
- Government Personnel: Anyone who suspects improper influence or misrepresentation regarding fees is required to report the matter promptly to the CO or higher authority.
- Contractors: Must certify and warrant that they have not entered into prohibited fee arrangements and ensure their sales agents meet the "bona fide" criteria.
- Agencies: Required to preserve all records and evidence related to suspected violations for potential enforcement or legal action.
Practical Implications
In the real world, this subpart distinguishes between legitimate business development and unethical lobbying. A contractor can safely pay a commission to an internal sales person or a reputable third-party sales firm that provides standard marketing and proposal services. However, if a contractor hires a "consultant" whose primary value is a personal relationship with a Program Manager and pays that consultant a percentage of the contract value, they risk severe penalties.
AI Insight: If a violation is discovered after a contract award, the Government has the right to "annul the contract without liability" or deduct the full amount of the contingent fee from the contract price. This means a contractor could perform the work and be legally denied payment for the portion representing the illegal fee, or lose the contract entirely without any recourse for costs incurred.