52.203-5 Covenant Against Contingent Fees
Source: FAR 52.203-5 on acquisition.gov
Contractors are strictly prohibited from paying contingent fees to secure government contracts, except to bona fide employees or agencies, and violations can result in contract annulment or financial penalties.
Overview
FAR 52.203-5, Covenant Against Contingent Fees, prohibits contractors from employing or retaining any person or agency to solicit or obtain a government contract based on an agreement for a contingent fee, except for bona fide employees or agencies. This clause is designed to prevent improper influence and ensure that government contracts are awarded based on merit rather than inducements or commissions. If a contractor breaches this warranty, the government has the right to annul the contract without liability or recover the full amount of the contingent fee. The clause also provides clear definitions for key terms such as bona fide agency, bona fide employee, contingent fee, and improper influence, ensuring all parties understand the scope and intent of the regulation.
Key Rules
- Prohibition on Contingent Fees
- Contractors cannot pay contingent fees to secure government contracts, except to bona fide employees or agencies.
- Government Remedies for Breach
- If the warranty is violated, the government may annul the contract or recover the full contingent fee amount.
- Definitions Provided
- The clause defines bona fide agency, bona fide employee, contingent fee, and improper influence to clarify compliance boundaries.
Responsibilities
- Contracting Officers: Must include this clause in applicable contracts and enforce its provisions.
- Contractors: Must not use or pay contingent fees to non-bona fide employees or agencies and must warrant compliance.
- Agencies: Must monitor for violations and take corrective action if a breach occurs.
Practical Implications
- This clause exists to prevent unethical practices and ensure fair competition for government contracts.
- Contractors must carefully vet their business development practices and relationships to avoid prohibited contingent fee arrangements.
- Violations can result in severe penalties, including contract annulment and financial recovery by the government.
As prescribed in 3.404 , insert the following clause:
Covenant Against Contingent Fees (May 2014)
(a) The Contractor warrants that no person or agency has been employed or retained to solicit or obtain this contract upon an agreement or understanding for a contingent fee, except a bona fide employee or agency. For breach or violation of this warranty, the Government shall have the right to annul this contract without liability or, to deduct from the contract price or consideration, or otherwise recover, the full amount of the contingent fee.
(b) "Bona fide agency," as used in this clause, 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, as used in this clause, 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, as used in this clause, 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, as used in this clause, 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.
(End of clause)