Wednesday, July 14, 2010

Contingent Fees

There are a few firms out there that offer services on a contingency basis. For example, we learned of a firm that offers to help contractors obtain Government contracts for a fee that is contingent upon the prospective contractor winning the particular bid.

Avoid these offers. Paying contingent fees to secure a Government contract is prohibited by regulation and law. According to FAR 3.402, contractor 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 USC 2306(b), Congress affirmed this public policy.

Every negotiated contract requires a warranty by the contractor against contingent fees. FAR also provides 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. And, it could get worse.

When there is specific evidence or other reasonable basis to suspect a violation, the Government will investigate and if appropriate, take one or more of the following actions.
  • If before award, reject the bid or proposal
  • If after award, enforce the Government's right to annul the contract or recover the fee.
  • Initiate suspension or debarment action.
  • Refer for criminal investigation by the Department of Justice.
The Government has always considered consulting costs a high risk area and are likely to review those costs during an audit, especially during the annual incurred cost audit. They are especially attuned to consulting agreements that hint of contingencies.

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