Friday, October 11, 2019

Improper Business Practices - Contingent Fees

This is the fifth installment in our periodic series on improper business practices under FAR (Federal Acquisition Regulations) Part 3. FAR Part 3 includes sections on the prohibitions of gratuities to Government personnel, contingent fees, subcontractor kickbacks, buying-in and antitrust matters. It also offers whistleblower protections to contractor employees, requires contractors to establish and implement codes of business ethics and conduct, and more.

In Part 1, we discussed the requirement for contractors and subcontractors to implement reasonable procedures to prevent and detect violations of the Anti-Kickback Act. In Part 2, we discussed the practice of "buying in" and tools for contracting officers to use to prevent subsequent cost growth when contractors do buy in. In Part 3, we discussed the prohibition against offering gratuities to Government personnel, a prohibitions that should be rather obvious to everyone. In Part 4 we alerted you to practices that might be reportable as violations of antitrust laws and contracting officers affirmative duty to report "suspected" violations of anti-trust  laws. Today we will be discussing the prohibitions against contingent fees.

What are contingent fees? Contingent fees are broadly defined in FAR as any commission, percentage, brokerage, or other fee that is contingent upon the success that a person or concern has in securing a Government contract. 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. Contractors are required to certify in each negotiated procurement that they have not paid any contingent fees.

There is one limited exception to the payment of contingent fees. Contingent fee arrangements between contractors and their bona fide employees are permissible.

 Like other violations of described in this series, contracting officers have an affirmative duty to report suspected violations of this prohibition. Misrepresentations or violations can lead to one or more of the following:

  • If before award, a bid will be rejected.
  • If after award, the Government can annul the contract or recover the fee.
  • Additionally, the Government can suspend or debar the contractor from future contracts.
  • Refer suspected fraudulent or criminal matters to the Justice Department.

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