FAR 3.401—Definitions.
Plain-English Summary
FAR 3.401 provides the core definitions used in the subpart on contingent fees and improper influence in federal contracting. It defines four key terms: bona fide agency, bona fide employee, contingent fee, and improper influence. These definitions matter because they determine when a contractor’s sales arrangements are permissible and when a fee arrangement may create a prohibited risk of influencing a Government contract award through means other than merit. In practice, the section helps contracting officers and contractors distinguish legitimate marketing or employee compensation from arrangements that could violate procurement integrity principles. It also sets the baseline for evaluating whether a person or firm is truly acting as an independent sales representative or as an improper influence peddler. Because these terms are used throughout the subpart, understanding them is essential for compliance reviews, contract administration, and enforcement actions involving contingent compensation.
Key Rules
Bona Fide Agency Defined
A bona fide agency is an established commercial or selling agency maintained by a contractor to secure business, but only if it does not exert or propose to exert improper influence. It also cannot hold itself out as able to obtain Government contracts through improper influence.
Bona Fide Employee Defined
A bona fide employee is a person employed by the contractor and subject to the contractor’s supervision and control over time, place, and manner of work. The employee must not exert or propose to exert improper influence, and cannot claim the ability to obtain Government contracts through such influence.
Contingent Fee Defined
A contingent fee includes any commission, percentage, brokerage, or other fee that depends on success in securing a Government contract. The definition is broad and focuses on whether payment is tied to winning the contract, not on the label used for the payment.
Improper Influence Defined
Improper influence is any influence that induces or tends to induce a Government employee or officer to consider or act on a contract for reasons other than the merits. The definition covers both direct and indirect pressure that could distort objective procurement decision-making.
Merits-Based Decision Standard
The key standard underlying the definitions is that Government contract decisions must be based on the merits of the matter. Any arrangement that shifts the basis of consideration away from merit raises compliance concerns under this subpart.
Responsibilities
Contractor
Ensure that sales representatives, agencies, and employees involved in obtaining Government business do not use or promise improper influence. Structure compensation and business development practices so they do not create prohibited contingent-fee arrangements.
Bona Fide Agency
Operate as a legitimate commercial or selling agency focused on lawful business development, without claiming or using improper influence to secure Government contracts.
Bona Fide Employee
Act under the contractor’s supervision and control and avoid any conduct or representations suggesting the employee can obtain Government contracts through improper influence.
Contracting Officer
Evaluate contractor representations and fee arrangements for signs of contingent compensation tied to contract awards or improper influence, and take appropriate action when concerns arise.
Government Employee or Officer
Base procurement-related consideration and decisions on the merits of the matter and avoid being influenced by conduct that would distort objective judgment.
Practical Implications
The definition of contingent fee is intentionally broad, so contractors should not assume that changing a payment label will avoid scrutiny if payment depends on winning a contract.
A sales agent may be legitimate only if it is truly bona fide; claims of special access, influence, or ability to secure awards through personal connections are red flags.
Employee status matters: if a person is not actually under the contractor’s supervision and control, the arrangement may look more like an outside agency relationship and require closer review.
Improper influence is not limited to explicit bribery; any conduct that tends to sway a Government decision away from the merits can create risk.
Contractors should review commission plans, broker agreements, and business development practices before using them for Federal sales to avoid later disputes or allegations of prohibited contingent fees.
Official Regulatory Text
As used in this subpart- Bona 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.