FAR 3.402—Statutory requirements.
Plain-English Summary
FAR 3.402 explains the statutory policy against contingent fees for obtaining Government contracts and the limited exceptions Congress allows. It covers three core subjects: the requirement for a contingent-fee warranty in every negotiated contract, the exception for contingent-fee arrangements with bona fide employees or bona fide agencies, and the Government’s remedies if the warranty is breached. In practical terms, this section is meant to prevent improper influence in federal procurement by discouraging “pay-for-success” arrangements that reward someone for securing a contract through questionable means. For contractors, it means they must be able to certify and stand behind their fee arrangements; for contracting officers, it means ensuring the warranty is included and understanding the Government’s recovery rights if a violation is found. The section is a statutory foundation for later FAR provisions that implement the warranty language, exceptions, and enforcement mechanisms.
Key Rules
Contingent fees are disfavored
Congress and the FAR treat contingent fees for soliciting or obtaining Government contracts as contrary to public policy because they can encourage improper influence. The rule is aimed at preventing arrangements where payment depends on winning a contract rather than on legitimate professional services.
Warranty required in negotiated contracts
Every negotiated contract must include a contractor warranty against contingent fees. This makes the contractor formally promise that it has not used prohibited contingent-fee arrangements to obtain the contract.
Limited exception for bona fide relationships
The statute allows contingent-fee arrangements with bona fide employees or bona fide agencies. This exception recognizes legitimate business relationships, but it does not excuse arrangements that are merely disguised attempts to pay for influence.
Government remedies for breach
If the contractor breaches or violates the warranty, the Government may annul the contract without liability, deduct the contingent fee from the contract price or consideration, or otherwise recover the full amount of the contingent fee. These remedies are intended to deter misconduct and protect the integrity of the procurement process.
Responsibilities
Contracting Officer
Include the required contingent-fee warranty in negotiated contracts and be alert to facts suggesting a prohibited fee arrangement. If a violation is identified, coordinate with legal and procurement officials on available remedies, including annulment or recovery.
Contractor
Provide the required warranty and ensure that any fee arrangements used to obtain the contract comply with the statute. The contractor must avoid prohibited contingent-fee agreements and be prepared to justify any arrangement claimed to fall within the bona fide employee or bona fide agency exception.
Agency
Protect the integrity of the procurement system by enforcing the statutory policy, supporting investigation of suspected violations, and pursuing remedies when the warranty is breached. The agency also must ensure its contracting practices incorporate the required warranty language.
Bona Fide Employee or Bona Fide Agency
If used in a contingent-fee arrangement, the relationship must be genuine and lawful, not a sham designed to conceal improper influence. The arrangement must fit within the statutory exception rather than the prohibited category.
Practical Implications
Contractors should review sales, marketing, and consultant agreements before award to make sure no prohibited contingent-fee terms exist.
A fee based solely on winning a Government contract is a red flag unless it clearly fits the bona fide employee or bona fide agency exception.
Contracting officers should not treat the warranty as a formality; it is a statutory safeguard with real remedies if violated.
If a violation is found, the Government may seek strong remedies, including contract annulment or recovery of the contingent fee, so documentation and due diligence matter.
This section is often the starting point for disputes about whether a broker, consultant, or representative is truly bona fide and whether the payment structure is permissible.
Official Regulatory Text
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. In 10 U.S.C. 3321(b) and 41 U.S.C.3901 , Congress affirmed this public policy but permitted certain exceptions. These statutes- (a) Require in every negotiated contract a warranty by the contractor against contingent fees; (b) Permit, as an exception to the warranty, contingent fee arrangements between contractors and bona fide employees or bona fide agencies; and (c) Provide 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.