FAR 52.203-5—Covenant Against Contingent Fees.
Plain-English Summary
FAR 52.203-5, Covenant Against Contingent Fees, is an anti-kickback and anti-corruption safeguard that requires the contractor to warrant that no person or agency was hired or retained to obtain the contract on a contingent-fee basis, except for a bona fide employee or bona fide agency. The clause defines the key terms that control its application: bona fide agency, bona fide employee, contingent fee, and improper influence. It also gives the Government a strong remedy if the warranty is breached, including the right to annul the contract without liability or recover the full amount of the contingent fee from the contract price or otherwise. In practice, this clause is intended to prevent contractors from using success-based brokers, lobbyists, or intermediaries who may pressure Government personnel or distort procurement decisions. It matters both at award and throughout performance because a violation can create serious contractual and reputational consequences, including loss of the contract and financial recovery by the Government. Contractors must therefore ensure that any business-development, sales, or capture arrangements tied to Federal contracting are structured to avoid contingent compensation unless they clearly fit within the bona fide employee or bona fide agency exceptions.
Key Rules
No contingent-fee solicitation
The contractor warrants that no person or agency was employed or retained to solicit or obtain the contract on an agreement for a contingent fee, unless the person or agency qualifies as a bona fide employee or bona fide agency. This is a direct prohibition on success-based compensation for obtaining the contract.
Government remedies for breach
If the warranty is breached, the Government may annul the contract without liability or recover the full amount of the contingent fee by deduction from the contract price or by other means. The clause gives the Government broad recovery rights, not just a right to terminate.
Bona fide agency exception
A bona fide agency is an established commercial or selling agency maintained to secure business, but it must not exert or propose to exert improper influence and must not hold itself out as able to obtain Government contracts through improper influence. The exception is narrow and depends on both the nature of the agency and its conduct.
Bona fide employee exception
A bona fide employee is a person employed by the contractor and subject to the contractor’s supervision and control as to time, place, and manner of performance, who does not exert or propose to exert improper influence. Regular employees may be compensated for sales efforts, but not through improper, success-based influence.
Contingent fee definition
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 captures many common compensation structures tied to award outcomes.
Improper influence definition
Improper influence means any influence that induces or tends to induce a Government employee or officer to consider or act on something other than the merits. The focus is on corrupting or distorting the procurement decision, not merely on aggressive advocacy.
Responsibilities
Contractor
Must ensure that no one is hired or retained to obtain the contract on a contingent-fee basis unless the arrangement fits the bona fide employee or bona fide agency exception. Must structure sales, capture, and consultant relationships to avoid improper influence and be prepared to defend the warranty if challenged.
Bona fide employee
Must be under the contractor’s supervision and control and must not exert or propose to exert improper influence in seeking Government contracts. The employee’s role must remain within lawful sales or business-development activity.
Bona fide agency
Must be an established commercial or selling agency maintained to secure business, and must not use or promise improper influence to obtain Government contracts. It must not market itself as able to win contracts through influence rather than merit.
Contracting Officer / Government
May rely on the clause as a contractual warranty and, if a breach occurs, may pursue annulment or recovery of the contingent fee. The Government must also evaluate whether the facts show a true contingent-fee arrangement or improper influence.
Practical Implications
Contractors should review all consultant, broker, lobbyist, and commission-based sales arrangements before award and during performance to make sure they do not create a prohibited contingent-fee situation.
A simple commission or success fee can be risky if it is tied to winning a Federal contract; the label used in the agreement does not control if the substance is contingent compensation for procurement success.
The bona fide agency and employee exceptions are narrow, so contractors should document the relationship, supervision, duties, and compensation structure carefully.
If improper influence is alleged, the Government can seek serious remedies, including contract annulment and recovery of the fee amount, so compliance failures can become both financial and performance-ending issues.
Contracting officers should watch for red flags such as third-party “fixers,” promises of special access, or compensation tied directly to award, because these may indicate a violation even if the arrangement is described differently in the contract file or subcontractor records.
Official Regulatory Text
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)