Regulations affect sales agents, fees.

• Author: Stafford, John
• Position: ETHICS CORNER

Many firms hire employees or engage sales agents to help secure federal government business. Doing this properly requires compliance with ethics rules that bar "improper influence."

Generally, the government views contingent fee arrangements in sales or marketing contracts contrary to public policy, because of the potential for improper influence. With limited exceptions, contingent fee arrangements not only are barred by statute, but contractors also must affirmatively warrant the absence of any contingent fee arrangement to receive a government contract.

The Federal Acquisition Regulation defines a contingent fee 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." Case law emphasizes, however, that it is not contingent fees that are precluded per se. Rather, it is the threat of improper influence that may be encouraged by a contingent fee that precludes certain arrangements.

Improper influence is defined as "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." Improper influence would include any inducement for a government employee to award a contract for reasons other than merit. Improper influence also has been interpreted to include lobbying activity as defined in the Byrd Amendment and the FAR, which limit use of appropriated funds to sway federal transactions.

The covenant against contingent fees applies to all government solicitations and contracts over the simplified acquisition threshold (now $100,000), except for commercial items. This prohibition does not apply if the contractor maintains a "bona fide" employee or agency for the purpose of securing business. Yet, employees or sales agents otherwise meeting the relevant criteria, lose their "bona fide" status by exerting or proposing to exert improper influence to solicit or obtain a government contract. Another exception is that contingent fee restrictions do not specifically apply to consultants hired by "bona fide" selling agents. Contractors should be careful and not attempt to circumvent the bar by asking consultants to hire third parties to do what "bona fide" agents and employees cannot do.

In evaluating whether the covenant against contingent fees applies to a specific sales agreement, two major considerations arise.

First, is the...