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PepeTheFrog

business development and contingent fees

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1. Must business development people (who have contingent fee arrangements supplementing their salary) be hired as W-2 employees?

2. Can their services be provided as 1099 independent contractors, or would their contingent fee arrangement violate statutes and regulations against such?

3. For violations of the prohibition on contingent fees: Is the dividing line whether the business development person is a "bona fide employee" versus an independent contractor of the federal contractor firm? Why should that matter?

Background:

FAR Subpart 3.4 restricts certain contingent fee arrangements for soliciting or obtaining federal contracts. The statutes and regulations "[p]ermit...contingent fee arrangements between contractors and bona fide employees or bona fide agencies" (FAR 3.402(b)).

"Bona fide employee" is defined as "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" (FAR 3.401).

The prescription clause for FAR 52.203-5 is FAR 3.404. The clause itself states, in part: "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."  

PepeTheFrog knows a common practice in government contracts is to create a contingent fee arrangement with business development people. Business development people are expected to find, secure, maintain, and solidify business and contractual relationships with federal clients. Some call them "rainmakers."

These contingent fee arrangements for employees could be "you get this small salary $X and 1% of any new contracts under $X million, and 2% of any new contracts above $X million." These contingent fee arrangements for independent contractors could be similar, except instead of a salary, you get a small payment or no payment at all (other than the contingent fee). 

 

 

 

 

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Pepe,

Contingent fee arrangements are ok if they are with "bona fide employees" or "bona fide agencies". By definition, these classes do not exert "improper influence". It doesn't matter if a "business development person" is an employee or an independent contractor, what matters is whether or not they exert improper influence.

I think this answers your questions. 

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