FAR 3.4 Explained: Contingent Fee Rules Every GovCon Must Know

FAR Subpart 3.4 — Contingent Fees — prohibits contractors from paying contingent fees to anyone for helping them obtain a federal contract. A contingent fee is any payment — cash, equity, future work, or referral bonus — that is conditioned on receiving a government award. The rule exists to prevent corruption and undue influence in the procurement process. Congress enacted it because percentage-of-win arrangements create incentives for improper conduct: lobbying, kickbacks, and undisclosed conflicts of interest that compromise competitive procurement.

FAR 3.402 defines contingent fees broadly. Any compensation arrangement where payment depends on contract award qualifies, including: — Percentage-of-win deals ("We'll take 5% of whatever you win") — Success fees paid only upon award — Broker commissions tied to contract execution — Referral fees payable when a referred client receives an award — Equity grants conditioned on winning a specific contract The arrangement doesn't need to be in writing to trigger FAR 3.4 liability. Verbal agreements and handshake deals are equally prohibited if payment is contingent on award.

FAR 3.4 provides one narrow exception: a licensed commercial selling agency whose primary business is maintaining contacts with government buyers — and whose relationship is documented in writing before any solicitation is released. Most GovCon consultants, BD brokers, and capture advisors do NOT meet this standard. To qualify, the selling agency must: (1) Hold a current license in the relevant jurisdiction, (2) Maintain government buyer relationships as its primary commercial activity — not as a side arrangement, and (3) Have a written agreement with the contractor predating the procurement. If a consultant approaches you after an RFP is posted and offers to work on contingency, the bona fide agency exception almost certainly does not apply.

Contingent fee exposure doesn't just harm the person taking the fee — it exposes your company. Liability falls on both the contractor paying the fee and the person receiving it. Common arrangements that violate FAR 3.4: — Consultants offering to work "on contingency" with no upfront fees — BD brokers asking for a cut of a contract award or option year — Teaming partners requesting referral fees on wins you bring them — Anyone promising to "get you on a contract" for a percentage of revenue If your company signs a contract while a contingent fee arrangement is in effect, you may face false claims liability, contract termination, and debarment — regardless of whether you were aware the arrangement was improper. Ignorance is not a defense under the False Claims Act.

Every federal solicitation above the simplified acquisition threshold ($250,000) requires contractors to certify compliance with FAR 3.4 in their offer. Standard Form 1449 and equivalent solicitation documents include a representation that no contingent fee arrangement is in effect for this procurement. Signing this representation falsely — even inadvertently — constitutes a False Statement under 18 U.S.C. § 1001 and may trigger False Claims Act liability. The government can recover treble damages plus civil penalties of up to $27,000 per false claim. Review your existing consulting and BD agreements before signing any solicitation representation.

Structure all consulting engagements as fixed-fee or time-and-materials. If a consultant will not agree to fixed fees and insists on a contingency arrangement, that is a red flag — both for FAR 3.4 compliance and for the quality of their service. If you use a commercial selling agency, document the relationship in a written agreement before any solicitation is released. The agreement should clearly define their services, their compensation, and their status as a licensed commercial agent. Review your existing BD contracts with counsel before your next solicitation. A simple fixed-fee restructuring of an existing contingent arrangement eliminates the exposure entirely. When in doubt, the safest path is a fixed-fee consulting engagement with clearly defined deliverables. That is the model Minova Contracting uses — our fees never depend on whether you win.