APPENDIX 1

FOREIGN MILITARY SALES (FMS) REFERENCES

The following Armed Service Procurement Regulations (ASPR) references address FMS procurement requirements either in their entirety or thru partial reference:

Section 1-505 Agents Fees

Section 1-1505 Options

Section 3-808.6(b) Special Profit Considerations

Section 4-109 Recoupment of Non-Recurring Costs

Section 6-705.3 Pricing FMS

Section 7-104.64 (a) Standard Clause for Recoupment of

Non-Recurring Costs

Section 15-205.37 Selling Costs

DPC 75-1 Agents Fees

(197)

APPENDIX 2

ARMED SERVICES PROCUREMENT REGULATIONS, JULY 1, 1974

GENERAL PROVISIONS

Part 5-Contingent or Other Fees

1-500 Scope of Part. This Part sets forth the procedures to be followed and prescribes the form to be used for obtaining information concerning contingent or other fees paid by contractors for soliciting or securing contracts from the Department of Defense, including the Departments of the Army, the Navy, and the Air Force and the Defense Supply Agency.

1-501 Reserved.

1-502 Applicability. This Part applies to all contracts.

1-503 Cover.ant Against Contingent Fees Clause. Every contract shall contain the clause entitled "Covenant Against Contingent Fees" as set forth in 7-103.20. 1-504 Improper Influence. The term "improper influence" means influence, direct or indirect, which induces or tends to induce consideration or action by any employee or officer of the United States with respect to any Government contract on any basis other than the merits of the matter.

1-505 General Principles and Standards Applicable to the Covenant. The principles and standards set forth in this Part are intended to be used as a guide in the negotiation, award, administration or enforcement, of all contracts.

1-505.1 Contingent Character of the Fee. Any fee whether called commission, percentage, brokerage, or contingent fee, or otherwise denominated, is within the purview of the covenant if, in fact, any portion thereof is dependent upon success in obtaining or securing the Government contract or contracts involved. The fact, however, that a fee of a contingent nature is involved does not preclude a relationship which qualifies under the exceptions, to the prohibition of the covenant.

1-505.2 Exceptions to the Prohibition of the Covenant. Excepted from the prohibition of the covenant are "bona fide employees" and "bona fide established commercial or selling agencies maintained by the contractor for the purpose of securing business".

1-505.3 Bona Fide Employee. The term "bona fide employee", for the purpose of the exception to the prohibition of the covenant, means an individual (including a corporate officer) employed by a concern in good faith to devote his full time to such concern and no other concern and over whom the concern has the right to exercise supervision and control as to time, place, and manner of performance of work. It is recognized that a concern, especially a small-business concern, may employ an individual who represents other concerns. The factors set forth in 1-505.4, except (d) thereof, shall be applied to determine whether such an individual comes within the exception to the prohibition of the covenant.

(a) A person may be a bona fide employee whether his compensation is on a fixed salary basis, or when customary in the trade, on a percentage, commission or other contingent basis or a combination of the foregoing.

(b) The hiring must contemplate some continuity and it may not be related only to the obtaining of one or more specific Government contracts.

(c) An employee is not "bona fide" who seeks to obtain any Government contract or contracts for his employer through the use of improper influence or who holds himself out as being able to obtain any Government contract or contracts through improper influence.

GENERAL PROVISIONS

1-505.4 Bona Fide Established Commercial or Selling Agency Maintained by the Contractor for the Purpose of Securing Business. In determining whether an agency is a "bona fide established commercial or selling agency maintained by the contractor for the purpose of securing business," the factors set forth below shall be considered. They are necessarily incapable of exact measurement or precise definition and it is neither possible nor desirable to prescribe the relative weight to be given any single factor as against any other factor or as against all other factors. The conclusions to be reached in a given case will necessarily depend upon a careful evaluation of the agreement and other attendant facts and circumstances.

t (a) The fees charged should not be inequitable and exorbitant in relation to the services actually rendered. That is, the compensation should be commensurate with the nature and extent of the services and should not be excessive as compared with the fees customarily allowed in the trade concerned for similar services related to commercial (non-Government) business. In evaluating reasonableness of the fee, there should be considered services of the agent other than actual solicitation as for example, technical, consultant, or managerial services, and assistance in the procurement of essential personnel, facilities, equipment, materials, or subcontractors for performance of the contract. |

(b) The selling agency should have adequate knowledge of the products and the business of the concern represented, as well as other qualifications necessary to sell the products or services on their merits.

(c) There should ordinarily be a continuity of relationship between the contractor and the agency. The fact that the agency has represented the contractor over a considerable period of time is a factor for favorable consideration. It is not intended, however, to disqualify newly established contractor-agent relationships where a continuing relationship is contemplated by the parties.

(d) It should appear that the agency is an established concern. The agency may be either or.e which has been in business for a considerable period of time or a new agency which is a presently going concern and which is likely to continue in business as a commercial or selling agency in the future. The business of the agency should be conducted in the agency name and characterized by the customary indicia of the conduct of a regular business.

(e) The fact that a selling agency confines its selling activities to the field of Government contracts does not, in and of itself, disqualify it under the covenant. The fact, however, that the selling agency is employed to secure business generally, that is, to represent the concern in connection with sales to the Government as well as regular commercial sales to non-Government activities is a factor entitled to favorable consideration in evaluating the case as one coming within the authorized exception. Arrangements confined, however, to obtaining Government contracts, particularly those involving a selling agency organized immediately prior to or during periods of expanded procurement resulting from conditions of national emergency, must be closely scrutinized. However, any agency or agent is not "bona fide" which seeks to obtain any Government contract or contracts for its principals through the use of improper influence or which holds itself out as being able to obtain any Government contract or contracts through improper influence.

GENERAL PROVISIONS

1-505.5 Fees for Information. Contingent fees paid for “information” leading to obtaining a Government contract or contracts are included in the prohibition and, accordingly, are in breach of the covenant unless the agent qualifies under the exception as a bona fide employee or a bona fide established commercial or selling agency maintained by the contractor for the purpose of securing business. 1-506 Representation and Agreement Required From Prospective Contrac

tors.

1-506.1 General. Except as provided in 1-506.3, each Department shall | inquire of and secure a written representation from prospective contractors as to whether they have employed or retained any company or person (other than a full-time emplɔyee working solely for the prospective contractor) to solicit or secure the contract, and shall secure a written agreement to furnish information relating thereto as required by the contracting officer. When the SF 33 is not used, the clause in 7-2002.1 shall be included in the solicitation. The Contractor's Statement of Contingent or Other Fees (Standard Form 119) shall be used without deviation when either part of the inquiry provided in 7-2002.1 is answered in the affirmative. The form shall also be used without deviation in any other case when a Department desires to obtain such information. When further information is required, it may be obtained in any appropriate manner. Normally, submission of the form shall be required only of successful bidders and offerors, and contractors.

1-506.2 Interpretation of the Representation.

(a) For the purpose of the representation and agreement required from the prospective contractor, as described in 1-506.1, the definition of "bona fide employce" is as specified in 1-505.3.

(b) The fact that the prospective contractor retains a person who does not devote his full time solely to the prospective contractor does not necessarily mean that the relationship involved is in violation of the covenant against contingent fces or that there is any stigma attached to the contractor-agent relationship. It does mean, however, that the prospective contractor must fill out the representation in the affirmative and, as required, furnish information with respect to such employment or retainer.

(c) If the representation would otherwise be answered in the affirmative the fact that the person employed or retained by the bidder or offerer or contractor is an attorney, or a public relations consultant, or has any other special or professional title, does not permit answering in the negative.

1-506.3 Exceptions. The inquiry and agreement specified in 1-506.1 need | not be made and submission of Standard Form 119 need not be requested in connection with the following:

(i) any advertised contract in which the aggregate amount involved does not exceed $25,000;

(ii) any negotiated contract in which the aggregate amount involved does not exceed $5,000;

(iii) any negotiated contract for perishable subsistence supplies in which the aggregate amount involved does not exceed $25,000;