liable for violations of the Act. The reference in the Act to the contractor and his employees as employees of the agency is intended only for the purposes of the criminal penalties of the Act and not to suggest that, by virtue of this language, they are employees for any other purposes.

[40 FR 44503, Sept. 26, 1975]

§ 1-1.327-4 Applicability.

(a) Whenever a Federal agency contracts for the design, development, operation, or maintenance of a system of records on individuals on behalf of the agency in order to accomplish an agency function, the agency must apply the requirements of the Act to the contractor and his employees working on that contract. Systems of records on individuals operated under a contract which are designed to accomplish an agency function are deemed to be maintained by the agency and are subject to Section 3 of the Act.

(b) (1) In order to establish the applicability of the clause in § 1-1.327-5, it is necessary for the agency awarding a contract to determine whether a purpose of any system of records on individuals which may be involved is to accomplish an agency function. For the Act to be applicable, the contract need not have as its sole purpose the design, development, or operation of such a system of records, but the contract should specifically state whether it involves the design, development, or operation of a system of records. The Act is not applicable to a system of records used by a contractor as a result of his management discretion. For example, it is not applicable to systems of personnel records maintained by contractors on their own behalf.

(2) Illustrations of systems of records to which the Act applies include the following:

(1) The determinations on benefits are made by Federal agencies;

(ii) Records are maintained for administrative functions of a Federal agency, such as personnel and payroll;

or

(iii) Health records are maintained by an outside contractor engaged to provide health services to agency personnel.

(3) Illustrations of systems of records to which the Act does not apply include the following:

(1) Records are maintained by the contractor on individuals whom the contractor employs in the process of provid

(a) All procurement requirements shall be reviewed to determine whether the design, development, or operation of a system of records on individuals to accomplish an agency function will be required, and the related contract shall identify specifically which of those functions is to be performed by the contractor. If the design, development, or operation of such a system is required, related solicitations and contracts shall include the notification set forth in § 1-1.337-5 (b) and the clause set forth in § 1-1.3375(c). Pertinent implementing agency rules and regulations shall be made available in accordance with agency procedures. All contract work statements shall specifically identify (1) the system or systems of records and (2) the work to be performed by the contractor in terms of any one of the following: (i) Design, (ii) development, or (iii) operation.

(b) The following notification shall be included in every solicitation and resulting contract, and in every contract awarded without a solicitation, when the statement of work requires the design, development, or operation of a system of records on individuals for an agency function:

PRIVACY ACT NOTIFICATION

This procurement action requires the contractor to do one or more of the following: design, develop, or operate a system of records on individuals to accomplish an agency function in accordance with the Privacy Act of 1974, Public Law 93-579, December 31, 1974 (5 U.S.C. 552a) and applicable agency regulations. Violation of the Act may involve the imposition of criminal penalties.

(c) The following clause shall be included in every solicitation and resulting contract, and in every contract awarded without a solicitation, when the statement of work requires the design, development, or operation of a system of records on individuals to accomplish an agency function.

PRIVACY ACT

(a) The contractor agrees:

(1) To comply with the Privacy Act of 1974 and the rules and regulations issued pursuant to the Act in the design, development, or operation of any system of records on individuals in order to accomplish an agency function when the contract specifically identifies (1) the system or systems of records and (ii) the work to be performed by the contractor in terms of any one or combination of the following: (A) Design, (B) development, or (C) operation;

(2) to include the solicitation notification contained in this contract in every solicitation and resulting subcontract and in every subcontract awarded without a solicitation when the statement of work in the proposed subcontract requires the design, development, or operation of a system of records on individuals to accomplish an agency function; and

(3) to include this clause, including this paragraph (3), in all subcontracts awarded pursuant to this contract which require the design, development, or operation of such a system of records.

(b) In the event of violations of the Act, a civil action may be brought against the agency involved where the violation concerns the design, development, or operation of a system of records on individuals to accomplish an agency function, and criminal penalties may be imposed upon the officers or employees of the agency where the violation concerns the operation of a system of records on individuals to accomplish an agency function. For purposes of the Act when the contract is for the operation of a system of records on individuals to accomplish an agency function, the contractor and any employee of the contractor is considered to be an employee of the agency.

(c) The terms used in this clause have the following meanings:

(1) "Operation of a system of records" means performance of any of the activities associated with maintaining the system of records including the collection, use, and dissemination of records.

(2) "Record" means any item, collection, or grouping of information about an individual that is maintained by an agency, including, but not limited to, his education, financial transactions, medical history, and criminal or employment history and that contains his name, or the identifying number, symbol, or other identifying particular assigned to the individual, such as a finger or voice print or a photograph.

(3) "System of records" on individuals means a group of any records under the control of any agency from which information is retrieved by the name of the individual or by some identifying number, symbol, or other identifying particular assigned to the individual.

[40 FR 44503, Sept. 26, 1975]

§ 1-1.403

Requirements to be met before entering into contracts.

No contract shall be entered into unless all applicable requirements of law, Executive orders and regulations have been met. The term "regulations" includes those issued by any regulatory agency whether or not incorporated or referenced in the Federal Procurement Regulations.

§ 1-1.404 Selection, designation, and termination of designation of contracting officers.

Contracting officers shall be selected, designated as such, and their designations terminated as provided in agency procedures. Such agency procedures shall conform to the provisions of this § 1-1.404.

§ 1-1.404-1 Selection.

In selecting individuals to serve as contracting officers or in positions which

include authority to act as contracting officers, consideration shall be given to experience, training, education, business acumen, judgment, character, reputation, and ethics. In considering experience, training, and education, the following shall be evaluated:

(a) Experience in the field of procurement involved (e.g., supply, construction, etc.) gained in a Government or nonGovernment procurement office, or otherwise;

(b) Formal education ог special training, including Government conducted or sponsored courses, in pertinent fields, such as business administration, law, accounting, engineering, architecture, or related fields; and

(c) Knowledge of applicable laws, Executive orders, and regulations. § 1-1.404-2 Designation.

Designation of individuals to act as contracting officers may be accomplished by delegation of authority to individuals or to positions. In the latter case, unless otherwise provided by the agency, any individual authorized to serve in such a position is a contracting officer. In either case, however, the instrument of designation shall include, or make specific reference to. any limitations on the scope of authority to be exercised, other than those contained in applicable laws, regulations, or directives. Appropriate records shall be maintained, whether designation be made by name or by reference to organizational title or position designation.

§ 1-1.404-3 Termination of designa. tion.

Unless otherwise provided in the instrument designating an individual as a contracting officer (e.g. stipulation of a specified term or a specific purpose), the designation shall remain effective until the contracting officer is reassigned, his employment is terminated, or his designation is revoked. No revocation shall operate retroactively. § 1-1.404-4

Assignment of duties to contracting officers.

In the assignment of duties, including execution and administration of contracts, consideration shall be given to the ability, training, and experience of the contracting officer. Duties involving contracts of large dollar value and complexity shall be given only to personnel with commensurate experience, training, and ability.

§ 1-1.405 Ratification of unauthorized contract awards.

Execution of otherwise proper contracts made by individuals without contracting authority, or by contracting officers in excess of the limits of their delegated authority, may be later ratified. To be effective, such ratification must be in the form of a written document clearly stating that ratification of a previously unauthorized act is intended and must be signed by a person authorized to ratify such acts. Generally such ratification may be made only by an official on whose behalf the contract was made and then only (a) if he could have given authority to enter into the contract before it was awarded and (b) if he still has power to do so at the time of ratification.

§ 1-1.406 Cost Accounting Standards. The contracting officer or his authorized representative shall:

(a) Determine the adequacy of prime Contractor's Disclosure Statement(s) Cost Accounting Practices and Certification (see § 1-3.1203 (a));

(b) Determine whether prime contractor's Disclosure Statements are in compliance with Part 1-15 and Cost Accounting Standards promulgated by the Cost Accounting Standards Board (see § 1-3.1220);

(c) Determine contractor compliance with Cost Accounting Standards and Disclosure Statements, if applicable; and

(d) Negotiate price adjustments and execute supplemental agreements pursuant to the Cost Accounting Standards clause set forth in § 1-3.1204. [39 FR 43058, Dec. 10, 1974]

Subpart 1-1.5-Contingent Fees § 1-1.500 Scope of subpart.

This subpart prescribes the use by executive agencies of the "covenant against contingent fees" and sets forth the policies, forms, methods, procedure, principles, and standards related thereto. The requirements of this subpart have as their objective the prevention of improper influence in connection with the obtaining of Government contracts, the elimination of arrangements which encourage the payment of inequitable and exorbitant fees bearing no reasonable relationship to the services actually performed, and the prevention of unwarranted expenditure of public funds which inevitably results therefrom. The methods used to achieve these objectives are

the requirement for disclosure of the details of arrangements under which agents represent concerns in obtaining Government contracts, and the prohibiting, by use of the covenant against contingent fees, of certain types of contractor-agent arrangements.

§ 1-1.501 Applicability.

The provisions of this subpart apply to all contracts for the procurement of personal property and nonpersonal services, including the procurement of construction. The Criminal Code will apply In any case involving actual criminal conduct.

§ 1-1.502 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.

Executive agencies shall include in every negotiated or advertised contract a "covenant against contingent fees" substantially as follows (set forth as clause 11 of Standard Form 19, Invitation, Bid, and Award (Construction, Alteration or Repair); as clause 17 of Standard Form 23-A, General Provisions (Construction Contract); and as clause 20 of Standard Form 32, General Provisions (Supply Contract)):

COVENANT AGAINST CONTINGENT FIES

The Contractor warrants that no person or selling agency has been employed or retained to solicit or secure this contract upon an agreement or understanding for a commission, percentage, brokerage, or contingent fee, excepting bona fide employees or bons fide established commercial or selling agencies maintained by the Contractor for the purpose of securing business. For breach or violation of this warranty the Government shall have the right to annul this contract without liability or in its discretion to deduct from the contract price or consideration, or otherwise recover, the full amount of such commission, percentage, brokerage, or contingent fee.

[31 F.R. 5880, Apr. 16, 1966]

§ 1-1.504 General principles and standards applicable to the covenant.

§ 1-1.504-1 Use of principles and standards.

The principles and standards set forth in this subpart are intended to be used

of

as a guide in the negotiation, awarding, administration, and enforcement Government contracts.

§ 1-1.504-2 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.

§ 1-1.504-3 Exceptions to the prohibition.

There are excepted from the prohibition of the covenant "bona fide employees" and "bona fide established commercial or selling agencies maintained by the contractor for the purpose of securing business."

§ 1-1.504-4 Bona fide employee.

(a) 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 § 1-1.504-5(b), except (4) thereof, shall be applied to determine whether such an individual comes within the exception to the prohibition of the covenant.

(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 ccntract 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.

(d) A person may be a bona fide employee whether his compensation is on a fixed salary basis or, when customary

!r the trade, on a percentage, commission or other contingent basis, or combination of the foregoing.

§ 1-1.504-5 Bona fide established commercial or selling agency maintained by the contractor for the purpose of securing business.

(a) An agency or agent is not "bona ide" 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.

(b) In determining whether an agency is a "bona fide established commercial or selling agency maintained by the contractor for the pupose 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.

(1) The fees charged should not be inequitable and exhorbitant 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 (nonGovernment) 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.

(2) 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.

(3) 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.

(4) It should appear that the agency is an established concern. The agency may be either one 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.

(5) 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. § 1-1.504-6 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.

§ 1-1.505 Representation and agreement required from prospective con

tractors.

Except as provided in § 1-1.507-3. each executive agency 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 employee working solely for the prospective contractor) to solicit or secure the contract, and shall secure a