How Are Bidding Agent Fees Set and Who Pays Them?

A bidding agent's fee on a competitively bid investment of bond proceeds is part of the bid documents, which the bidding rules require to include all material terms, and a term is material if it may directly or indirectly affect the yield or the cost of the investment (Treasury Regulation §1.148-5(d)(6)(iii)(A)); how much the fee may be is measured against, not capped by, the broker's-commission safe harbor in §1.148-5(e)(2)(iii).

Who pays follows from the bidding mechanics: on a GIC the winning bid is judged net of broker's fees, so the fee is deducted from the providers' bids in the comparison, and mGIC's fee is paid by the winning provider rather than the issuer.

This page covers the fee itself; the bidding process around it is in mGIC's guide to competitive bidding, and the Bidding Agent role is described on its own page.

Who pays the fee: the winning provider or the issuer?

For a guaranteed investment contract, the fee is deducted in comparing bids: Treasury Regulation §1.148-5(d)(6)(iii)(C)(1) requires the winning bid to be the highest-yielding bona fide bid determined net of any broker's fees.

mGIC's fee follows that structure: it is paid by the winning provider rather than the issuer, it sits at or below the safe-harbor maximum in the Treasury arbitrage regulations, and it is disclosed under those regulations' disclosure requirement.

For other investments, such as the securities of a yield-restricted defeasance escrow, the fee counts inside the cost instead: §1.148-5(d)(6)(iii)(C)(2) requires the winning bid to be the lowest-cost bona fide bid including broker's fees, and no more than the cost of the most efficient all-SLGS portfolio measured when bids are due, a comparison the rule does not require on a day SLGS sales are suspended.

Under that structure the fee enters the comparison the rules prescribe, net of broker's fees on a GIC and included in the lowest-cost test for other investments.

The competitive process these rules sit in, from solicitation through bid comparison, is covered on the fair-market-value safe harbor page.

Illinois conflict rules also reach the issuer's side of the table: state law provides that a treasurer or financial officer may not hold an interest in the agency's investments or their sellers, sponsors or managers, or receive compensation from them, with narrow statutory exceptions (30 ILCS 235/2(d)).

That restriction runs to the agency's own officers, not to outside advisors, so it does not say what an outside Bidding Agent may charge; Illinois issuers will find the state's investment framework on the Illinois investment rules page.

What is the safe-harbor limit on broker's commissions?

The safe harbor does not cap what a bidding agent may charge; it fixes the amount of a broker's commission or similar fee that an issuer may treat as a qualified administrative cost under Treasury Regulation §1.148-5(e)(2)(iii)(B).

Qualified administrative costs are the reasonable, direct administrative costs of a nonpurpose investment, other than carrying costs, taken into account as adjustments to payments and receipts in the yield computation: separately stated brokerage or selling commissions are the example the regulation gives, while legal and accounting fees, recordkeeping, custody and similar costs do not qualify (§1.148-5(e)(2)(i)).

Costs are generally not reasonable unless they are comparable to what would be charged on a comparable investment bought with money that is not bond money.

For a GIC or the investments of a yield-restricted defeasance escrow, a broker's commission or similar fee is reasonable in amount if the part treated as a qualified administrative cost does not exceed the lesser of $30,000 or 0.2 percent of the computational base, or $3,000 if that is more (§1.148-5(e)(2)(iii)(B)(1)).

The same paragraph also bars the issuer from treating more than $85,000 per issue of brokers' commissions as qualified administrative costs across all such investments.

Those figures are the base amounts adopted by T.D. 9097 (68 FR 69022, December 11, 2003), effective for bonds sold on or after February 9, 2004, and they are not current figures.

The computational base is, for a GIC, the gross proceeds reasonably expected to be deposited over its term, and, for escrow securities, the gross proceeds initially invested (§1.148-5(e)(2)(iii)(B)(2)).

The three dollar amounts adjust for inflation for each calendar year after 2004, using 2003 as the base year and rounding to the nearest $1,000, and the amounts that apply are those for the calendar year the GIC or the escrow investments are acquired (§1.148-5(e)(2)(iii)(B)(3) through (B)(5)).

When purchases for a single issue stretch across calendar years, paragraph (B)(6) prorates the remaining per-issue amount among them.

The regulation's own example computes hypothetical figures for an illustrative "Year Y" ($3,000, $32,000 and $90,000), and the research behind this page found no IRS publication of the indexed amounts for 2025 or 2026, so this page states no current dollar figure; the amount for a given acquisition year is computed from the regulation's formula.

The safe harbor runs in one direction only: a fee above these amounts may still be supported as reasonable under the general standard in §1.148-5(e)(2)(iii)(A), but the excess cannot rely on the safe harbor.

Two fund types measured outside the per-investment amounts

For a publicly offered regulated investment company or a widely held external commingled fund, qualified administrative costs include all reasonable administrative costs, including indirect ones, under §1.148-5(e)(2)(ii).

The widely held test requires, among other conditions, more than 15 unrelated investors on average, at least 16 of whom each hold at least the lesser of $500,000 or 1 percent of the fund.

Whether a particular pool meets that test is fact-specific; the trade-offs of the pool option are on the local government investment pool page.

What disclosure requirements apply to the fee?

Three layers disclose the fee: the winning provider must certify the administrative costs it pays, the safe harbor conditions use on retained records, and a bidding agent that acts as a municipal advisor is subject to the MSRB's disclosure rules for municipal advisors.

Treasury Regulation §1.148-5(d)(6)(iii)(D) requires the provider of the investments, or the obligor on the guaranteed investment contract, to certify the administrative costs it pays, or expects to pay, to third parties in connection with supplying the investment.

The regulation does not itself require a separate Bidding Agent certificate; that document is market practice rather than a stated requirement of §1.148-5.

To use the safe harbor, the issuer must keep the fee records with the bond documents until three years after the last outstanding bond of the issue is redeemed: the contract or purchase agreement, the receipt for the amount paid together with the provider certification, and each bid's submitter, time, date and result (§1.148-5(d)(6)(iii)(E)).

The retained records must also include the bid solicitation form with an explanation of any deviations and, for non-GIC purchases, the cost of the most efficient SLGS portfolio when bids were due.

The certifications page takes the document set further, and the compliance file page covers retention in full.

The MSRB rules reach the fee through the municipal advisor definition, which names, among others, financial advisors, guaranteed investment contract brokers, third-party marketers, placement agents, solicitors, finders and swap advisors, to the extent they otherwise meet the definition's requirements (15 U.S.C. §78o-4(e)(4)(B); 17 CFR 240.15Ba1-1(d)(1)(iii)).

The label Bidding Agent appears in none of those texts, so what the law addresses is the activity rather than the title.

The statute's municipal financial products are municipal derivatives, guaranteed investment contracts and investment strategies (15 U.S.C. §78o-4(e)(5)), and it defines investment strategies to include plans or programs for investing bond proceeds that are not municipal derivatives or guaranteed investment contracts, and the recommendation of and brokerage of municipal escrow investments (15 U.S.C. §78o-4(e)(3)).

Advice on strategies outside that scope, such as an entity's non-proceeds funds, is exempt under 17 CFR 240.15Ba1-1(d)(3)(vii), and advice on bond proceeds is not.

In adopting the municipal advisor rules, the SEC added that brokering escrow investments without rendering advice is merely a provision of brokerage services, while advising on them is municipal advisory activity, and it described escrow investments as particularly vulnerable to abuse, citing historic yield burning enforcement (SEC Release No. 34-70462).

For scale, MSRB data cited by the SEC showed 192 municipal advisors identifying themselves as guaranteed investment contract brokers or advisors and 682 identifying as financial advisors as of December 31, 2012, in categories that overlap.

GFOA notes that brokers giving advice on bond-proceeds investments may be treated as municipal advisors, and that governments obtain broker-dealer advice through an RFP process or when they have retained an independent registered municipal advisor.

Under the MSRB's conflict-of-interest rule for municipal advisors, an advisor must, before or when municipal advisory activities begin, give the client full and fair written disclosure of all material conflicts of interest and of any material legal or disciplinary events, and say so in writing if there are none.

The conflicts the rule lists include fee-splitting with providers of investments or services, payments received from a third party to enlist the advisor's recommendation, and compensation contingent on the size or closing of a transaction, and supplemental material SM .05 requires the disclosures to explain how the advisor manages or mitigates each conflict.

The MSRB's companion prohibitions bar excessive compensation, materially inaccurate invoices, false or misleading statements about the advisor's capacity in RFP responses, undisclosed fee-splitting with providers of investments or services, and most payments to obtain engagements, and they ban fee-splitting with underwriters outright.

For municipal entity clients, the prohibitions also bar principal transactions on the same or a directly related issue or product, subject to an exception in SM .14 for specified fixed income securities.

Enforcement history shows what the disclosure layer is for: on December 23, 2011, the SEC charged GE Funding Capital Market Services with fraudulently manipulating at least 328 reinvestment transactions in 44 states and Puerto Rico from August 1999 to October 2004, alleging in part that it made improper, undisclosed payments to certain bidding agents in the form of swap fees that were inflated or unearned.

The firm agreed to pay about $25 million to the SEC and $45.35 million to the Justice Department, the IRS and 25 state attorneys general, about $70 million in total, in a settlement reached without admissions.

The fee also reaches the issuer's tax reporting: Form 8038-T asks for the qualified administrative costs taken under these rules (line 26), whether gross proceeds were invested in a GIC with the provider's name and term to the nearest tenth of a year (line 30), and whether proceeds were invested beyond their temporary periods (line 31).

The Form 8038-T page covers when and how that return is filed.

Why do fees above the safe harbor create yield problems?

Qualified administrative costs adjust the payments and receipts used to compute an investment's yield, so a fee treated as qualified without actually qualifying misstates the yield the issuer records for the investment.

The distortion can run through the bid itself: a GIC bid is judged net of broker's fees, so the larger the fee, the lower the net yield a given bid shows, and a misdescribed fee leaves the records describing a different deal than the one struck.

The GE Funding matter is the fee-side illustration: the payments the SEC alleged were improper, undisclosed and made to bidding agents took the form of swap fees that were inflated or unearned.

Where a fee exceeds the safe harbor and cannot be shown reasonable under §1.148-5(e)(2)(iii)(A), the excess cannot rely on the safe harbor, and the qualified administrative costs the issuer took are what Form 8038-T line 26 asks it to report.

Those yield figures matter beyond one investment: bonds are tested under both the yield-restriction rules of section 148(a) and the rebate rules of section 148(f), and an investment is a higher yielding investment when it yields materially more than the bond issue over the issue's term, a comparison made against the issue's arbitrage yield.

Final determinations about a fee's reasonableness and its treatment in the yield computation belong to bond counsel and tax counsel.

Issuers that want the provider-paid structure described here, with the fee kept at or below the safe-harbor maximum and disclosed, can use mGIC as Bidding Agent or ask mGIC for a free, no-obligation review of a current or upcoming investment.

Last updated 2026-10-06.

This page is general educational information about municipal finance and federal and state rules as of the date shown. It is not legal, tax or investment advice, and it is not a recommendation about any particular investment. Product availability, legality and suitability depend on the issuer, jurisdiction, governing documents and transaction-specific facts. Final legal and tax determinations remain with the issuer's bond counsel, tax counsel and other advisors.