Anti-Kickback Statute

The Anti-Kickback Statute is a federal law that criminalizes the exchange of money, gifts, or other inducements intended to influence contract award, subcontract placement, or procurement decisions on federal government contracts.

What is the Anti-Kickback Statute?

The Anti-Kickback Act of 1986 (41 U.S.C. § 8701-8707) prohibits any prime contractor, subcontractor, or their employees from providing, accepting, soliciting, or attempting to obtain any kickback in connection with a subcontract or prime contract under a federal contract. A kickback is broadly defined as any money, fee, commission, credit, gift, gratuity, thing of value, or compensation of any kind paid to improperly obtain or reward favorable treatment.

The statute applies at every tier of contracting, reaching:

• Prime contractors that receive kickbacks from subcontractors seeking placement.
• Subcontractors that pay kickbacks to prime contractor employees who control subcontract awards.
• Supplier representatives who offer entertainment, gifts, or payments to procurement officials.

Violations expose the parties to criminal penalties (up to 10 years imprisonment), civil penalties of twice the kickback amount, and contract price reduction to eliminate the cost of any kickback passed through to the government. The False Claims Act often runs in parallel because kickback costs submitted as allowable costs on a government contract create false claims.

FAR 52.203-7 requires contractors to have procedures to detect and prevent kickbacks and to report known or suspected violations to the IG and the contracting officer. This feeds directly into the Mandatory Disclosure Rule at FAR 52.203-13.

Why the Anti-Kickback Statute matters for government contractors

Large contractors with extensive subcontractor networks face the greatest exposure: a procurement manager who accepts vendor entertainment or a supplier representative who offers cash discounts to a prime's buyer can trigger corporate liability even if senior management was unaware. Effective controls include gift and entertainment policies with explicit dollar thresholds (typically zero for anything linked to a procurement decision), subcontractor ethics training, and anonymous hotlines.

Example

A subcontract administrator at a defense prime receives a $5,000 cash payment from a small supplier in exchange for directing purchase orders to that supplier on a cost-plus contract. The payment is discovered during a DCAA audit when the contractor's accounts show an unexplained personal cash withdrawal. Both individuals face criminal prosecution; the prime contractor is required to reduce the contract price by the amount of subcontract overcharges traceable to the kickback and disclose the violation to the contracting officer.

Frequently Asked Questions

Does the Anti-Kickback Statute cover teaming arrangement payments?

Generally no, provided payments between teaming partners reflect legitimate cost sharing or workshare agreed in the teaming agreement. However, a payment structured to guarantee a subcontract award regardless of competition or capability could be recharacterized as a kickback. Teaming agreements should be reviewed to ensure payments are tied to performance, not award influence.

What is the difference between a kickback and a legitimate sales commission?

A legitimate sales commission is paid by the seller to its own employees for developing business. A kickback flows from the seller (or its agent) to the buyer's personnel to influence the buyer's decision. The key distinction is whether the payment crosses organizational boundaries to influence a procurement decision by someone who owes a duty to their employer or the government.

Are entertainment and hospitality covered?

Yes. Items of value include meals, entertainment, travel, and tickets to events when provided with the intent to improperly influence a procurement decision. The statute does not set a de minimis dollar threshold; the intent element is what controls, though FAR-compliant contractor ethics programs typically set internal zero or near-zero thresholds for any vendor-provided entertainment related to a pending procurement.

How does a contractor report a suspected kickback?

FAR 52.203-7 requires contractors with contracts exceeding $150,000 to report in writing to the IG and contracting officer whenever the contractor has reasonable grounds to believe a kickback has occurred in connection with a government contract. The report must contain the relevant facts and the corrective action taken or planned.