Subcontractor kickbacks
FAR 3.502-2 strictly prohibits kickbacks in federal contracting, requiring robust prevention, detection, and reporting procedures, with severe penalties for violations.
Overview
FAR 3.502-2 implements the Anti-Kickback Act of 1986, prohibiting kickbacks in government contracting to ensure fair and ethical business practices. The regulation forbids providing, soliciting, or accepting kickbacks, and prohibits including kickback amounts in contract prices. It establishes criminal and civil penalties for violations, allows the government to offset kickback amounts from payments, and requires contractors to report suspected violations. The section also mandates that prime contracts (except for commercial products/services) over $200,000 include requirements for contractors to have procedures to prevent and detect kickbacks and to cooperate with investigations. Government agencies are granted audit rights to inspect contractor and subcontractor records for compliance.
Key Rules
- Prohibition of Kickbacks
- No person may provide, solicit, accept, or attempt to provide or accept kickbacks in connection with government contracts or subcontracts.
- Penalties and Recovery
- Criminal and civil penalties apply to knowing and willful violations, and the government may recover kickback amounts.
- Offset and Withholding
- Contracting officers may offset kickback amounts from payments to contractors or direct withholding from subcontractors.
- Mandatory Reporting
- Contractors must report suspected kickback violations to the agency inspector general, agency head, or Attorney General.
- Audit Rights
- Agencies may audit contractor and subcontractor records to investigate potential violations.
- Procedures for Prevention
- Prime contractors (non-commercial, >$200,000) must implement procedures to prevent and detect kickbacks and cooperate with investigations.
Responsibilities
- Contracting Officers: Offset or direct withholding of kickback amounts; ensure contract clauses are included; order payments as required.
- Contractors: Prohibit and prevent kickbacks; report suspected violations; cooperate with investigations; implement anti-kickback procedures for qualifying contracts.
- Agencies: Audit and inspect contractor records; enforce compliance; receive and act on reports of violations.
Practical Implications
This section exists to maintain integrity in federal procurement by deterring unethical payments and favoritism. Contractors must be vigilant in preventing, detecting, and reporting kickbacks, especially on larger, non-commercial contracts. Failure to comply can result in severe penalties, payment offsets, and reputational harm. Common pitfalls include inadequate internal controls, failure to report, or lack of cooperation during investigations.