3.502-2
Subcontractor kickbacks
FAR 3.502-2 strictly prohibits kickbacks in government contracting, imposes severe penalties for violations, and requires robust prevention, detection, and reporting procedures for contracts over $150,000.
Overview
FAR 3.502-2 implements the Anti-Kickback Act of 1986, prohibiting kickbacks in government contracting to ensure fair and ethical business practices. It outlines criminal and civil penalties for violations, establishes procedures for withholding and offsetting payments related to kickbacks, and mandates reporting and cooperation requirements for contractors and subcontractors. The regulation also grants government agencies audit rights and requires prime contractors (for non-commercial contracts over $150,000) to have procedures in place to prevent and detect kickbacks, as well as to cooperate with investigations.
Key Rules
- Prohibition of Kickbacks
- No person may provide, solicit, accept, or include kickbacks in contract pricing related to government contracts.
- Penalties
- Criminal and civil penalties apply to individuals and entities knowingly involved in kickbacks.
- Withholding and Offsetting
- Contracting officers can offset kickback amounts from payments to prime contractors or direct withholding from subcontractors.
- Reporting Requirements
- Contractors and subcontractors must report suspected kickback violations to the appropriate authorities.
- Audit Rights
- Government agencies have the right to audit contractor and subcontractor records for compliance.
- Prevention Procedures
- Prime contractors (for non-commercial contracts >$150,000) must implement procedures to prevent and detect kickbacks.
- Cooperation with Investigations
- Full cooperation with federal investigations is required, regardless of contract type.
Responsibilities
- Contracting Officers: Offset or withhold payments related to kickbacks, order payments to agencies, and enforce compliance.
- Contractors: Prevent, detect, and report kickbacks; cooperate with investigations; implement internal controls for contracts >$150,000 (non-commercial).
- Agencies: Audit and inspect contractor records, investigate violations, and enforce penalties.
Practical Implications
- This regulation exists to deter unethical practices and protect the integrity of federal procurement.
- Contractors must be vigilant in preventing, detecting, and reporting kickbacks, especially on larger contracts.
- Failure to comply can result in severe penalties, payment withholdings, and reputational damage.