3.502-2 Subcontractor kickbacks.

The Anti-Kickback Act of 1986 (now codified at 41 U.S.C. chapter 87, Kickbacks,) was passed to

deter subcontractors from making payments and contractors from accepting payments for the

purpose of improperly obtaining or rewarding favorable treatment in connection with a prime

contract or a subcontract relating to a prime contract. The Kickbacks statute-

(a) Prohibits any person from-

(1) Providing, attempting to provide, or offering to provide any kickback;

(2) Soliciting, accepting, or attempting to accept any kickback; or

(3) Including, directly or indirectly, the amount of any kickback in the contract price charged by a

subcontractor to a prime contractor or a higher tier subcontractor or in the contract price charged

by a prime contractor to the United States.

(b) Imposes criminal penalties on any person who knowingly and willfully engages in the prohibited

conduct addressed in paragraph (a) of this section.

(c) Provides for the recovery of civil penalties by the United States from any person who knowingly

engages in such prohibited conduct and from any person whose employee, subcontractor, or

subcontractor employee provides, accepts, or charges a kickback.

(d) Provides that-

(1) The contracting officer may offset the amount of a kickback against monies owed by the United

States to the prime contractor under the prime contract to which such kickback relates;

(2) The contracting officer may direct a prime contractor to withhold from any sums owed to a

subcontractor under a subcontract of the prime contract the amount of any kickback which was or

may be offset against the prime contractor under paragraph (d)(1) of this section; and

(3) An offset under paragraph (d)(1) or a direction under paragraph (d)(2) of this section is a claim

by the Government for the purposes of 41 U.S.C. chapter 71, Contract Disputes.

(e) Authorizes contracting officers to order that sums withheld under paragraph (d)(2) of this section

be paid to the contracting agency, or if the sum has already been offset against the prime

contractor, that it be retained by the prime contractor.

(f) Requires the prime contractor to notify the contracting officer when the withholding under

paragraph (d)(2) of this section has been accomplished unless the amount withheld has been paid to

the Government.

(g) Requires a prime contractor or subcontractor to report in writing to the inspector general of the

contracting agency, the head of the contracting agency if the agency does not have an inspector

general, or the Attorney General any possible violation of the Kickbacks statute when the prime

contractor or subcontractor has reasonable grounds to believe such violation may have occurred.

(h) Provides that, for the purpose of ascertaining whether there has been a violation of the

Kickbacks statute with respect to any prime contract, the Government Accountability Office and the
inspector general of the contracting agency, or a representative of such contracting agency

designated by the head of the agency if the agency does not have an inspector general, shall have

access to and may inspect the facilities and audit the books and records, including any electronic

data or records, of any prime contractor or subcontractor under a prime contract awarded by such

agency.

(i) Requires each contracting agency to include in each prime contract, other than for commercial

products or commercial services, exceeding $150,000, a requirement that the prime contractor

shall–

(1) Have in place and follow reasonable procedures designed to prevent and detect violations of the

Kickbacks statute in its own operations and direct business relationships (e.g., company ethics rules

prohibiting kickbacks by employees, agents, or subcontractors; education programs for new

employees and subcontractors, explaining policies about kickbacks, related company procedures and

the consequences of detection; procurement procedures to minimize the opportunity for kickbacks;

audit procedures designed to detect kickbacks; periodic surveys of subcontractors to elicit

information about kickbacks; procedures to report kickbacks to law enforcement officials; annual

declarations by employees of gifts or gratuities received from subcontractors; annual employee

declarations that they have violated no company ethics rules; personnel practices that document

unethical or illegal behavior and make such information available to prospective employers); and

(2) Cooperate fully with any Federal agency investigating a possible violation of the Kickbacks

statute.

(j) Notwithstanding paragraph (i) of this section, a prime contractor shall cooperate fully with any

Federal Government agency investigating a violation of 41 U.S.C. 8702 (see 41 U.S.C. 8703(b)).

Parent topic: 3.502 Subcontractor kickbacks.