Anti-Kickback Act

The Anti-Kickback Act of 1986 (41 U.S.C. 8701-8707) prohibits any person from providing, soliciting, or accepting kickbacks in connection with a subcontract under a federal prime contract. A kickback is defined as any money, fee, commission, credit, gift, gratuity, or anything of value provided for the purpose of improperly obtaining or rewarding favorable treatment in connection with a subcontract. The Act applies to prime contractors, subcontractors, and their employees at every tier of the contracting chain.

What is the Anti-Kickback Act?

The Anti-Kickback Act makes it a federal crime to give or receive anything of value in exchange for favorable treatment in the award or performance of a subcontract under a government prime contract. The statute covers both sides of the transaction: the person who offers or pays the kickback and the person who solicits or accepts it. Civil penalties of up to twice the amount of the kickback, plus $10,000 per violation, apply in addition to criminal penalties that include fines and imprisonment of up to 10 years.

FAR Subpart 3.5 implements the Anti-Kickback Act. FAR 52.203-7 (Anti-Kickback Procedures) is included in most contracts and requires prime contractors to:

• Implement a written policy prohibiting kickbacks in their subcontracting activities.
• Conduct periodic examinations of subcontract files and records to detect kickbacks.
• Report in writing to the agency IG any reasonable grounds to believe a kickback violation has occurred.
• Cooperate with any federal agency investigation of suspected kickbacks.

The reporting obligation under FAR 52.203-7 operates in parallel with the mandatory disclosure obligation under FAR 52.203-13 for larger contractors. Both require affirmative action when credible evidence of a violation surfaces internally.

The Act also allows the government to offset the amount of any kickback against money owed to the prime contractor, effectively recovering the tainted amount from the prime even if the prime was the victim rather than the perpetrator.

Why it matters for contractors

Kickback violations expose both the individual employees involved and the contracting firm itself to criminal prosecution, False Claims Act liability, and debarment. Because the Anti-Kickback Act applies at every subcontract tier, a prime contractor can face liability for violations committed by a lower-tier subcontractor if the prime knew or should have known and failed to report. This makes subcontractor oversight -- including ethics training and periodic file reviews -- a concrete legal obligation, not just good practice.

Contractors in industries with high subcontracting activity (construction, defense, IT services) face elevated risk and should ensure their compliance programs specifically address subcontract management.

Example

A construction prime contractor's project manager receives a set of expensive tools from a concrete subcontractor after awarding the subcontract. An employee reports the transaction through the company's ethics hotline. The prime contractor's legal team determines the gift meets the statutory definition of a kickback. Under FAR 52.203-7, the prime must report the violation to the agency IG in writing, cooperate with any investigation, and implement corrective action. The project manager is terminated. The prime self-reports before the government discovers the violation independently, which is considered mitigating in any subsequent enforcement proceeding.