Fifth Circuit’s Ruling On Anti-Kickback Act May Generate More Lawsuits Against Federal Contractors

In United States v. Kellogg Brown & Root, Inc., No. 12-40447 (5th Cir. July 19, 2013) ("KBR"), the U.S. Court of Appeals for the Fifth Circuit decided questions of first impression concerning the federal Anti-Kickback Act that may result in increased civil litigation against federal contractors based on the acts of their employees. The KBR decision adopts a more lenient standard for the imputation of vicarious liability to employers for their employees' alleged violations of the Act. This lenient standard may inspire more qui tam suits under the False Claims Act and government enforcement actions under the Anti-Kickback Act itself. Government contractors should reexamine their training and compliance programs to ensure that they fully educate employees about the Anti-Kickback Act and adhere to its monitoring and reporting requirements.

In KBR, the Court interpreted a subsection of the Act's civil suit provision permitting recovery of double damages and per-occurrence penalties, 41 U.S.C. § 8706(a)(1), to extend vicarious liability to employers. The Court also adopted a lenient, common-law standard for the imposition of vicarious liability under this subsection and refused to require employees to have been acting with the intent to benefit their employer as a prerequisite to employer liability. This compliance alert provides a brief background on the Anti-Kickback Act, a synopsis of the Fifth Circuit's decision and its potential impact on employers, and some guidance relating to training and compliance programs.

Congress enacted the Anti-Kickback Act in 1946 in response to reports that World War II defense subcontractors were paying fees to prime contractors to gain valuable military subcontracts. These payments were ultimately a burden on taxpayers, as prime contractors would pass these inflated subcontract costs along to the government. The U.S. Supreme Court reaffirmed the purpose of the Act in a 1966 decision when it observed that "public policy requires that the United States be able to rid itself of a prime contract tainted by kickbacks." United States v. Acme Process Equip. Co., 385 U.S. 138, 147, 87 S. Ct. 350, 356 (1966). In 1986, Congress amended the Act "to enhance the government's ability to prevent and prosecute kickback practices." H.R. REP. NO. 99-964, at 4 (1986), reprinted in 1986 U.S.C.C.A.N. 5960−61. Congress explained that "[t]hese practices have become a pervasive problem in Federal procurement. This form of commercial bribery has tremendous impact. Kickbacks directly inflate contract costs paid by the taxpayer. Kickbacks destroy competition and they foster corruption." Id.

The Act as...