The new and improved Anti-Kickback Act and fraud in government procurement.
Today we will take a look at the new and improved Anti-Kickback Act, found at 41 U.S.C. § 8701, and how the improved AKA factors into litigation under the federal False Claims Act. More specifically, we will look at how a violation of the Anti-Kickback Act would render any subsequent claim to the government “false” within the meaning of the FCA.
Please note that we are referring to the Anti-kickback Act and not to the AKS, or the Anti-kickback Statute that applies to health care providers. That statute was originally passed in 1972 and has been amended numerous times also. Among other things the AKS (42 U.S.C. § 1320a-7b(b)) prohibits submission of claims for any health care services provided or procured through the payment of a kickback. The AKA that is the topic of this post is directed at federal procurement generally and not at health care fraud.
The original Anti-Kickback Act (“AKA”) was passed in 1946 as a result of contracting abuses during the Second World War; the statute’s original goal was somewhat limited. Initially the AKA was designed to deter subcontractors from making — and to deter prime contractors from accepting — payments for the reward of work. However, the limited goal of the statute led to a number of unintended results. For example, the original statute was interpreted by the courts as applying only to cost plus contracts, creating an open-season on firm fixed price contracts.
Congress made slight tweaks and revisions to the AKA from time to time for the next 40 years or so, but the statute was totally overhauled in 1986. The legislative history contains strong language from Congress about the problem of kickbacks in federal procurement.
Whatever form they take, all kickbacks serve to undermine Federal procurement …. Furthermore, inflated contract pricing is not their only effect. Kickback activity corrupts the Federal procurement system. It drives out honest competitors and destroys the markets in which the government must bargain. See, H.R. Rep. NO. 99–964, at 5 (1986), reprinted in 1986 U.S.C.C.A.N. at 5962.
The 1986 amendments to the statute did make it marginally better. For example, the 1986 amendments expanded the reach of the statute to include, for the first time, kickbacks paid in connection with any “negotiated” contract.
A handful of important cases interpreting the AKA followed the 1986 amendment. One 1994 case — important for our purposes in this blog post — held that the AKA did not preempt the government’s claims for damages from government contractor under the federal False Claims Act and federal common law. See, United States v. General Dynamics, 19 F3d 770 (2nd Cir. 1994).
In 2011 the statute underwent its most recent revisions. To date there is no case law interpreting the latest version of the AKA, but as with past amendments, the law has been strengthened considerably. I think it is clear that Congress intended any claim tainted by a kickback be rendered “false” such that it would be ineligible for payment. Consider the stark language of § 8707: “A person that knowingly and willfully engages in conduct prohibited by section 8702 of this title shall be fined under title 18, imprisoned for not more than 10 years, or both.” See, 41 U.S.C § 8707
That should leave no question in anyone’s mind how Congress feels about kickbacks in federal procurement. Add to this the — already ample — common law authority that government contracts tainted by fraud or wrong-doing are void ab initio (see, United States v. Miss. Valley Generating Co., 364 U.S. 520, 81 S.Ct. 294, 317 (1961)) and I think we have on our hands a great new area for FCA expansion.