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$1M penalty imposed against prime contractor

Where employees working for the subcontractor of a government prime contractor accepted more than $1 million in kickbacks, a civil penalty in that amount was imposed against the government contractor under the strict liability provision of the Anti-Kickback Act.


In 2008, Management Consulting Inc., or Mancon, was awarded a prime contract with the U.S. Department of Health and Human Services. In 2012, Mancon was awarded several prime contracts with the U.S. Marine Corps, involving providing recovery care coordinators and other services to the U.S. Marine Corps Wounded Warrior Regiment, or RCC contract. In each contract, Mancon subcontracted work to Armed Forces Services Corporation, or AFSC, which further subcontracted work to Special Media Enterprises LLC, or SpecMed.

On Aug. 3, 2021, the United States filed a complaint in this court against seeking to impose a civil penalty against Mancon under the strict liability provision of the Anti-Kickback Act, based on the kickbacks SpecMed paid to AFSC employees on the HHS and RCC contracts. Both sides have filed motions for summary judgment.


Section 8706(a)(2) provides that the government may recover a civil penalty from a prime contractor “whose employee, subcontractor, or subcontractor employee violates section 8702.” As a provider of services in its contracts with AFSC, SpecMed qualifies as a “subcontractor;” however it is less clear that SpecMed qualifies as Mancon’s subcontractor for the HHS contract, in which Mancon did not direct any work directly to SpecMed.

The Anti-Kickback Act’s definition of “subcontractor” does not require contractual privity or specify whether a lower-tier subcontractor is considered the “subcontractor” of every higher-tier contractor. Thus, depending on the construction of this portion of the Anti- Kickback Act, lower-tier subcontractors such as SpecMed could qualify as Mancon’s subcontractors even without a direct contractual relationship with Mancon. Mancon argues that such an interpretation would allow the government to recover from every higher-tier contractor in the event of a kickback between lower-tier subcontractors, generating a windfall for the United States and destroying any governmental incentive to prevent such kickbacks from occurring.

Nonetheless, whether SpecMed would qualify as Mancon’s subcontractor for the HHS contract does not affect the issue of Mancon’s liability in this case. Critically, although Mancon subcontracted some work on the RCC contract to SpecMed directly, Mancon also subcontracted work to AFSC. Accordingly, AFSC undisputedly served as a subcontractor for Mancon. AFSC’s employees accepted $1,088,802.92 in kickbacks while they were Mancon’s subcontractor’s employees, providing the basis for Mancon’s liability for the kickbacks on both contracts under the strict liability provision of the Anti-Kickback Act. Therefore, those three employees were “subcontractor employees” under the Anti-Kickback Act, giving rise to liability under the statute.

Nor does the issue of whether SpecMed might qualify as Mancon’s subcontractor affect the extent of Mancon’s liability, as the strict liability provision only allows a recovery equal to the amount of the kickbacks, with no “per-occurrence” penalty. Regardless of whether SpecMed is considered Mancon’s subcontractor, the government’s potential recovery from Mancon is limited to the amount of the kickbacks. Thus, whether the Anti-Kickback Act can be construed to permit recovery at every potential layer of a contractor-subcontractor chain does not affect the outcome of this case, and the court has no occasion to apply the law to that set of facts.

Mancon nevertheless points to multiple sources describing the Anti-Kickback Act’s nature as compensatory, arguing that the government cannot recover from Mancon after being “made whole” through both its settlement with AFSC and the forfeitures from AFSC executive Brodie Thomson in the related criminal case. Though Mancon’s argument is fundamentally sound when considered incrementally, its position fails to address the Anti-Kickback Act’s text, the hidden costs of kickbacks and the ineluctable fact that the Act serves both compensatory and deterrent purposes.

Remaining arguments

Mancon also argues that a $1,088,802.92 fine would be excessive under the Excessive Fines Clause of the Eighth Amendment. The court does not find the statutory penalty unconstitutionally excessive, either on its face or as applied to Mancon.

Finally, Mancon argues that its civil penalty should be offset against the government’s settlement with AFSC. But the text of the Anti-Kickback Act does not authorize any offset, and offsetting Mancon’s liability against past settlements would run contrary to other cases applying the Anti-Kickback Act. The court does not find an offset appropriate in this case.

Plaintiff’s motion for summary judgment granted. Defendant’s motion for summary judgment denied.

United States v. Management Consulting Inc., Case No. 1:21-cv-890, Oct. 24, 2022. EDVA at Alexandria (Alston). VLW 022-3-480. 17 pp.

VLW 022-3-480