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Insurance Commission Split Is Kickback

Aug.02.2005

The Court of Federal Claims in Morse Diesel Int'l, Inc. v. U.S. (July 15, 2005 http://www.uscfc.uscourts.gov/Opinions/Braden/05/BRADEN.MorseDiesel.pdf) held that Morse Diesel, a construction management company whose parent had a commission-splitting arrangement with its performance bond brokers, violated the Anti-Kickback Act of 1986 because the payments from the brokers back to the parent were not, as the contractor argued, merely discounts, promotional allowances, or rebates, but rather were for the improper purpose of “cementing” the brokers’ exclusive relationship with Morse and its parent. Further, in an expansive reading of the term “prime contractor,” the court found that, even though Morse Diesel was the named prime contractor under several fixed-price contracts, its parent also was a prime contractor within the meaning of the act and the surety bond brokers were “subcontractors,” despite the facts that there was no direct relationship between Morse Diesel and the sureties and Morse Diesel did not receive directly any of the sureties’ payments.

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