Kickback

Definition

In business and commerce, a kickback refers to a form of bribery or unethical practice where someone, typically an employee or a contractor, receives money, goods, or services in exchange for providing favourable treatment or business opportunities to another person or entity.

What are kickbacks?

Kickbacks are considered illegal and unethical because they involve corrupt practices that undermine fair competition and transparency in business transactions.

Here’s how a kickback typically works:

1. Offer: An individual or organisation offers a kickback to someone who holds a position of authority or decision-making power within a business transaction. This could be an employee, manager, contractor, or anyone with the ability to influence a decision.

2. Acceptance: The person in the position of power accepts the kickback, which could be in the form of cash, gifts, discounts, vacations, or other valuable items or services.

3. Favourable treatment: In return for the kickback, the person in power provides favourable treatment to the individual or organisation offering the kickback. This could include awarding them a contract, making purchasing decisions in their favour, or providing other business opportunities.

Kickbacks are illegal in most countries and can have severe legal consequences for those involved. They are considered a form of corruption that distorts fair competition and can result in financial losses for businesses and harm the overall economy. Many countries have laws and regulations in place to prevent and punish kickbacks, and organisations often have strict anti-corruption policies and codes of ethics to deter such unethical practices within their ranks.

Kickback warning signs

These are some common kickback warning signs. While they don’t necessarily indicate wrongdoing, the presence of multiple signs increases the likelihood of a kickback scheme.

• No competitive bidding process or ignoring lower bids

• Lack of appropriate supervision during the purchasing process

• Higher-than-average prices for goods or services

• Recommendations to use a vendor that others avoid

• A vendor with frequent legal or regulatory issues

• Employees being overly friendly with vendors

• Management pressuring staff to use a particular vendor

• Vendors operating in industries where kickbacks are common

• Continued use of vendors that provide poor products or services

• Repeatedly missed delivery dates

Example of kickback

A local government agency is awarding a contract for a major construction project, such as building a new public facility. The agency solicits bids from various construction companies.

A corrupt contractor, Company X, colludes with a government official responsible for overseeing the bidding process. The government official has the authority to influence the contract award decision. Company X submits a bid for the construction project, but the bidding process is manipulated in its favour. The corrupt government official ensures that the bid evaluation is skewed to favour Company X, despite the presence of more qualified and cost-effective competitors.

Due to the manipulation, Company X is awarded the construction contract, even though it may not have presented the best bid in terms of cost, expertise, or qualifications.