Channel partners offer significant benefits when your original equipment manufacturer, software manufacturer, or cloud-service provider is contracting with the federal government. But channel partners also introduce various compliance risks, because their actions can directly implicate you as the contractor—and recent Department of Justice enforcement actions show that violations by or involving channel partner sales to the government can result in settlements costing millions of dollars. Careful compliance, including planning and monitoring are key.
Partners Zohra Tejani and Ben Kingsley discussed considerations for striking the right balance during their recent CLE session, “Federal Sales: Partner Compliance Programs and Investigations.” Here are some of the key takeaways:
Establish policies to guide and monitor channel partners’ practices, including their use of pricing or other confidential information. Train both internal teams and channel partners on compliance requirements—and clearly document partner activities and communications with government customers. Regularly audit partner pricing and bidding practices to detect potential bid rigging or price fixing and review partner marketing materials and representations about company products, especially representations to the government. The goal is maintaining visibility into partner activities without micromanaging legitimate business operations. Companies should focus particularly on areas where partners interact directly with government customers or handle pricing and contract negotiations.
Limit False Claims Act exposure. Even when channel partners submit claims to the government, technology providers can face liability for false or fraudulent submissions. The FCA's reach extends beyond direct submissions, encompassing, for example, situations where companies knowingly cause false claims through their channel partners. With potential treble damages and significant per-claim penalties, FCA violations can quickly escalate into multi-million-dollar settlements.
Mitigate the risk of violating the Anti-Kickback Act. Remember that enforcement authorities interpret "kickbacks" broadly—even common commercial practices like referral fees require careful scrutiny in government contracting. Review any referral fee programs to channel partners who are in the contract chain with public sector customers and be prepared to either end such programs or implement guardrails aligned to best practices. Consider separate partner programs for commercial versus government business, and implement controls on marketing funds, rebates, and other financial incentives when government contracts are involved. Document legitimate business purposes for any partner payments and train teams to recognize and avoid situations that could be viewed as improper influence.
Know when to terminate a relationship with a channel partner. Be prepared to promptly terminate channel partner relationships when problematic conduct emerges. Some red flags that warrant further investigation include:
Consider whether self-disclosure is mandatory or otherwise prudent. Channel partner wrongdoing can implicate you in legal violations, some of which may require self-disclosure. Even if not required, DOJ’s self-disclosure and cooperation policies reward companies that self-disclose and cooperate, including for False Claims Act violations, where early disclosure can limit damages and penalties. Conduct appropriate internal investigation before disclosure, time and scope disclosures with qualified legal counsel, and focus on verified facts.
Enforcement will remain a priority in this administration. Government contracting has been—and likely will continue to be—a major area of enforcement. Similarly, things like the Procurement Collusion Task Force and the Cyber-Fraud Initiative, which has been targeting companies related to their cyber compliance programs, are unlikely to go away. Channel partners can add an extra level of risk for companies doing business in this space.
Learn more about Fenwick’s government contracts and white-collar investigations capabilities and register here to watch our other 2025 CLE webinars on-demand (self-study credit available).