Can you give a bit more details about the colony PCR? especially where your primers bind.

Colony PCR might be giving you a false positive. I would suggest using a non-transformed strain as a negative control?

Thanks for the responses already. Michael-I have been running a negative PCR on my PCR reaction (water) and it has been clean, but I have not done a negative colony. Benoit-I have one primer inside my transgene and one in the backbone so that I also know orientation of the insert. As far as the rest of the PCR, I am just setting it up as a normal PCR, but instead of putting purified DNA in the reaction, I touch a tip of a pipet tip to the colony and then put the tip into the reaction tube.