DFARS Investigation and Compliance

Last Updated on: 16th March 2025, 12:55 am

DFARS INVESTIGATION AND COMPLIANCE

Have you seen a DFARS clause in your defense contract? If so, you’re already on the hook to follow strict regulations, or face penalties that could devastate your business. DFARS refers to the Defense Federal Acquisition Regulation Supplement, which is an extra set of rules that was created by the Department of Defense (https://www.acquisition.gov/dfars). This supplement that was designed to protect national security and ensure fair dealings is not merely a suggestion. It’s mandatory. And if you slip up, you could find yourself under investigation, paying massive fines, or even losing your eligibility to bid on future contracts. Let’s talk about how to avoid that.

We are Spodek Law Group, a nationwide federal defense law firm created by Todd Spodek. Our team focuses on guiding government contractors who are scrambling to understand DFARS or dealing with an active investigation. I’m not going to coddle you or pretend this is easy. The truth is, failing to follow DFARS requirements can ruin your entire operation. If you think I’m exaggerating, consider what the Department of Defense can do if it believes your company has violated cybersecurity controls, supply chain rules, or other important clauses. They can suspend payments, terminate contracts, and hand your case over to the Department of Justice. You don’t want that.

WHAT EXACTLY IS DFARS?

The DFARS is a collection of rules that was written to supplement the Federal Acquisition Regulation (FAR). It covers topics like cybersecurity standards (think NIST SP 800-171 compliance), sourcing of certain materials, and cost regulations for defense contracts. According to acquisition.gov/dfars, these rules are binding for any contractor or subcontractor doing business with the DoD. If your contract references a DFARS clause, it means you must follow that clause or risk serious consequences.

Picture this: You’re a small machine shop in the Midwest. You landed a subcontract making parts for a contractor who supplies the Navy. One day, you get a letter demanding that you prove compliance with DFARS cybersecurity requirements. If you can’t prove it, your subcontract might be canceled, and you could end up in a legal fight over who caused the breach of contract. A DFARS clause that was overlooked can cost you everything you’ve built.

POSSIBLE INVESTIGATIONS AND PENALTIES

The Department of Defense and other federal agencies that watch DFARS compliance often look for red flags such as data security lapses, misuse of government funds, or inaccurate cost reporting. An investigation that was triggered by a whistleblower complaint or a random audit can lead to the following outcomes:

• Suspension of Payments: DoD might freeze the money you’re owed, which could cripple your cash flow.
• Contract Termination: Losing a big contract that was your main source of revenue can put you out of business.
• Civil or Criminal Liability: If the government believes you knowingly violated DFARS, it may refer your case to the Department of Justice for possible fraud charges.
• Debarment: A formal ban from bidding on federal contracts, sometimes for years, which is effectively a death sentence for many businesses.

Evidence that was illegally obtained may be inadmissible, but the government rarely needs shady tactics to build a case. A simple email chain, cost ledger, or system vulnerability might be enough to show that you disregarded DFARS rules. The stakes couldn’t be higher, which means ignoring compliance is foolish.

One viewpoint says, “We’re a small contractor, the government won’t notice us.” That mindset is dangerous. Another viewpoint says, “We have general compliance steps, so we’re fine.” But if you haven’t addressed the specifics of DFARS, you’re playing with fire. Our advice is blunt: Get serious about DFARS right now, or brace for impact.

CYBERSECURITY RULES UNDER DFARS

Much of the recent scrutiny focuses on cybersecurity. NIST SP 800-171 is a set of standards that was created by the National Institute of Standards and Technology. These standards that were designed to safeguard Controlled Unclassified Information (CUI) are referenced in DFARS 252.204-7012. If you handle data labeled as CUI, you must prove that your systems meet the required safeguards. If your network is compromised, the DoD will want to know what you did to prevent it. They might decide you were negligent if you didn’t maintain these safeguards. Negligence that is proven can lead to claims of breach of contract or worse, which might invite heavy financial penalties.

Think about the consequences: A single data breach could expose confidential military info, anger federal contracting officials, and prompt a full-scale DFARS investigation into your entire IT setup. That investigation could reveal other vulnerabilities or questionable billing practices. Then you’re juggling multiple allegations at once. If that scenario doesn’t terrify you, you’re not thinking clearly.

HOW FEDERAL AGENCIES FIND VIOLATIONS

Audits: The Defense Contract Audit Agency (DCAA.mil) has authority to look into cost and accounting procedures. If they suspect you charged overhead expenses that aren’t allowed, or if your timekeeping is shady, they can flag your contract.

Inspections: The Defense Contract Management Agency (DCMA.mil) often checks your performance, schedule, and quality control. If they spot issues in your supply chain or manufacturing processes that violate DFARS, they can recommend further investigation.

Whistleblowers: Employees or subcontractors who sense wrongdoing, like false statements or security lapses, might file a report under the False Claims Act. That complaint can spark a full federal probe, which can lead to civil or criminal lawsuits.

STRATEGIES TO PROTECT YOURSELF

Be proactive. Don’t wait for a letter or a phone call from the Defense Department. Perform a self-assessment of your DFARS compliance. Identify which clauses apply to you, especially those related to cybersecurity, sourcing materials, and cost principles. If you find gaps, fix them now. If you ignore them, the cost of patching these holes during an investigation can be astronomical.

Document everything. Evidence that you followed the guidelines can save you if the government questions your compliance. Keep records of training sessions, system updates, supply chain checks, and cost allocations. If you can’t prove you did something, investigators might assume you never did it. That assumption is devastating if you face possible fraud allegations.

Hire skilled counsel. Let’s be blunt: many general business attorneys have never dealt with DFARS in a hands-on way. They might give generic advice that won’t hold up under a federal audit. You need professionals who have real experience with defense contracting rules, NIST standards, and investigations led by DCMA or DCAA. This is your livelihood on the line. Don’t gamble with an amateur approach.

HOW SPODEK LAW GROUP DEFENDS YOU

We are a nationwide federal defense law firm that was created by Todd Spodek. Our attorneys know DFARS, the agencies that enforce it, and the strategies that can protect you. If you’re already under investigation, our immediate move is to identify the root of the allegations. We interview staff, review contracts, and gather documentation that supports your compliance. If we find vulnerabilities, we work with IT specialists or cost experts to remedy them. This approach helps show you’re taking the matter seriously, which can limit potential penalties.

If we suspect investigators are reaching for criminal charges, we shift into a more aggressive defense mode. We challenge any evidence that was illegally obtained. We poke holes in the government’s narrative. We negotiate to reduce or dismiss certain claims if possible. Our goal is to prevent the nightmare scenario: big fines, contract debarment, or prison. It’s not easy, but we have over 50 years of combined experience handling tough federal matters, and we’re not afraid to fight for you.

DFARS FAQ QUICK-REFERENCE TABLE

CONSEQUENCES OF NONCOMPLIANCE

Failure to comply with DFARS can trigger more than just a canceled contract. It can invite full-blown legal action. Federal prosecutors who see intentional misstatements might file charges under the False Claims Act, which carries triple damages. That means if the government lost $500,000 because of your false billing or inadequate compliance, you might pay $1.5 million plus penalties. If there’s proof you lied or hid facts, prison time becomes a real possibility. Think about what that does to your business, your family, your future.

Even if you avoid criminal charges, a civil judgment could still destroy your finances. Debarment that was handed down by the federal government can bar you from bidding on new contracts, which effectively kills your income stream if you rely on defense work. These punishments are designed to push compliance. The government wants strict adherence to DFARS to protect national security, and it will use every tool at its disposal to punish violators.

FINAL WARNING AND DISCLAIMER

This article that you’re reading is not formal legal advice. Every situation is different, and you should consult an attorney licensed in your state if you face DFARS issues. Spodek Law Group does not guarantee results, because many factors are beyond anyone’s control. For official details on DFARS, visit acquisition.gov/dfars or consult the Department of Defense.

Here’s the bottom line: If you think DFARS compliance can wait, or if you believe minor lapses won’t matter, you’re fooling yourself. The Defense Department takes these rules very seriously, especially in cybersecurity and cost management. If you want to keep your contracts, avoid huge fines, and stay out of prison, handle your DFARS obligations before an investigation starts. And if you’re already under the spotlight, act now. Ignoring a government probe is a fatal mistake. Contact us at Spodek Law Group. We’ll stand by your side, fight for your rights, and hold you accountable to the high standards you need to survive in federal contracting. There’s no time to waste.