Defense Logistics Agency (DLA) Contracting: Understanding the Risks for Debarment, Suspension, and Other Penalties

The Defense Logistics Agency (DLA) manages tens of billions of dollars in defense spending annually. It works with thousands of suppliers through programs like DLA Aviation to deliver food, clothing, construction equipment and materials, and medical supplies to support the armed forces worldwide. It supports global humanitarian and disaster relief efforts as well—and, here too, it relies on private contractors, including small businesses, to assist with meeting the needs of individuals around the world. 

As a result, it does not take contractor fraud lightly. 

We have recently seen multiple instances of the DLA referring companies for debarment and suspension. These are serious matters that can have drastic financial consequences, including the loss of future DLA vendor opportunities. Department or suspension by the U.S. Department of Defense (DOD) or the U.S. General Services Administration (GSA) prevents companies from serving as both prime vendors and subcontractors under defense contracts (including DLA contracts); and, in many cases, debarment and suspension referrals will lead to other penalties as well. 

Issues That Can Lead to Debarment and Suspension for DLA Suppliers 

As with all areas of defense contracting, there are several issues that can lead to debarment and suspension for DLA contractors. This includes issues during both procurement and contract execution, including the mishandling of procurement information and fraud related to the delivery of goods and services in support of operations conducted globally by all branches of the military: 

• U.S. Air Force
• U.S. Army
• U.S. Coast Guard
• U.S. Navy
• U.S. Marine Corps 
• U.S. Space Force 

Crucially, we have seen the DLA recently target entities involved at all levels of the supply chain. This includes not only prime vendors and subcontractors, but also large and small businesses serving as manufacturers, distributors, and other entities as well. 

Many of these recent cases have involved goods and services delivered under the DLA Troop Support program. The DLA plays a pivotal role in outfitting members of the military services with essential supplies and military equipment, ensuring they have the resources they need to remain ready to serve the United States and protect citizens living both domestically and abroad. While the DLA and DOD are focused on uncovering all forms of fraud, waste, and abuse involving DLA Troop Support, they are particularly focused on those that have the potential to compromise mission integrity or jeopardize servicemembers’ health and safety. 

With this in mind, some examples of issues that can lead to referrals for suspension and debarment from the DLA include: 

DLA Procurement Fraud (Including DLA Troop Support Procurement Fraud)

When bidding on DLA contracts (including contracts for DLA Troop Support), private companies must strictly comply with all applicable federal laws, regulations, and award management protocols. These include Title 41 of the U.S. Code, the Truth-in-Negotiations Act (TINA), the Federal Acquisition Regulations (FAR) and the Defense Federal Acquisition Regulation Supplement (DFARS), among many others. 

Procurement fraud can take many different forms, and the DOD has shown a willingness to suspend and debar suppliers, contractors, and subcontractors for engaging in all forms of fraud during the procurement process. This includes (but is not limited to): 

• Misrepresentations in DLA contract bids
• Inflation of payroll, material, and equipment costs 
• TINA violations 
• FAR and DFARS violations 
• Bid rigging and other forms of collusion 

Even if efforts to obtain a DLA contract through fraud are unsuccessful, all parties involved can potentially face suspension or debarment (among other penalties, as discussed in greater detail below). In cases involving successful fraud, the consequences are likely to be more severe—particularly when there is clear evidence of intentional efforts to defraud the DOD. 

Product Substitution Under DLA Contracts 

Once a DLA contract has been awarded, the contractor must strictly comply with all terms of the contract. This includes delivering the specific products that the contractor has agreed to provide. Product substitution is among the most common forms of government contract fraud, and it can have immediate and long-lasting ramifications.

Failure to Deliver Under DLA Contracts

Along with product substitution, failure to deliver is among the most common forms of government contracting fraud as well. When suppliers and other entities enter into contracts with the DLA to deliver food, clothing, construction equipment or materials, or medical supplies, they must deliver the contracted goods as required. Failure to deliver goods that are necessary to military or other overseas operations can have significant (and potentially dangerous) consequences, so the DLA and DOD take these failures very seriously. 

Billing Fraud Under DLA Contracts 

Across the entire DOD, it is estimated that billing fraud results in hundreds of billions of dollars in taxpayer losses each year. This includes overbilling, double-billing, billing the military for goods provided to private-sector or foreign customers, cross-charging between federal contracts, and billing for goods not actually provided. Combating billing fraud is among the DOD’s top government procurement-related enforcement priorities—and this means that, for companies facing billing fraud allegations, suspension or debarment is a very real possibility. 

Bribery and Other Forms of Corruption

Bribery and other forms of corruption can lead to suspension and debarment of DLA contractors as well. This includes bribery during the procurement process and during contract execution, and it includes bribery of both U.S. and foreign authorities. While military and government officials who solicit or accept bribes can face serious career-related consequences, contractors that offer or pay bribes can face loss of their DOD contracting eligibility (potentially among other penalties). 

While these are among the most common issues that can lead to suspension and debarment referrals from the DLA, this list is by no means exclusive. When facing a referral to the DOD or GSA, it is imperative that DLA contractors and other entities have a clear and comprehensive understanding of the specific allegations that triggered the referral.

Additional Risks of Being Targeted for DLA Fraud 

While suspension and debarment are real and significant concerns for contractors and other private-sector companies accused of DLA fraud, these are not necessarily the only concerns involved. Investigations targeting defense contract fraud can lead to other consequences as well, especially if other federal agencies become involved in the process. 

Among other risks, fraud under contracts with the DLA can also lead to civil or criminal enforcement under the False Claims Act. The False Claims Act makes it a federal offense to, “knowingly present[], or cause[] to be presented, a false or fraudulent claim for payment or approval.” It includes provisions for both civil and criminal enforcement, with potential penalties including: 

• Civil Enforcement Actions – Civil fines of up to $28,618 per violation (as of 2025) plus three times the government’s actual losses. 
• Criminal Enforcement Actions – Criminal fines of up to $250,000 for individuals ($500,000 for companies) and up to five years of federal imprisonment.

As noted above, these are very real possibilities. For example, in a non-DLA-related case, the associate of a DOD contractor recently pled guilty to multiple criminal violations following a U.S. Department of Justice (DOJ) investigation. In late 2024, a DOD contractor was sentenced to 15 months in federal prison for fraud and other crimes. Six months earlier, the president of a DOD contractor pleaded guilty to a bribery scheme, and is set to face sentencing in 2025. 

This underscores the importance of understanding not only the allegations that trigger a suspension or debarment referral, but also any additional allegations that may flow from a DOD or DOJ investigation. If a suspension or debarment referral also presents risks for a civil or criminal enforcement action, this is a factor that requires careful consideration when formulating a defense strategy. 

Defending Against Allegations of Defense Logistics Agency (DLA) Fraud

With all of this in mind, what can (and should) DLA Troop Support contractors and other DLA suppliers do when facing a referral for suspension or debarment? In this scenario, it is important to:

1. Respond Immediately 

When facing a referral from the DLA for suspension or debarment, an immediate response is required. Time is of the essence for formulating and executing an effective defense strategy. 

2. Assess All Potential Risks

As discussed above, when facing a referral from the DLA, it is important to assess all potential risks. This includes not only the risk of suspension or debarment, but the risk of facing other civil or criminal penalties under the National Defense Authorization Act. 

3. Formulate a Targeted Defense Strategy 

With a clear and comprehensive understanding of the risks at hand, the next step is to formulate a targeted defense strategy focused on the specific risks within the DLA’s enforcement system. This defense strategy should focus on achieving a specific favorable resolution based on the facts and circumstances at hand. 

4. Be Prepared for Additional Scrutiny 

Even if a referral from the DLA does not lead to an immediate investigation, an investigation could still be forthcoming. With this in mind, contractors that are facing referrals should remain prepared for the possibility of facing additional scrutiny. 

5. Take a Proactive Approach to Avoid Unnecessary Consequences 

In all situations, once the DLA has issued a referral for suspension or debarment, a proactive approach is essential for avoiding unnecessary consequences. The longer contractors and suppliers wait to protect themselves, the greater their risks will be. 

Speak with a Senior Federal Defense Attorney at Oberheiden P.C.

Is your company facing suspension or debarment as the result of a referral from the Defense Logistics Agency? If so, we encourage you to contact us promptly. Call 888-680-1745 or contact us online to speak with a senior federal defense lawyer at Oberheiden P.C. in confidence today.