DoD Proposes Rule for Detecting Counterfeit Electronic Parts

The Department of Defense is proposing to amend the Defense Federal Acquisition Regulation Supplement to implement Section 818 of the National Defense Authorization Act for Fiscal Year 2012 (PL 112-81), which requires DoD to issue regulations holding contractors responsible for detecting and avoiding the use or inclusion of counterfeit electronic parts or suspect counterfeit electronic parts. The proposed policy regulation, DFARS 246.870-2, would require contractors to establish and maintain an acceptable counterfeit electronic part avoidance and detection system. At a minimum, the system must address training; inspection and testing of electronic parts, including criteria for acceptance and rejection; processes to abolish counterfeit parts proliferation; mechanisms to enable traceability of parts to suppliers; use and qualification of trusted suppliers; reporting and quarantining; methodologies to identify suspect counterfeit parts and to rapidly determine if a suspect counterfeit part is, in fact, counterfeit; the design, operation, and maintenance of detection and avoidance systems; and flowing down avoidance and detection requirements to subcontractors.

Purchasing System Affected

Under the proposed rule, failure to establish and maintain an acceptable counterfeit electronic part avoidance and detection system can result in disapproval of the purchasing system by the contracting officer and withholding of payments. Accordingly, the rule would also modify DFARS 252.244-7001, Contractor Purchasing System Administration, to add criteria for the contractor’s purchasing system. Further, the rule proposes an alternate which adds criteria for a less comprehensive review of the contractor’s purchasing system that targets review of those elements relating to the detection and avoidance of counterfeit electronic parts and suspect parts. A new cost principle, DFARS 231.205-71, would prohibit, with exceptions, contractors from claiming, as a reimbursable cost, the cost of counterfeit electronic parts or suspect counterfeit electronic parts or the cost of rework or corrective action that may be required to remedy the use or inclusion of such parts. The government’s role in reviewing and monitoring the contractor’s processes and detection procedures is addressed as part of a contractor’s purchasing system review in proposed DFARS 244.303(b).

New Clause

Proposed DFARS 246.870-3 prescribes a new clause, DFARS 252.246-70XX, Contractor Counterfeit Electronic Part Avoidance and Detection System. The clause would be added in solicitations and in most contracts when the government is procuring electronic parts or an end item, component, part, or material containing electronic parts or services; where the contractor will supply electronic components, parts, or materials as part of the service; and the resulting contract will be subject to the Cost Accounting Standards, as implemented at CASB 9903.201-1. Finally, the rule would add corresponding definitions at DFARS 202.101. A complete listing of the affected DFARS provisions appears in the regulation table below. Comments referencing DFARS Case 2012-D055 are due July 15, 2013. For the text of the proposed rule, see ¶70,020.328.