CounterfeitParts_22_CounterfeitPreventionLegislation

Henry Livingston from BAE Systems summarizes counterfeit prevention legislation (A Strategic Approach to Developing Countermeasures Against Counterfeit Electronic Parts, NASA QLF, 2013, Cape Canaveral FL):

Purpose and Scope of Activities to clearly identify threat(s) ...

  • ‘tampered’ / ‘tainted’ [111th Congress H.R. 6523 § 806 (e)(4)]
  • ‘counterfeit’ / ‘used’ [112th Congress H.R. 1540 § 818 (b)(1)]

NDAA 2012 § 818: “Detection and Avoidance of Counterfeit Electronic Parts”

Section 818 operates at many "junctions": Purchasing Practices, Inspection & Testing, Reporting & Quarantine, Corrective Measures, Contractor Systems, Costs for Remedial Measures, Enforcement

The core of Section 818:

  • Emphasis on purchase from Original Component Manufacturers (OCMs) or their authorized distributors
  • Apply “inspection, testing and authentication”, when parts are purchased from other than OCMs or authorized distributors
  • Communicate findings of counterfeits encountered

Strengths:

  • DoD to implement a risk based approach
  • Emphasis on purchases from OCMs and “Trustworthy Suppliers”
  • Adoption of internal systems to deter, detect, and avoid counterfeits
  • Report counterfeits through GIDEP
  • Imposed upon DOD as well as Industry
  • Strengthened Customs inspections & enforcement

Issues and unknowns:

  • Treats all types of counterfeits equally
  • Lacks clarity re “cost of rework or corrective action”
  • No “safe harbor” if best practices used
  • Focus is not on where the suspect material enters the DOD supply chain
  • Lacks clarity re “Trusted Supplier”
  • Silent re disposition of suspect parts
  • Silent re support from OCMs
  • Silent re DMSMS issues

NDAA 2013 § 833: “Contractor Responsibilities In Regulations Relating To Detection and Avoidance Of Counterfeit Electronic Parts”

Amends NDAA 2012 § 818(c)(2)(B) ...
Costs of counterfeit parts and remedial measures are not allowable, unless ...

i. the covered contractor has an operational system to detect and avoid counterfeit parts and suspect counterfeit electronic parts that has been reviewed and approved by the Department of Defense pursuant to subsection (e)(2)(B);
ii. the counterfeit electronic parts or suspect counterfeit electronic parts were provided to the contractor as Government property in accordance with Part 45 of the Federal Acquisition Regulation; and
iii. the covered contractor provides timely notice to the Government ...

Additional counterfeit prevention legislation:

NDAA 2013 § 807 – “Sense of Congress On The Continuing Progress of The Department of Defense In Implementing Its Item Unique Identification” Initiative

  • Expresses the “sense of Congress” supporting the use of special markings to facilitate authentication and tracking of parts.
  • “The Initiative can help the Department combat the growing problem of counterfeit parts in the military supply chain.”

NDAA 2013 § 1603 – “National Security Strategy for National Technology and Industrial Base”

  • Requires the Secretary of Defense to develop a national security strategy for the national technology and industrial base that will ensure that it is capable of achieving certain objectives
  • "(10) Reducing, to the maximum extent practicable, the presence of counterfeit parts in the supply chain and the risk associated with such parts.’’

Rulemaking activities:

DFARS Case 2012-D055: “Detection and Avoidance of Counterfeit Electronic Parts”
Implements portions of Section 818 of NDAA for 2012 to:

  • add definitions specific to counterfeit parts,
  • define contractors’ responsibilities, and
  • clarify the Government’s role.

FAR Case 2012-024: “Commercial and Government Entity Code”

  • Proposes use CAGE codes (NCAGE if foreign) for ... identification of the immediate corporate/organization parent and highest level corporate/organization parent during Central Contractor Registration
  • The goal is to provide for standardization across the Federal government, to facilitate data collection, and to “support anti-counterfeiting efforts to uniquely identify vendors below the prime level”

FAR Case 2012-032: “Higher-Level Contract Quality Requirements”

  • Revises FAR Part 46 to implement portion of section 818 of NDAA for FY2012 requirements to provide a defined higher-level quality standard specific to “critical application items”

FAR Case 2013-002: “Expanded Reporting of Nonconforming Supplies”

  • Expands Government and contractor requirements for reporting of nonconforming supplies. Partial implementation of section 818 of the NDAA for FY 2012

DFARS Case 2012-D042: “Business Systems Compliance”

  • Revises “business systems” clauses to include contractor reporting and documentation requirements recontractor compliance with the DFARS business systems’ criteria
  • Per NDAA 2012 § 818(e), DoD to establish processes for review and approval of contractor systems for the detection and avoidance of counterfeit and suspect counterfeit electronic parts
  • Comparable to the processes established for contractor business systems under NDAA 2011 § 893

DFARS Case 2012-D050: “Supply Chain Risk”

  • Implements NDAA 2011 § 806 - Requirements for Information Relating to Supply Chain Risk
  • Requires evaluation of offerors’ supply  chain risks on information technology  purchases relating to national security systems
  • Enables agencies to exclude sources that are identified as having a supplychain risk