Should contractors get blamed for counterfeit parts?

Top Capitol Hill officials want new rules that would hold contractors responsible for fake electronics that end up in U.S. weapons systems.

The plan came out during a day-long Senate Armed Services Committee hearing addressing the issue of counterfeit parts in the U.S. military supply chain.

Sen. John McCain (R-Ariz.), the committee’s ranking Republican, and Sen. Carl Levin (D-Mich.), committee chairman, were among the officials who questioned defense contractors on oversights that allowed the phony parts into the supply chain during the hearing, held Nov. 8. Levin stressed that the counterfeit goods are a “clear and present danger” and a “threat to our troops.”

“There is a flood of counterfeits and it is putting our military men and women at risk and costing us a fortune,” Levin said.

The two senators pledged that they would use the 2012 Defense Authorization Act, which McCain said he hoped would be taken up next week, to modify acquisition rules and make contractors responsible for the costs of replacing the fake parts. The hope is that contractors will implement tougher standards on their suppliers.

McCain said that encouraging small businesses to operate in the U.S. military supply chain has enabled the entry of fraudulent companies and parts.

McCain and Levin’s amendment may also include language for a new Pentagon certification process that would scrutinize the suppliers of components for military systems, Levin said.

A month-long congressional investigation yielded at least 1,800 cases of counterfeit electronics in U.S. weapons, with an estimated 1 million parts suspected of infiltrating the supply chain, according to the Washington Post. Counterfeit parts have resulted in millions of dollars in waste and have cost taxpayers heavily once contractors realize the parts must be replaced, the report said.

Brian Toohey, president of the Semiconductor Industry Association, told the committee that counterfeiting costs U.S. companies $7.5 billion per year and represents 11,000 lost jobs in U.S. industry.

Counterfeit parts have been found on at least 7 Air Force aircraft made by Boeing, Lockheed Martin and L-3, according to committee documents, and the Missile Defense Agency has encountered at least 7 incidents of counterfeit parts on its own systems, MDA Director Lt. Gen. Patrick O’Reilly testified.

O’Reilly said MDA has found 800 fake parts on one missile interceptor system, at a cost of over $2 million to replace them.

James Ives, assistant Pentagon inspector general for investigative operations, told the Associated Press via e-mail that the Pentagon’s Defense Criminal Investigative Service is conducting 225 investigations “involving potentially defective or substandard parts and components,” which could involve counterfeit products.

The Government Accountability Office has also been investigating counterfeit parts in DOD platforms, according to Richard Hillman, GAO managing director, forensic audits and investigative service.

“Counterfeit parts – generally those whose sources knowingly misrepresent the parts’ identity or pedigree – have the potential to seriously disrupt the DOD supply chain, delay missions, affect the integrity of weapon systems, and ultimately endanger the lives of our troops,” Hillman testified in a prepared statement. “Almost anything is at risk of being counterfeited, from fasteners used on aircraft to electronics used on missile guidance systems. There can be many sources of counterfeit parts as DOD draws from a large network of global suppliers.”

Hillman detailed GAO efforts in which the organization created a fictitious company that bought military-grade electronic parts. So far GAO has purchased 13 parts, seven of which have been tested so far and are suspected to be counterfeit.

Reader Comments

Mon, Nov 14, 2011 Huh?

The only contractors mentioned in this article as guilty of installing counterfeit parts in equipment are very, very large integrators. How is it then, than McCain blames small business participation in the contracting process for the proliferation of counterfeit parts? If anything, it would seem easier to screen parts from small companies and hold them and their sourcing processes more accountable.

Thu, Nov 10, 2011 ER MA

Why aren't these parts being tracked using the IUID System -- mandatory for ALL contractors- foreign and domestic. CONOPS & OCONOPS??!! It seems to me that someone is not paying attention at the primary contractor level and they are mandated (as are their subcontractors) by DFARS Regulations to uniquely identify all parts that are "war-essential" and/or cost more than $5000. The DoD has the IUID Registry in place with more than 30 million items IUID'd. I think Senators McCain; Kerry; Brown; Levin; Inouye and the entire DoD Defense Committee should hold hearings and PROSECUTE those that have substituted counterfeit parts. After all, that very issue could be the defining difference between saving lives, getting inferior weapons and depriving legitimate contractors/subcontractors from bid awards. There is no excuse for companies such as Lockheed; SAIC; CSC; Northrop Grumman; Boeing; General Dynamics; GE; Rolls Royce (just to name a few) of our topflight contractors (or any contractors for that matter) to allow counterfeit parts into their end products. I am not saying that any of these contractors in particular are guilty of this, but having the IUID System in place and NOT UTILIZING it is outrageous!

Thu, Nov 10, 2011 Byte Smasher Asheville, NC

It is very suspect that a contractor installs counterfeit hardware. How can the Fed ascertain that this was the intention of the contractor to cut costs. This is another reason that low bid wins is not the best method for doing a contract. How does the Fed even know that code has been inserted to allow hacking or monitoring by a 3rd party or Foreign Gov. If a contractor is duped then they need too replace the equipment. The problem is the manufactures need to come up with a test that tells the buyer it is authentic.

Thu, Nov 10, 2011 KYLe

I'm a contractor and, yes, the contractor should get blamed. If the USG levies a requirement that chinese parts cannot be used, then it is the contractors job to verify that they are not being used. The contractor can do that relatively easily if he flows that requirement down the supply chain with some sort of certification by each vendor.

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