Final rule released for battling counterfeit parts

The Defense Department released a final rule this week regarding the definition of counterfeit electronic parts and how it expects contractors to avoid and detect them.

Companies must add compliance regulations to their exiting purchasing systems, according to the changes to the Defense Federal Acquisition Regulation Supplement (DFARS). The basis for the anti-counterfeiting compliance is the requirements for contractors’ purchasing systems as the basis for the anti-counterfeiting compliance. The additions include ways to identify, avoid and report counterfeits.

The final rule also prohibits companies from claiming the cost associated with counterfeit electronic parts, or those suspected as such, as a reimbursable cost under DOD contracts. In addition, a company cannot charge DOD for the cost to make changes related to a counterfeit part. However, the fiscal 2013 National Defense Authorization Act (NDAA) grants certain exceptions.

The overarching goal is setting contractor responsibilities, using trusted suppliers, and reporting counterfeit electronic parts to the government.

The rule applies to prime contractors that must comply with Cost Accounting Standards, which excludes small entities. Yet, DOD will not decrease its ability to oversee companies’ compliance, because prime contractor cannot hold full responsibility for rooting out counterfeits, regulators wrote in the Federal Register notice. They will set up checks at multiple levels within the supply chain to minimize chances for counterfeit parts to slip through.

With the new oversight requirements, DOD regulators defined what companies should be looking for.

Some key definitions to keep in mind:

Counterfeit electronic part

This is an “unlawful or unauthorized reproduction, substitution, or alteration that has been knowingly mismarked, misidentified, or otherwise misrepresented to be an authentic, unmodified electronic part from the original manufacturer, or a source with the express written authority of the original manufacturer or current design activity, including an authorized aftermarket manufacturer.”

Unlawful or unauthorized substitution

This includes used electronic parts represented as new, or the false identification of grade, serial number, lot number, date code, or performance characteristics.

Electronic part

The regulation defines this to mean an “integrated circuit, a discrete electronic component (including, but not limited to, a transistor, capacitor, resistor, or diode), or a circuit assembly.”

Obsolete electronic part

This is an electronic part that is no longer in production by the original manufacturer or an aftermarket manufacturer that has written authority from the manufacturing to make the part.

Suspect counterfeit electronic part

This means an “electronic part for which credible evidence (including, but not limited to, visual inspection or testing) provides reasonable doubt that the electronic part is authentic.”

The rule-change to the DFARS is based on language from the fiscal 2012 National Defense Authorization Act. The law requires a regulatory update to describe contractor responsibilities, the use of trusted suppliers, and the requirement to report counterfeit electronic parts. The intent of the NDAA provisions is to hold contractors responsible for detecting and avoiding counterfeit electronic parts.

DOD released a proposed rule in May 2013.