Type: Law Bulletins
Date: 09/28/2015

DoD Proposes Changes to Counterfeit Electronic Parts Regulations

On Sept. 21, 2015, the Department of Defense (DoD) issued a proposed rule that would revise its regulations on counterfeit electronic parts. The rule would amend DFARS 246.870, Contractors’ Counterfeit Electronic Part Detection and Avoidance Systems, and create a new DFARS clause at 252.246-70XX titled Sources of Electronic Parts.

The new DFARS clause would apply to acquisitions for (1) electronic parts; (2) end items, components, parts, or assemblies containing electronic parts; or (3) services, if the contractor will supply electronic parts or components, parts, or assemblies containing electronic parts as part of the service. Unlike DFARS 252.246-7007, Contractor Counterfeit Electronic Part Detection and Avoidance System, which was restricted to CAS-covered contractors, the new clause would apply to all DoD contractors and subcontractors at all tiers that provide electronic parts or assemblies containing electronic parts. This includes small business set-aside contracts, acquisitions below the simplified acquisition threshold and acquisitions for commercial off-the-shelf (COTS) items. The requirements would be extended to include acquisitions of COTS items because electronic parts are generally COTS items, and a “large proportion” of detected counterfeit items are purchased as COTS. As a result, the clause will need to be flowed down in subcontracts, including subcontracts for commercial items.

Based on industry feedback on the previous rule, the proposal includes new proposed definitions of “authorized dealer” and “trusted supplier.” It clarifies that an “authorized dealer” is not the same thing as an “authorized reseller.” While an authorized reseller can obtain parts from an authorized dealer, an aftermarket manufacturer or an independent distributor, an “authorized dealer” has a contractual arrangement with the original manufacturer or current design activity, including an authorized aftermarket manufacturer, to buy, stock, repackage, sell and distribute its product lines. A “trusted supplier” includes not only the original manufacturer, an authorized dealer for the part or a supplier that obtains the part exclusively from the original component manufacturer of the part or an authorized dealer, but also a supplier that a contractor or subcontractor has identified as a trustworthy supplier, using DoD-adopted counterfeit prevention industry standards and processes, including testing.

Contractors and subcontractors that are not the original manufacturer are required to have a risk-based system to trace electronic parts from the original manufacturer to product acceptance by the government. The proposed rule provides guidance on how contractors may accomplish this requirement. If such traceability is not feasible for a particular part, the contractor must have a system in place that provides for the consideration of an alternative part or for the use of tests and inspections to avoid counterfeit electronic parts. If the contractor is unable to obtain an electronic part from a trusted supplier, the contractor must notify the contracting officer. The contractor is then responsible for the inspection, testing and authentication (in accordance with existing applicable industry standards) of the electronic part obtained from a source that is not a trusted supplier.

Finally, the rule proposes to delete the term “embedded software or firmware” from the definition of “electronic part.” According to the DoD, “Although electronic parts may include embedded software or firmware, the requirements of this rule are more applicable to hardware. Further industry standards are still under development to address testing of embedded software or firmware in electronic parts.”

The proposed rule is available here. Any comments on the proposed rule must be submitted by Nov. 20, 2015. 

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