counterfeit electronic parts

Following the release of GAO and Congressional reports detailing counterfeit electronic parts in the Department of Defense (“DoD”) supply chain, Congress and the executive branch have made DoD supply chain security a priority. As part of the Government’s comprehensive approach to improving supply chain security for DoD, previously blogged about here and here, Congress passed legislation containing new reporting requirements for contractors who discover counterfeit or suspected counterfeit parts. The Government – Industry Data Exchange Program, or “GIDEP,” is a joint U.S. – Canadian program, funded by both governments, is currently DoD’s designated reporting organization for counterfeit parts.
Continue Reading Reporting Counterfeit Parts to GIDEP Under the Proposed DoD Rule

On April 26, 2013, the Under Secretary of Defense for Acquisition, Technology, and Logistics issued Department of Defense (“DoD”) Instruction No. 4140.67 to further establish policy to prevent counterfeit materiel at any level of the DoD supply chain. As we have previously blogged about, Section 818 of the National Defense Authorization Act of 2012 required DoD to assess its internal policies for detection and avoidance of counterfeit electronic parts by June 28, 2012 and revise the DoD acquisition regulations to address the detection and avoidance of counterfeit parts by September 26, 2012. However, despite the statutory mandate, DoD has not revised its acquisition regulations and this Instruction appears to be another interim measure.

The instruction serves two main purposes – (1) to establish DoD’s policies regarding counterfeit prevention and (2) assign responsibilities for the prevention, detection, and remediation of counterfeit material. Pursuant to the Instruction, it is DoD’s policy not to procure counterfeit material and DoD will employ a risk-based approach to reduce the frequency and impact of such material by applying prevention and early detection procedures within the supply chain and strengthening the oversight and surveillance procedures for critical material. DoD’s policy under the Instruction is to investigate all cases of suspected counterfeit material and document all occurrences of suspected and confirmed counterfeit material. DoD will make information about counterfeiting available at all levels of the supply chain, seek restitution when cases of counterfeiting are confirmed, and notify at the earliest opportunity criminal investigative organizations or intelligence authorities and those who use such materials.
Continue Reading Department of Defense Tightens Counterfeit Prevention Policy

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On May 21, the Senate Committee on Armed Services published a troubling report on the results of its year-long inquiry into counterfeit electronic parts in the DoD supply chain. The report found approximately 1,800 cases of suspect counterfeit electronic parts in the defense supply chain during 2009 and 2010 involving over one million individual parts. Over 70 percent of the parts were traced back to China. It concluded there was overwhelming evidence of large numbers of counterfeit parts making their way into critical defense systems, failures by defense contractors and DoD to report counterfeit parts, and gaps in DoD’s knowledge of the scope and impact of such parts on defense systems.

The report praised the amendment offered by Senators Levin and McCain, Section 818 of the 2012 National Defense Authorization Act, seeks to stop the importation of counterfeit parts, strengthen the defense supply chain, and promote the adoption of aggressive counterfeit avoidance practices by DoD and the defense industry. The regulations currently being developed by DoD in response to that legislation, which was signed into law on December 31, 2011, will have significant impact on DoD contractors.

Section 818 requires DoD to assess its policies and systems for the detection of counterfeit electronic parts, implement a risk-based approach to minimize the impact of counterfeit or suspect counterfeit parts on DoD (a similar requirement applies to the Department of Homeland Security), and promulgate regulations that: (1) place on contractors the responsibility for “detecting and avoiding the use or inclusion of counterfeit electronic parts or suspect counterfeit electronic parts in such protects and for any rework or correction action that may be required to remedy the use or inclusion of such parts”; (2) renders unallowable costs of rework or corrective action necessary to remedy the use or inclusion of counterfeit parts under DoD contracts (this may be amended by the 2013 NDAA); and (3) require, wherever possible, that DoD contractors and subcontractors obtain electronic parts from the original manufacturers, authorized dealers, or “trusted suppliers.” DoD is also required to issue or revise guidance on remedial actions to be taken against suppliers who repeatedly fail to detect and avoid counterfeit electronic parts, including consideration of whether to suspend or debar them.

Continue Reading The Fight Against Counterfeit Electronic Parts – Increasing Burdens on DoD Contractors