FY2012 NDAA – Disposition of Counterfeit Electronic Parts

The disposition of counterfeit parts discovered within the supply chain continues to be a significant topic of debate among users and suppliers of electronic components. Some organizations do not return suspect counterfeit parts (a) for fear that one of the suppliers in the chain may subsequently attempt to resell them, and (b) because they may be required for evidence if the Government later expresses an investigatory interest. Others, however, return suspect counterfeit parts for a refund or credit.

Section 818 of the FY2012 NDAA will require DOD and its contractors to establish policies and procedures for the quarantining of counterfeit and suspect counterfeit electronic parts. DOD is expected to establish Department guidance and policies for the quarantining of counterfeits within 180 days after the date of the enactment of the NDAA; regulations applicable to contractors are expected within 270 days.

Recommendations

The following is a list of recommendations for DOD to consider as it develops guidance, policy and regulations for the quarantining of counterfeit electronic parts:

Policy and practices should encourage disposition of suspect counterfeit material so that it does not find its way back into the supply chain.

Defense contractors are generally aware of laws prohibiting the knowing sale/distribution of counterfeit products. Defense companies, however, are uncertain as to which agencies to report the counterfeit parts, whether to alert Government and industry via GIDEP and whether to (a) retain such counterfeit parts for later review and investigation by the Government investigative agencies, (b) destroy them (which may preclude the Government or contractor, as the case may be, from obtaining a refund from the source which sold them), or (c) notify the source that they are counterfeit and return them to that source for a full refund.

Policy and practices should include written guidance on what a U.S. Government or industry organizations’ obligations are if they should purchase products they suspect to be counterfeit.

This guidance should include the following:

  • The appropriate Government agency to contact in each and every case.
  • Communicating concerns and findings about suspect counterfeit products to the supplier of those items.
  • Whether to retain suspect items (and for how long), destroy them, or return them to their supplier.
  • Guidance in the event the Government is conducting an investigation including
    1. what the Government expectations are with respect to the care and handling of the suspect parts that the Defense Contractors or Defense Agency procurement organizations have retained, and
    2. instructions required for Defense Contractors or Defense Agency procurement organizations on how to secure and store the items and how long should they be retained.

Henry Livingston

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One thought on “FY2012 NDAA – Disposition of Counterfeit Electronic Parts

  1. Thomas Willis says:

    Suspect counterfeit electronic devices are a significant concern in aviation, especially where avionics are concerned. Prime manufacturers rely almost completely upon avionics OEMs to prevent entry of counterfeit and other suspect unapproved parts. Supply chain practices that allow procurement from non-accredited sources of after-market supply should be scrutinized with great care.

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