FY2012 NDAA – The Use of COTS and Challenges to Implementing New DoD Requirements

Over the past decade DoD has increased its use of “commercial items” in order to provide the DoD with the latest available technology and to reduce cycle times and lower program costs. In its June 2000 report on “Commercial Item Acquisition: Considerations and Lessons Learned“, DoD described “an era of unprecedented change in the make-up and nature of the national and defense industrial bases” and provided guidance in the acquisition and support of commercial items. The use of commercially available off-the-shelf (COTS) equipment and assemblies (see DFARS 202.101) presents challenges to implementing the requirements described within Section 818 of the FY2012 NDAA: Detection and Avoidance of Counterfeit Electronic Parts.

In the case of electronic parts such as the “integrated circuit” and “discrete electronic components” [see the definition of “electronic part” in Sec 818(f)(2)], industry and US Government subject matter experts agree that the best way to avoid counterfeits is to buy these electronic parts from the original component manufacturer (OCM) and its authorized distributors. This has also been offered as the best defense for COTS equipment and assemblies. The challenge comes when a buyer attempts to flow down requirements to the COTS Original Equipment Manufacturer (OEM) of products such as the “circuit assembly”, a product that is also included within the definition of “electronic part” in Sec 818(f)(2).

The 2000 DoD report advises that the use of commercial items “frequently means embracing commercial business practices that are embedded in the commercial item” and how “many DoD requirements must be adjusted to accommodate both the vendor’s anticipated uses of the commercial item and the vendor’s business practices“. In the case of COTS equipment it is common for the COTS OEM or its authorized dealer to refuse requirements from customers dictating procurement, reporting and remediation practices such as those described with Section 818 of the FY2012 NDAA. Defense contractors and DoD procurement organizations are frequently faced with a COTS vendor’s business practice not to accept such requirements, regardless of what the reality of their procurement, reporting or remediation practices may be. This is particularly the case of high volume product lines developed for the commercial market, such as IT hardware products, where DoD and its contractors generally do not have the buying power to influence a COTS vendor’s business practices. A COTS OEM will frequently advise its customers that the best way to avoid counterfeits of its finished products is to purchase them directly from the OEM or its authorized dealer. The same COTS OEM, however, may not divulge its own practices to prevent counterfeit parts from finding their way into their own products and may not accept flow downs from customers dictating procurement, reporting and remediation requirements.

The following considerations are offered to DoD as it conducts its assessment of acquisition policies and systems for the detection and avoidance of counterfeit electronic parts and considers regulatory changes in response to Section 818 of the FY2012 NDAA:

Consider the COTS vendor’s business practices and its compatibility with the specific counterfeit parts avoidance methodology described in Sec 818 of the FY2012 NDAA. Discussions with the COTS OEM community through industry associations, such as TechAmerica, will provide important insight.

Consider the practice of purchasing commercially available off-the-shelf products containing electronic parts directly from the OEM or its authorized dealer while adapting to the ability of DoD procurement organizations and contractors to influence the COTS OEM’s business practices.

Henry Livingston

3 thoughts on “FY2012 NDAA – The Use of COTS and Challenges to Implementing New DoD Requirements

  1. Allison Largen says:

    I find it quite interesting and a bit arrogant on the side of the OEM. I’ve worked with these very Supply-Chain issues since the mid-80’s, and still no improvement on the OEM part other than “buy it from the maker”?! Are they kidding?! Not one step forward in the OEM community to help mitigate risk?

    How nice it would be to preserve our margins simply by refusing to support a Global Issue. How is my confidence in the OEM heightened when there’s very little evidence they buy from legitimate sellers. And, without holding them to some form of contractual obligation.

    Sounds like there’s a fox running the henhouse.

  2. Steve Ingardia says:

    Allison, good point, but I would have some questions: How much effort and resources would be required by the OCM to support counterfeit detection and avoidance? Would the OEM users be willing to pay for that service?

    Just FYI, I just learned at the CMSE conference that the best terms to use are OCM for the original manufacturer and OEM for the users that build systems with the components.

    If I owned a business and people came to me to continually verify if a part was authentic or not, I think I would lose my patience after awhile and tell them the same thing. Just buy from me and you won’t have to worry! 🙂

    If it was a product that I used to make, but no longer support, I would charge a fee for my time to validate the part was authentic.

    What other ideas do you have on how the OCMs can help with this issue?

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