Senate Report 112-173 and Implementation of Section 818 of the FY2012 NDAA

On 4 June 2012, the Senate issued its report concerning the NDAA for FY2013. This report describes expectations for DoD to engage with “independent experts and interested parties” in the implementation of Section 818 of the FY2012 NDAA.

Senate Report 112-173 – NATIONAL DEFENSE AUTHORIZATION ACT FOR FISCAL YEAR 2013

Engagement with independent experts and interested parties in implementation of counterfeit parts legislation

Section 818 of the National Defense Authorization Act for Fiscal Year 2012 (Public Law 112-81) requires the Department of Defense (DOD) to adopt comprehensive guidance and processes for the detection and avoidance of counterfeit parts. In particular, the provision requires DOD to: (1) revise acquisition rules to ensure that the cost of replacement and rework required by the use of suspect counterfeit parts is paid for by the contractor responsible; (2) ensure that DOD and its suppliers purchase electronic parts from manufacturers and their authorized dealers or from qualified, trusted suppliers; (3) require DOD officials and contractors who become aware of counterfeit parts in the supply chain to provide appropriate written notification of the problem; and (4) ensure that DOD and its largest contractors establish effective systems and procedures to detect and avoid counterfeit parts.

The committee expects the DOD to implement these requirements quickly and aggressively. At the same time, however, the committee is aware of a number of complex issues that must be addressed. For example, which requirements of section 818 apply only to `covered contractors’–contractors who are subject to the cost accounting standards–and which requirements apply more broadly? To what extent should suppliers of commercial, off-the-shelf end items be excluded from coverage pursuant to the authority of section 1907 of title 41, United States Code? Should the provision disallowing costs of rework or corrective action that may be required to remedy the use or inclusion of counterfeit parts apply to parts that are supplied to contractors as government-furnished equipment? The committee encourages DOD to solicit the views of both independent experts and interested parties–including representatives of original equipment manufacturers, DOD prime contractors, and lower-tier contractors in affected industries–as it works to address these and other implementation issues.

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