Status Update Re NDAA for FY 2013 – Sec. 833. Contractor Responsibilities in Regulations Relating To Detection and Avoidance Of Counterfeit Electronic Parts.

Congress approved an amendment to Section 818 of the FY2012 NDAA concerning allowable costs in the event of a counterfeit electronic component quality escape. Though the amendment does not include purchases from ‘trusted suppliers’ (see earlier post), it does include material provided to the contractor as Government property…

H.R.4310: National Defense Authorization Act for Fiscal Year 2013

Latest Major Action: 12/18/2012
Conference report H. Rept. 112-705 filed.

H.R.4310 – National Defense Authorization Act for Fiscal Year 2013

SEC. 833. CONTRACTOR RESPONSIBILITIES IN REGULATIONS RELATING TO DETECTION AND AVOIDANCE OF COUNTERFEIT ELECTRONIC PARTS.

Section 818(c)(2)(B) of the National Defense Authorization Act for Fiscal Year 2012 (Public Law 112-81; 125 Stat. 1493; 10 U.S.C. 2302 note) is amended to read as follows:

`(B) the cost of counterfeit electronic parts and suspect counterfeit electronic parts and the cost of rework or corrective action that may be required to remedy the use or inclusion of such parts are not allowable costs under Department contracts, unless–

`(i) the covered contractor has an operational system to detect and avoid counterfeit parts and suspect counterfeit electronic parts that has been reviewed and approved by the Department of Defense pursuant to subsection (e)(2)(B);

`(ii) the counterfeit electronic parts or suspect counterfeit electronic parts were provided to the contractor as Government property in accordance with part 45 of the Federal Acquisition Regulation; and

`(iii) the covered contractor provides timely notice to the Government pursuant to paragraph (4).’.

See FY2013 NDAA

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4 thoughts on “Status Update Re NDAA for FY 2013 – Sec. 833. Contractor Responsibilities in Regulations Relating To Detection and Avoidance Of Counterfeit Electronic Parts.

  1. The following analysis is courtesy of …
    Robert S. Metzger
    Rogers Joseph O’Donnell
    rmetzger@rjo.com


    FAR Pt 45 covers all forms of Government property. As applied here, however, the intent is to apply to government-furnished equipment, or government-furnished parts, as might arise where DLA or its DSCC unit, or other government parts source, furnishes a part for use by a contractor that turns out to be counterfeit.

    The language of 833 operates as a “safe harbor,” but it is VERY limited, as I read it.

    Under the House-passed version of the [2013] Defense Authorization measure, the safe harbor would operate to make costs allowable if the contractor had an operational system to detect and avoid counterfeit parts that DOD had reviewed and approved, and if the parts in question had been procured “from an approved source or provided as government-furnished property (GFP),” and if the contractor had provided “timely notice” of the identification of a counterfeit or suspect part. (Emphasis added.)

    The law, however, omits critical language — “from an approved source” — meaning that the safe harbor is available only if the parts came from DoD as GFP (and there was an operational and approved system and timely reporting). This sharply limits the application of the safe harbor as higher tier contractors remain exposed to unallowable replacement and remediation expenses even when they purchase from an “approved source.”

    To get the benefit of the safe harbor, the law requires each of three elements to be satisfied. The first (i) is that the covered contractor has an operational system that has been reviewed and approved by DoD. The second (ii) is that the parts in question were provided to the contractor as GFP. The third (iii) is that the covered contractor gives timely notice. All three of these elements must be present, as the statute is written in a way that the three specified elements are conjunctive (indicated by the use of the word “and” between (ii) and (iii)) rather than disjunctive (as would occur if the “and” were replace with “or”).

    Even so, Section 833 could be said to place the “cart before the horse.” As you recognize, there is neither a present system nor standard for DoD either to “review” or “approve” an “operational system” to detect and avoid counterfeit parts or suspect counterfeit parts. DoD has yet to issue regulations or guidance on the elements of such an “operational system” or to explain how a compliant system may differ depending on the placement of the particular supplier in the defense supply chain or the nature of its performance responsibilities. In addition, DoD has not yet shared guidance as to how a parts source will be “approved” for these purposes and it is not now known what entity will have responsibility for such approval. Nor is it known whether or which existing or emerging industry standards will be considered, or adopted, to determine whether a source will be approved. There are drafts of various regulations in the works, however.

    Thus, in my analysis, the value of Section 833 to contractors is limited to the situation where the Gov’t supplies the false part to the contractor . It would be manifestly unfair to assign cost responsibility to the contractor in this situation. Arguably, the same result is available under existing law as the usual rule is that where the Government furnishes “defective GFP” to a contractor, the Government is responsible for costs or delays caused by the defect.

    The limits of Section 833 should be understood by industry

    Robert S. Metzger | Shareholder
    ROGERS JOSEPH O’DONNELL | a Professional Law Corporation
    rmetzger@rjo.com
    http://www.rjo.com

  2. STATUS UPDATE…

    Latest Major Action: 12/30/2012 Presented to President.

  3. Bob says:

    Thanks for the updates Henry. Please keep up the great work.

  4. STATUS UPDATE

    Latest Major Action: 1/2/2013 Signed by President.

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