A colleague recently approached me on the subject of counterfeit prevention clauses and certification expectations specified by many Government prime contractors and subcontractors within their standard terms and conditions.
This colleague observes that counterfeit prevention clauses and certification expectations:
- generally cover every item being purchased from their subcontractors and suppliers (i.e. they are not limited to electronic parts),
- often include requirements similar to those in NDAA2012§818 and/or an obligation to comply with SAE Aerospace Standard AS5553,
- often require the subcontractor to provide prior notice to or to obtain the prior approval of the prime contractor to be able to purchase parts or materials from any source other than the original manufacturer or an authorized dealer, and
- generally apply to parts and materials purchased in support of Government contracts issued by any federal agency (i.e. they are not limited to purchases of parts and materials in support of DoD contracts).
Having seen no articles discussing this topic, this colleague asks what Government subcontractors and suppliers are doing now to comply with prime contractor/higher-tier subcontractor counterfeit parts prevention clauses. I offer my own observations on this subject.
The flow down of counterfeit prevention requirements is now commonplace. Though recent legislation implies a civic duty to prepare, I observe from first-hand knowledge that many suppliers below the prime and upper tier contractors are not well positioned to apply the central tenets of effective counterfeit prevention:
- Apply supplier preferences for materiel purchased from original manufacturers or their authorized distributors,
- Perform due diligence in when purchases from sources of supply other than the original component manufacturer and its authorized distribution chain are necessary, and
- Notify government and industry of suspected counterfeits when they are encountered
At the same time, legislation, regulatory requirements and standards gaps continue to present A&D contractors with significant implementation challenges with respect to counterfeit prevention. These challenges and the uncertainty regarding forthcoming regulations contribute to the continued variety and inconsistency in counterfeit prevention requirements seen by suppliers below the prime and upper tiers. Unfortunately, the recent release of the DoD’s counterfeit prevention policy, DODI 4140.76, does little to resolve many unanswered questions concerning DOD’s expectations of its contractors.
Based on first-hand knowledge and ongoing discussions with A&D contractor representatives, several prime and upper tier contractors began to flow down counterfeit prevention requirements to their suppliers a number of years now. The pace and exuberance of this activity has accelerated with the introduction of NDAA2012§818, particularly as contractors began to speculate on the details of forthcoming regulations. Some requirements are draconian in nature and attempt to transfer risk disproportionately to lower level suppliers. Some requirements attempt to boil the ocean to address all potential forms of counterfeits rather than focusing on product types based on facts and data revealing known targets of counterfeiters and on product types that present a significant performance or safety risk. Other requirements reflect a lack of understanding of fundamental details and challenges to combatting the counterfeit parts threat.
Here are items I have seen appear in counterfeit prevention clauses which tend to be points of debate:
- Requirements applied to all materiel types (though requirements on the finer points concern electronic components only)
- Certifications that products delivered are free of counterfeit materiel
- Transfer of liability for costs associated with a counterfeit materiel quality escape
- Traceability for all materiel to its original producer, including materiel acquired from independent distributors and brokers
- Definitions that are not consistent with industry standards or DoD published definitions
- Particulars of assurance of materiel authenticity
- Requirements for customer and government furnished materiel or materiel acquired from customer directed sources
- Requirements for COTS products
- Requirements for existing inventory
- Requirements to flow down requirements to not only first tier suppliers, but to all sub tier suppliers
- Approval conditions for purchases from Independent Distributors and brokers
- Requirements to report counterfeit materiel findings to GIDEP
I invite others to contribute their thoughts and experiences on this topic.
I plan to publish follow up postings on some of the issues listed above along with suggestions to consider.