A Disparity within the FR Notice for Proposed DFARS Rule on Detection and Avoidance of Counterfeit Electronic Parts (“Unallowable Costs”)

Some may be misled by the ‘supplementary information’ within the Federal Register Notice describing the proposed DFARS Rule on “Detection and Avoidance of Counterfeit Electronic Parts”. A disparity exists between the description of allowable cost exceptions and the wording of those exceptions within the proposed rule itself.

When the proposed DFARS rule appeared in the Federal Register this week, I began to review the proposed rule with a particular focus on points of interest to defense contractors, including responsibility for costs associated with fixing a counterfeit part quality escape. I wish to draw your attention to what I see within the Federal Register Notice in contrast with the proposed rule included within the notice.

The description of the rule [‘supplementary information … II Discussion’] states that costs of counterfeit or suspected counterfeit parts would be allowable if a contractor “has a DOD-approved detection system” and “has provided timely notice to the Government”. …

“ … section 833 of the NDAA for FY 2013 provides specific exceptions that would enable these costs to be reimbursed if (i) a contractor has a DoD-approved operational system to detect and avoid counterfeit parts; or the suspect counterfeit parts were provided as Government-furnished property; and (ii) the contractor has provided timely notice to the Government. …

The language for the proposed rule [PART 231 … 231.205-71(c)] more accurately represents how section 833 of the NDAA for FY 2013 amends section 818 of the NDAA for FY 2012. …

“The costs of counterfeit electronic parts or 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 expressly unallowable, unless—

(1) The contractor has an operational system to detect and avoid counterfeit parts and suspect counterfeit electronic parts that has been reviewed and approved by DoD pursuant to 244.303;

(2) The counterfeit electronic parts or suspect counterfeit electronic parts are Government-furnished property as defined in FAR 45.101; and

(3) The covered contractor provides timely notice to the Government.”

 

Allow me to present these in the form of mathematical equations for illustration purposes.

 

The following represents my understanding of the supplementary information section of the Federal Register Notice describing the proposed rule ….

The costs of counterfeit electronic parts or 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 expressly unallowable, unless—

Either [ ( “The contractor has a DoD-approved operational system …” ) and
( “The contractor has provided timely notice…” ) ]

Or [ (“The counterfeit electronic parts or suspect counterfeit electronic parts are Government-furnished property…” ) and
( “The contractor has provided timely notice…” ) ]

 

The following represents my understanding of the proposed rule itself ….

“The costs of counterfeit electronic parts or suspect counterfeit electronic parts and the cost of rework or corrective action that may be required to remedy the use or inclusion of [counterfeit or suspect counterfeit] parts are expressly unallowable, unless”

[ ( “ The contractor has a DoD-approved operational system …” )

And ( “The counterfeit electronic parts or suspect counterfeit electronic parts are Government-furnished property…” )

And ( “the contractor has provided timely notice to the Government” ) ]

 

The description of the proposed rule within the Federal Register Notice represents what many defense contractors had hoped for in section 833 of the NDAA for FY 2013. The proposed rule, however, presents a much narrower exception and more accurately represents how section 833 of the NDAA for FY 2013 amends section 818 of the NDAA for FY 2012.

 

Henry Livingston

 

PS

The following paper describes the nuances of NDAA2013S833, including this particular exception…

An Appraisal of Select Provisions of the FY 2013 National Defense Authorization Act,
Federal Contracts Report, 97 FCR 27, by The Bureau of National Affairs, Inc., January 8, 2013, authored by Robert S. Metzger

 

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: