COTS and Challenges to Implementing the Proposed DFARS Rule on “Detection and Avoidance of Counterfeit Electronic Parts”

In its June 2000 report on “Commercial Item Acquisition: Considerations and Lessons Learned“, DoD advises that the use of commercial items “frequently means embracing commercial business practices that are embedded in the commercial item” and “many DoD requirements must be adjusted to accommodate both the vendor’s anticipated uses of the commercial item and the vendor’s business practices”. The Proposed DFARS Rule on “Detection and Avoidance of Counterfeit Electronic Parts”, however, fails to address these realities.

In the case of electronic parts, 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. A COTS Original Equipment Manufacturer (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. It is common, however, 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 producer’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 producer’s business practices.

The COTS OEM may list its products on GSA Schedules for purchases by all government agencies without the imposition of the requirements described within NDAA2012§818 or the proposed DFARS rule. Furthermore, as the proposed DFAR clauses are written, the covered contractors would be held liable for the introduction of any suspect counterfeit electronic part into these commercial products if delivered as part of a contractor’s system. In addition the contractor faces the risk having its own “Contractor Counterfeit Electronic Part Avoidance and Detection System” found unacceptable by DoD because the contractor cannot effectively impose the flow down of the proposed DFAR clause on large COTS OEMs.

The proposed rule introduces a review of contractor subcontracting policies and procedures to include the review of “rationale for documenting commercial item determinations to ensure compliance with the definition of ‘commercial item’ in FAR 2.101” and “the adequacy of the contractor’s counterfeit electronic part avoidance and detection system”. The proposed rule, however, does not describe the connection between a contractor’s “commercial item determinations” and a contractor’s “counterfeit electronic part avoidance and detection system”, nor does it describe criteria for assessing a contractor’s “commercial item determinations”.

A review of DoD solicitations [1] reveals that some DoD organizations have made adjustments to accommodate the COTS producer’s business practices. Some solicitations require the purchase of COTS products from the OEM or a “Manufacturer Authorized Partner” (consistent with best practice espoused by industry, and require the supplier to “warrant that the products are new, in their original box”. Others call for the supplier to disclose its “counterfeit parts screening procedure and other technical information demonstrating that the supplier can provide the required hardware”. None of these solicitations flow down requirements dictating electronic part procurement, reporting and remediation practices described in NDAA2012§818 or the proposed DFARS rule.

Recommendations

The proposed DFARS rule should consider the COTS producer’s business practices and its compatibility with the specific counterfeit parts avoidance methodology described in Sec 818 of the FY2012 NDAA. Specifically, the following recommendations should be incorporated into the proposed DFARS rule:

  • Adopt the practice of purchasing commercially available off-the-shelf products containing electronic parts directly from the OEM or its authorized dealer.
  • Exclude from application of clauses described in the proposed rule, whether provided to the US Government under direct purchases or through DoD contracts, those products (a) from US companies (b) which are not modified (c) which the Government confirms would fit the “Commercial Item” definition under FAR 2.101 and (d) which are currently sold on GSA Schedules.
  • Include criteria that DoD will use when assessing a contractor’s “commercial item determinations” and “the adequacy of the contractor’s counterfeit electronic part avoidance and detection system”.

Henry Livingston


[1] Examples of solicitations shown in FedBizOps include…
Solicitation Number: H92257-13-Q-0024, 26 Feb 2013;
Solicitation Number: HQ0515-3018-0001-000, 15 Feb 2013;
Solicitation Number: N0017812Q4488, 03 Aug 2012

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One thought on “COTS and Challenges to Implementing the Proposed DFARS Rule on “Detection and Avoidance of Counterfeit Electronic Parts”

  1. Trey Hodgkins says:

    Henry-

    Thanks.

    You raise several critical elements of the counterfeit discussion that have largely been silent in discussions with the Department of Defense. Addressing these issues and preserving access to commercial item technology and innovation is essential to the success of any effort to detect and avoid counterfeits. Your recommendations lay out a reasonable place to start such a conversation.

    A.R. “Trey” Hodgkins, III, CAE
    Senior Vice President
    Global Public Sector
    TechAmerica
    601 Pennsylvania Avenue, NW
    Ste. 600, North Building
    Washington, DC 20004
    P 703.284.5310
    M 571.332.2623
    thodgkins@techamerica.org
    http://www.techamerica.org

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