Contractors and subcontractors will be expected to report “counterfeit electronic parts or suspect counterfeit electronic parts” via the Government-Industry Data Exchange Program (GIDEP), which will serve as the DoD central reporting repository. The defense and aerospace industry has recognized the reporting of counterfeit part incidents as a key practice to addressing the counterfeiting threat [i]. Despite forthcoming regulations that will require DoD and its contractors to report “counterfeit electronic parts or suspect counterfeit electronic parts”, and despite legislative measures taken to address industry concerns for potential exposure to third party law suits, the reporting of counterfeit electronic parts and suspect counterfeit electronic parts by DoD and its contractors has declined.
In its “Report of the Inquiry into Counterfeit Electronic Parts in the Department of Defense Supply Chain”, the Senate Armed Services Committee (SASC) described how only 271 total reports were submitted to GIDEP out of the 1,800 cases of suspect counterfeit parts in the defense supply chain in 2009 and 2010 [ii]. Several defense contractors and independent distributors told the SASC that they are reluctant to submit reports of suspect counterfeit electronic parts to GIDEP due to concerns about legal liability associated with GIDEP’s requirement that they name the supplier of a suspect part. In an earlier report, the Government Accountability Office noted similar inconsistencies in reporting; contractors cited fear of lawsuits as a reason for not reporting cases to GIDEP [iii].
Soon after the November 2011 SASC hearing on “Counterfeit Electronic Parts in the Department of Defense Supply Chain”, Section 818 of the FY2012 National Defense Authorization Act (NDAA) went into effect and called for DoD to revise regulations to require contractors and subcontractors to report “counterfeit electronic parts or suspect counterfeit electronic parts” via GIDEP [iv]. Section 818 of the FY2012 NDAA also included provisions to protect contractors and subcontractors from third party law suits on the basis of reporting in compliance with forthcoming regulations [v].
The following chart shows the quantity of GIDEP reports published from January 2011 through July 2013 describing counterfeit or suspect counterfeit instances.
I offer the following observations concerning this reporting trend:
- Though the FY2012 NDAA may have stimulated an increase in reporting, this increase subsided and reporting has declined over the past year.
- Nearly one-half of the reports published after the SASC hearing were submitted by one defense contractor.
- Only three (3) reports were submitted by a DoD organization; all three of these reports were submitted by one DoD organization.
- If reporting during the remainder of the 2013 calendar year continues at the rate observed from January through July, the total reports for the 2013 calendar year will be one-half of the total reports published in the 2011 calendar year.
This reporting trend indicates that the anticipation of forthcoming regulations and the legislative remedies in place to address industry concerns have yet to stimulate reporting of counterfeit parts or suspect counterfeit parts via GIDEP.
Could this data be an indicator that the counterfeit parts threat is on the decline? Data on counterfeiting instances reported through other organizations, such as ERAI, do not support this possibility.
A recent article published by Electronics Purchasing Strategies may provide some insight – “The stigma of being known as a source or receiver of counterfeit or substandard parts has been one of the reasons behind the failure to report such activities” [vi].
Many contractors have established business processes to review reports published through GIDEP to determine whether or not the incident may impact them. Many contractors, however, have not established business processes necessary to share its own discoveries with others. Forthcoming US Government regulations will require DoD and its contractors to report “counterfeit electronic parts or suspect counterfeit electronic parts” via GIDEP [vii]. Furthermore, the Office of the Inspector General for DoD has recommended that counterfeit electronic parts and suspect counterfeit electronic parts be reported in writing to the contracting officer and the Department of Defense Inspector General [viii]. Contractors and subcontractors, therefore, should include reporting practices as a part of its “counterfeit electronic part avoidance and detection system” [ix].
DOD and the FAR council should consider the following as it develops guidance, policy and regulations for reporting counterfeit electronic parts:
- Designate who within the supply chain should report specific counterfeit events (i.e. prime contractor, subcontractor, or component supplier), but allow for flexibility.
- Maintain the current practice of allowing the supplier of a suspect counterfeit part to respond and comment on the report before its release and dissemination.
- Maintain requirements for key information to include in reports (e.g. manufacturer whose part has been counterfeited, the supplier(s) involved, the part number (s), lot / date code(s), attributes and anomalies to support reasons why the items are believed to be counterfeit)
- Provide access to contractors and component suppliers for counterfeit case reports published by US Government agencies (e.g. GIDEP Limited Distribution Agency Action Notices).
- Limit access to counterfeit case reports to contractors, component suppliers and US Government agencies in order to preserve an environment of trust.
- Establish collaboration with investigative and law enforcement communities. (Some federal investigators have advised companies not to report in certain instances or to delay reporting through information sharing mechanisms such as GIDEP.)
[i] “Counterfeit Parts: Increasing Awareness and Developing Countermeasures”, Aerospace Industries Association of America, March 2011
[ii] Report of the Inquiry into Counterfeit Electronic Parts in the Department of Defense Supply Chain, Senate Armed Services Committee, May 21, 2012 (112th Congress, 2nd Session, Senate Report 112–167); p.17-19
[iii] GAO-10-389, ‘‘Defense Supplier Base: DOD Should Leverage Ongoing Initiatives in Developing Its Program to Mitigate Risk of Counterfeit Parts’’ (Mar. 2010)
[iv] FY12 NDAA §818(c)(4)
[v] FY12 NDAA §818(c)(5)
[vi] Ojo, Bolaji; “DoD Sets Tough Counterfeit Prevention Rules”; Electronic Purchasing Strategies, 15 July 2013
[vii] FAR Case 2013-002, Expanded Reporting of Nonconforming Supplies
[viii] Comments submitted in response to DARS-2013-0014, Detection and Avoidance of Counterfeit Electronic Parts (DFARS Case 2012-D055); Document DARS-2013-0014-0020
[ix] DARS-2013-0014, Detection and Avoidance of Counterfeit Electronic Parts (DFARS Case 2012-D055); proposed subpart 246.870-2(b)(6) and clause 252.246-70XX(c)(vi)