Thoughts on Improvements to DFARS 252.246-7007 and 7008

Recent discussions with Industry and US Government subject matter experts identify a few areas where new regulations could be improved. Here are what I consider to be the more important areas to address. 

252.246-7007(c)(6) Reporting and quarantining of counterfeit electronic parts and suspect counterfeit electronic parts.

Industry has been pressing for formal guidance from the Government law enforcement concerning the disposition of counterfeit electronic parts and suspect counterfeit electronic parts. While DFARS 252.246-7007 requires contractors to report and quarantine counterfeit electronic parts and suspect counterfeit electronic parts, DoD and the law enforcement community have not communicated specific direction concerning the disposition of counterfeit electronic parts and suspect counterfeit electronic parts over the long term. Furthermore, many of the companies retaining counterfeit electronic parts and suspect counterfeit electronic parts have not received a follow up inquiry from the Government’s law enforcement agencies and are still retaining these parts years later.

Language could be added to 252.246-7007(c)(6) that would allow the contractor to destroy and dispose of counterfeit electronic parts and suspect counterfeit electronic parts once their discovery has been reported to the Government-Industry Data Exchange Program (GIDEP). This would provide the law enforcement community the opportunity to obtain samples of counterfeit electronic parts and suspect counterfeit electronic parts discovered by the contractor in support of a criminal investigation and potential prosecution (the Intellectual Property Rights Enforcement Center monitors GIDEP reports); and this would allow the contractor that discovered the counterfeit electronic parts and suspect counterfeit electronic parts to destroy and dispose of them, and eliminate the costs associated with the long term quarantine of counterfeit electronic parts and suspect counterfeit electronic parts.

My specific recommendation appears in the following markup of 252.246-7007(c)(6) Reporting and quarantining of counterfeit electronic parts and suspect counterfeit electronic parts.

(6) Reporting and quarantining of counterfeit electronic parts and suspect counterfeit electronic parts. Reporting is required to the Contracting Officer and to the Government-Industry Data Exchange Program (GIDEP) when the Contractor becomes aware of, or has reason to suspect that, any electronic part or end item, component, part, or assembly containing electronic parts purchased by the DoD, or purchased by a Contractor for delivery to, or on behalf of, the DoD, contains counterfeit electronic parts or suspect counterfeit electronic parts. Counterfeit electronic parts and suspect counterfeit electronic parts shall not be returned to the seller or otherwise returned to the supply chain until such time that the parts are determined to be authentic. The Contractor may at its discretion destroy counterfeit electronic parts and suspect counterfeit electronic parts after reporting its findings to GIDEP.

 

 

252.246-7008(c) Traceability

The present language within 252.246-7008 requires the contractor to be responsible for inspection, testing, and authentication if the contractor cannot establish this traceability from the original component manufacturer, including electronic parts acquired from an authorized supplier. DFARS 252.246-7008(b) includes “authorized suppliers” among the list of “Category 1” suppliers and for good reason. The Authorized Supplier has a contractual arrangement with the Original Component Manufacturer to buy, stock, repackage, sell, or distribute electronic parts produced by the Original Component Manufacturer. These contractual agreements require the authorized supplier to retain records providing traceability to the Original Component Manufacturer (see SAE International Standard AS6496 Fraudulent/Counterfeit Electronic Parts: Avoidance, Detection, Mitigation, and Disposition – Authorized/Franchised Distribution). These contractual arrangements between the original component manufacturer and its authorized supplier preclude the need for the contractor to establish this traceability from the original component manufacturer to its authorized supplier. Furthermore, the Semiconductor Industries Association (SIA) and the Electronic Components Industry Association (ECIA) have repeatedly asserted that receipt of authentic electronic parts is assured when DoD and the contractor community acquired electronic parts from authorized suppliers (see numerous published articles, and briefings presented at numerous government/industry conferences, symposia and workshops).

Language could be added to 252.246-7008(c)(2) which would preclude the need for the contractor to establish traceability to the original component manufacturer where electronic parts are acquired from an authorized supplier. This would eliminate unnecessary costs and burdens on the contractor associated with redundant traceability that is required of authorized suppliers. My specific recommendation appears in the following markup of 252.246-7008(c)(2).

(2) If the Contractor cannot establish this traceability from the original component manufacturer or authorised supplier for a specific electronic part, be responsible for inspection, testing, and authentication, in accordance with existing applicable industry standards; and

 

 

252.246-7008(e) Subcontracts.

The present language within 252.246-7008 is ambiguous concerning the flowdown of counterfeit avoidance and detection requirements to subcontractors. As written today, an “original manufacturer” is exempt from the flowdown requirement.

DFARS Case 2014-D005, Detection and Avoidance and Counterfeit Electronic Parts – Further Implementation, states that “DoD has revised 252.246-7008 to exclude the requirement to flow the clause down to the original manufacturer of the electronic part” (See DFARS Case 2014-D005, Analysis of Public Comments, D. Original Manufacturers). The revised clause, however, reads as follows:

(e) Subcontracts. The Contractor shall include the substance of this clause, including this paragraph (e), in subcontracts, including subcontracts for commercial items that are for electronic parts or assemblies containing electronic parts, unless the subcontractor is the original manufacturer.
[emphasis added]

252.246-7008 defines “original manufacturer” to include “original component manufacturer”, “original equipment manufacturer”, or “contract manufacturer”. As a result, some contractors have experienced cases where a subcontractor of assemblies containing electronic parts claims it is exempt from the flowdown requirement within 252.246-7008(e) because the subcontractor is an “original equipment manufacturer”. This claim appears to conflict with what DoD intended. Furthermore, the clause as written indicates that the substance of the clause is to be included in subcontracts with authorized suppliers which would be a redundant and unnecessary flowdown (see above re 252.246-7008(c)).

252.246-7008(e) could be revise to clarify to DoD’s expectation regarding the contractor’s obligation to include the substance of the clause in subcontracts. My specific recommendation appears in the following markup of 252.246-7008(e).

(e) Subcontracts. The Contractor shall include the substance of this clause, including this paragraph (e), in, subcontracts including subcontracts for commercial items that are for electronic parts or assemblies containing electronic parts, unless the subcontractor is the original component manufacturer or an authorized supplier.

 

252.246-7008(b) Selecting suppliers.

Industry subject matter experts have not been able to get clarity on what is intended by the term “exclusively” within DFARS 252.246-7008(b). …

(b) Selecting suppliers. … the Contractor shall—

(1) First obtain electronic parts that are in production by the original manufacturer or an authorized aftermarket manufacturer or currently available in stock from—

(i) The original manufacturers of the parts;

(ii) Their authorized suppliers; or

(iii) Suppliers that obtain such parts exclusively from the original manufacturers of the parts or their authorized suppliers;
[Emphasis added]

I am aware of two prevailing interpretations of the term “exclusively” within DFARS 252.246-7008(b)(1)(iii). ….

(A) a supplier that provides the buyer electronic parts sourced only from an OCM or Authorized Supplier, but may supply parts sourced elsewhere to others; or …

(B) a supplier that provides any and all buyers electronic parts sourced only from an OCM or Authorized Distributor and never supplies any customer parts sourced from elsewhere.

Though DFARS 252.246-7008(b)(1)(iii) is included within “Category 1” suppliers, these mutually conflicting interpretations result in a debate within both industry subject matter experts and DoD policy makers over whether or not the use of a supplier described by (B) compels the contractor to apply “inspection, testing, and authentication” associated with “Category 2” suppliers (e.g. open market suppliers).

Furthermore, an authorized supplier of electronic parts from one or more original component manufacturers does not have contractual agreements with all original component manufacturers. The Semiconductor Industries Association (SIA) and the Electronic Components Industry Association (ECIA) assert that an authorized supplier for one original manufacturer’s products applies industry standard procurement, materiel control, and traceability practices to assure the supply of authentic electronic parts obtained from other original component manufacturers, electronic parts obtained from other authorized suppliers, and electronic parts returned by its customers (see SAE International Standard AS6496 Fraudulent/Counterfeit Electronic Parts: Avoidance, Detection, Mitigation, and Disposition – Authorized/Franchised Distribution). In this scenario, treating the supplier as a “Category 2” supplier adds unnecessary cost and limits the contractor’s ability to establish a more economical relationship with authorized suppliers.

DoD could clarify its intent in use of the term “exclusively” within DFARS 252.246-7008(b)(1)(iii). Specifically, I recommend removing the word “exclusively”:

(iii) Suppliers that obtain such parts exclusively from the original manufacturers of the parts or their authorized suppliers;

 

Henry Livingston

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