Thoughts Re New Regulations on Reporting of Nonconforming Items to the Government-Industry Data Exchange Program

DoD, GSA, and NASA recently issued a final rule amending the Federal Acquisition Regulation (FAR) to require contractors and subcontractors to report to the Government-Industry Data Exchange Program (GIDEP) certain counterfeit or suspect counterfeit parts and certain major or critical nonconformances. This FAR amendment also requires contractors and subcontractors to screen GIDEP reports to avoid the use and delivery of counterfeit or suspect counterfeit items or delivery of items that contain a major or critical nonconformance. After the review of public comments submitted in response to the proposed rule under FAR Case 2013-002, and after weighing the risks of failure against the cost of compliance, the final rule was “significantly descoped”.

A number of contract law firms have published newsletters and podcasts discussing this final rule and its implications to contractors. To my eye, most of the publications and podcasts are inaccurate at best and frequently omitted significant elements of the final rule. Upon reading publications or listening to podcasts on the subject may well be left with the impression that this FAR amendment concerns counterfeit parts only. Some briefly mention its applicability to certain nonconforming items other than counterfeit or suspect counterfeit parts, but I have yet to read or hear analysis by contracts law subject matter experts concerning this significant portion of the FAR amendment.

Though the reporting of counterfeit and suspect counterfeit parts has been the focus of many newsletters and podcasts published by contract las subject matter experts, I see nothing within this FAR amendment that substantively changes what defense contractors have been working to with regard to reporting these discoveries via GIDEP other than the specific timetable for reporting. This time table, however, mirrors what was included within NDAA2012§818 (Pub. L. 112-81) and some contractors have already been working with this time table in mind.

The FAR amendment also calls for reporting “a common item that has a major or critical nonconformance” via GIDEP. The “common item” criteria is not unlike what GIDEP has characterized in its operations manual for many years now – If a contractor receives parts and materials (a) with a defect that that would have a deleterious effect on the performance of its product, and (b) parts and materials from this supplier/manufacturer may also have been supplied to others, then the nonconformance would be worth consideration for publishing a GIDEP report for the benefit of others who also use the item in question.

The “critical item” criteria within the FAR amendment will significantly influence GIDEP reporting for “a common item that has a major or critical nonconformance”. The definition of “critical item” in this FAR amendment is what contractors have been working to for a long time now. To my eye, if the criteria for reporting a nonconformance via GIDEP were solely driven by the requirements of the FAR amendment, many of the GIDEP reports published in the past (other than counterfeit or suspect counterfeit part findings) would likely not be published today. Case in point …

If the criteria for reporting described within the FAR amendment were to have driven GIDEP reporting of a wide spread issue concerning mil-spec connectors discovered by the Defense Logistics Agency (DLA) a few years ago, those GIDEP reports might not have been published. For one thing, neither DLA nor the connector manufacturers would have knowledge about the application of these connectors and therefore would not know if they were considered to be a associated with a critical item. Furthermore, the issues described within the GIDEP reports, for the most part, would not be characterized as “critical nonconformances” as defined in the FAR amendment.

The descoping of the final rule includes another significant limit to the applicability of the FAR amendment – “It does not apply to contracts and subcontracts for the acquisition of commercial items, including commercially available off-the-shelf (COTS) items.” If one were to review GIDEP reports concerning nonconforming parts and materials over the decades, one would find that the majority of the items described within these reports are commercial items, including the mil-spec parts described in many of these reports. These items are listed in the manufacturers’ catalogues and websites as their standard product offerings. This limit to the applicability of the FAR amendment may well cause significant debate over when one should or should not report “a common item that has a major or critical nonconformance” via GIDEP.

The FAR amendment introduces a requirement that will likely be new to many suppliers in lower levels of the supply chain. In addition to the reporting requirement, contractors will be compelled to flow down to lower level suppliers a requirement to “screen” GIDEP reports for nonconforming items that may have an impact on the products they supply. Though the screening of GIDEP reports is something that prime and upper tier contractors have been accustomed to for many years now, this will be new for many lower tier suppliers and upper tier contractors will need to be prepared to offer guidance to its lower level suppliers in the implementation of this flow down requirement. This requirement, however, would not be flowed down to a “foreign corporation” since they would not qualify for GIDEP membership under the current rules and the new FAR clause.

I am very interest to know if others interpret this FAR amendment differently than I do and I will be interested to see more publications by contract law subject matter experts on the specific topics discussed here.

Henry Livingston

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