Magazine article National Defense

Proposed Reporting Rule on Counterfeit Items Adds Burden to Contractors

Magazine article National Defense

Proposed Reporting Rule on Counterfeit Items Adds Burden to Contractors

Article excerpt

After recent reports documented a significant increase in counterfeit parts across the supply chain, the Defense Department and the Federal Acquisition Regulatory Council have issued a number of rules to mitigate the threat that such items pose.

In actuality, however, the proposed rules expand obligations for defense and other government contracting manufacturers and suppliers well beyond mere counterfeit issues.

As discussed in Robert Metzger's October National Defense article "New Rule Addresses Supply Chain Assurance," the Defense Department final rule only applies to Defense Department contracts and solely concerns counterfeit issues with electronic parts.

In contrast, the Federal Acquisition Regulatory Council's proposed rule would cover all federal supply contracts and concerns both counterfeit and nonconformance issues related to any type of end item.

On May 6, Defense published its first final rule amending the Defense Federal Acquisition Regulation Supplement in partial implementation of Section 818 of the National Defense Authorization Act for Fiscal Year 2012.

On June 10, the Federal Acquisition Regulatory Council issued a proposed rule seeking to amend the Federal Acquisition Regulation in partial implementation of Section 818 of the National Defense Authorization Act for Fiscal Year 2012.

While these two rules are linked in some respects, the Federal Acquisition Regulatory Council's proposed rule is much broader in scope and application than Defense's final rule.

In short, the proposed rule seeks to reduce the risk of counterfeit and nonconforming items by building on the existing contractor inspection system requirements. It adds a requirement for contractors to report to the government-industry data exchange program (GIDEP) database a "counterfeit item," a "suspect counterfeit item," or an item that contains a "major nonconformance" or "critical nonconformance" that is a common item and constitutes a quality escape that has resulted in the release of like nonconforming items to more than one customer.

The rule also requires contractors and subcontractors to screen reports in the GIDEP database to avoid the use and delivery of reported items.]

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The proposed rule broadly applies to any Federal Acquisition Regulation-covered agency and all contractors and subcontractors at any tier providing supplies to the government, including commercial items and small business vendors.

The proposed rule provides definitions for the following five key terms.

Common item: an item that has multiple applications versus a single or peculiar application. Common items include, for example, raw or processed materials, parts, components, subassemblies and finished assemblies that are commonly available products such as non-developmental items, off-the-shelf items, National Stock Number items or commercial catalog items.

Counterfeit item: an unlawful or unauthorized reproduction, substitution or alteration that has been knowingly mismarked, misidentified or otherwise misrepresented to be an authentic, unmodified item from the original manufacturer or a source with the express written authority of the original manufacturer or design activity, including an authorized aftermarket manufacturer. Unlawful or unauthorized substitution includes used items represented as new or the false identification of grade, serial number, lot number, date code or performance characteristics.

Design activity: an organization, government or contractor that has responsibility for the design and configuration of an item, including the preparation or maintenance of design documents. …

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