NASA recently proposed new legislation to address the growing problem of counterfeit parts in the aerospace industry supply chain. The legislation is part of the NASA 2014 Authorization Bill, which passed the House on June 9 and is awaiting approval by the Senate before moving to the president to be signed into law. If passed, NASA will implement changes required by the law through modifications to the NASA Federal Acquisition Regulation Supplement (NASA FAR Supplement or NFS).
Proposed language for the NFS mirrors a recent rule passed by the Department of Defense (DoD) that outlines specific contractor requirements for managing counterfeit parts. The rule, Defense Federal Acquisition Regulation Supplement (DFARS) case 2012-D055 "Detection and Avoidance of Counterfeit Electronic Parts," implements directives outlined in legislation from the fiscal year 2012 and 2013 National Defense Authorization Act (NDAA). Although the DFARS rule only directly affects DoD contracts, most government agencies will benefit as contractors change their methods to accommodate the new DoD requirements.
The NDAA and subsequent DFARS change stemmed from a Senate Armed Services Committee (SASC) report that demonstrated how counterfeit parts have permeated DoD's supply chain.
"The SASC report provided credible, eye-opening evidence that made it clear that aggressive action needed to be taken," said NASA's Quality Technical Fellow Brian Hughitt.
Hughitt supported DoD in the development of DFARS text and is participating in NASA's legislative and NFS efforts.
Counterfeit parts are a type of nonconforming item already prohibited by the FAR; however, these new requirements more clearly define counterfeit parts and the responsibilities of contractors to avoid their supply to the government.
"The DoD and NASA-proposed legislations provide the most prescriptive and far-reaching actions to date and are essential to fully address and resolve the problem," explained Hughitt.
What the DoD Rule Entails
The DFARS definition of a counterfeit electronic part requires that the part be an unlawful reproduction, substitution or alteration that has been knowingly misrepresented, including an old item represented as new. The requirements apply to all electrical, electronic and electromechanical parts, including embedded software and firmware, and to all major prime contractors, including their subcontractors.
Commercial-Off-the-Shelf (COTS) items also are covered. This creates a challenge because COTS items do not typically have traceability, one of the new requirements. This could result in contractors not buying COTS items or submitting waivers to the requirement.
The rule requires contractors to maintain a counterfeit parts detection and avoidance system that involves the following 12 criteria:
- Training of personnel
- Inspection and testing of electronic parts
- Processes to eliminate proliferation
- Processes for maintaining electronic parts (traceability)
- Use of authorized suppliers
- Reporting and quarantining of counterfeit and suspect counterfeit parts
- Methodologies to identify counterfeit parts
- Design, operation and maintenance of systems to detect counterfeit and suspect counterfeit parts
- Flowdown of requirements in supply chain
- Continual improvement
- Screening of GIDEP reports and other sources
- Control of obsolete electronic parts
Use of authorized suppliers (criterion # 5) is a particularly important component of the rule because this criterion overrides another existing law, the Competition in Contracting Act (CICA). CICA requires the government to conduct "free and open" competition, which effectively prevents the exclusion of high-risk supplier bids.
"This new CICA exemption illustrates how serious the counterfeiting problem has become," explained Hughitt. "Free and open competition is an important foundational principle of U.S. government procurement, so it is only under rare circumstances that this law is exempted."
DFARS also outlines the repercussions for contractors that fail to maintain a sufficient counterfeit electronic part detection and avoidance system — the contracting officer can refuse to accept the contractor’s purchasing system, withhold payment or charge the contractor for costs incurred by the government due to the delivery of a counterfeit part. DFARS provides only minimal "safe harbor" for contractors, exempting these charges only if the part was bought and given to the contractor by the government.
Differences Between DFARS and NASA’s Proposed Legislation
If NASA's proposed legislation passes, changes to the NFS would largely mirror the language used in DFARS.
"[It's] almost a word-for-word excerpt of certain portions of the NDAA," said Hughitt about NASA's legislation. "But we did make changes to meet NASA's needs."
First, NASA's definition of electronic parts will be limited to parts used in safety- or mission-critical applications. Also, the NFS would apply to contractors beyond just major prime contractors.
NASA's rule also will provide a more traditional safe harbor where contractors will not be responsible for costs associated with a counterfeit part so long as they have upheld their responsibilities for counterfeit part detection and avoidance.
Upcoming Additions and Changes
"Detection and Avoidance of Counterfeit Electronic Parts" is only one rule in a suite of proposed regulatory changes to implement the NDAA. One of the proposed regulations, "Detection and Avoidance of Counterfeit Electronic Parts — Further Implementation," would be an expansion of the newly passed DFARS rule (2012-D055). If passed, possible changes would be increased coverage to include small contractors, clarified scope of covered electronic parts, amplified requirements pertaining to embedded software and firmware, expanded safe harbor to terms similar to NASA's, and outlined processes to notify government customers when unauthorized sources are used. It also may provide more detailed traceability requirements: Instead of just telling what needs to be done, it would explain how to do it.
Two other regulations under development are "Expanded Reporting of Nonconforming Suppliers" and "Higher-Level Contract Quality Requirements." If approved, both would be changes to the FAR and would affect all federal government procurements, not just DoD or NASA procurements.