Federal Register, Volume 79 Issue 87 (Tuesday, May 6, 2014)

[Federal Register Volume 79, Number 87 (Tuesday, May 6, 2014)]
[Rules and Regulations]
[Pages 26092-26108]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-10326]

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Vol. 79

Tuesday,

No. 87

May 6, 2014

Part IV

Department of Defense

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Defense Acquisition Regulations System

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48 CFR Parts 202, 231, 244, et. al.

Defense Federal Acquisition Regulation Supplement: Detection and
Avoidance of Counterfeit Electronic Parts (DFARS Case 2012-D055); Final
Rule

Federal Register / Vol. 79, No. 87 / Tuesday, May 6, 2014 / Rules and
Regulations

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DEPARTMENT OF DEFENSE

Defense Acquisition Regulations System

48 CFR Parts 202, 231, 244, 246, and 252

RIN 0750-AH88

Defense Federal Acquisition Regulation Supplement: Detection and
Avoidance of Counterfeit Electronic Parts (DFARS Case 2012-D055)

AGENCY: Defense Acquisition Regulations System, Department of Defense
(DoD).

ACTION: Final rule.

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SUMMARY: DoD is issuing a final rule amending the DFARS in partial
implementation of a section of the National Defense Authorization Act
for Fiscal Year 2012, and a section of the National Defense
Authorization Act for Fiscal Year 2013, relating to the detection and
avoidance of counterfeit electronic parts.

DATES: Effective May 6, 2014.

FOR FURTHER INFORMATION CONTACT: Ms. Amy Williams, telephone 571-372-
6106.

SUPPLEMENTARY INFORMATION:

I. Background

DoD published a proposed rule in the Federal Register at 78 FR
28780 on May 16, 2013, to implement paragraphs (a), (c), and (f) of
section 818, entitled ``Detection and Avoidance of Counterfeit
Electronic Parts,'' of the National Defense Authorization Act (NDAA)
for Fiscal Year (FY) 2012 (Pub. L. 112-81, enacted December 31, 2011).
Paragraph (c) of section 818 requires the issuance of DFARS regulations
addressing contractor responsibilities for detecting and avoiding the
use or inclusion of counterfeit electronic parts or suspect counterfeit
electronic parts, the use of trusted suppliers, and requirements for
contractors to report counterfeit electronic parts and suspect
counterfeit electronic parts. Paragraph (f) of section 818 contains the
definitions of ``covered contractor'' and ``electronic part.'' Also,
paragraph (a) of section 818 requires DoD to provide definitions of
``counterfeit electronic part'' and ``suspect counterfeit electronic
part.'' Other aspects of section 818 are being implemented separately.
The proposed rule and this final rule also address the amendments
to section 818 made by section 833, entitled ``Contractor
Responsibilities in Regulations Relating to Detection and Avoidance of
Counterfeit Electronic Parts,'' of the NDAA for FY 2013 (Pub. L. 112-
239, enacted January 2, 2013). Fifty respondents submitted public
comments in response to the proposed rule.
After publication of the proposed rule, DoD hosted a public meeting
to obtain the views of experts and interested parties in Government and
the private sector regarding the electronic parts detection and
avoidance coverage proposed for inclusion in the DFARS (see 78 FR
35262, dated June 12, 2013). A dozen representatives of private-sector
firms, industry associations, and Government agencies made
presentations. Many recommendations were made for improving the
definition of counterfeit part, and these were carefully considered in
preparing the final rule. Another frequently voiced recommendation was
to expand on the nine criteria provided by statute for counterfeit part
detection and avoidance systems, a recommendation also acted upon for
the final rule. There were many comments made on the applicability of
the proposed rule only to Cost Accounting Standards (CAS)-covered
contractors and the resultant exemption of small businesses and
contracts for the acquisition of commercial items.

II. Discussion and Analysis

DoD reviewed the public comments in the development of the final
rule. A discussion of the comments and the changes made to the rule as
a result of those comments is provided, as follows:

A. Summary of Significant Changes From Proposed Rule

In the definitions at DFARS 202.101 and the clause at
DFARS 252.246-7007--
[cir] The definitions of ``counterfeit part'' and ``suspect
counterfeit part'' are substantively revised and limited to electronic
parts;
[cir] The definition of ``legally authorized source'' is deleted;
and
[cir] A new definition of ``obsolete part'' is added.
The criteria for a contractor's counterfeit electronic
part detection and avoidance system at DFARS 246.870-2(b) and paragraph
(c) of the clause at DFARS 252.246-7007 are expanded and clarified and
three new criteria have been added. In addition, the use of a risk-
based system by the contractor is clarified.
Applicability of the counterfeit system criteria only to
CAS-covered prime contractors is clarified, as is the required flow
down to all subcontractor tiers providing electronic parts or
assemblies containing electronic parts.

B. Analysis of Public Comments

Outline of issues:

1. Comment Period
2. Definitions
a. ``Counterfeit [Electronic] Part'' and ``Suspect Counterfeit
[Electronic] Part''
b. ``Trusted Supplier''
c. ``Legally Authorized Source''
d. ``Electronic Part''
3. System Criteria
a. General
b. Training of Personnel
c. Inspection and Testing
d. Proliferation of Counterfeit Electronic Parts
e. Traceability
f. Use of Trusted Suppliers
g. Reporting and Quarantining
h. Suspect Counterfeit Electronic Parts
i. Design, Operations, and Maintenance of System
j. Flow Down
4. Applicability
a. CAS-Covered Contractors
b. Commercial Items, Especially COTS Items
c. Parts Already on the Shelf
d. Other
5. Flowdown Requirements
6. Contractor Purchasing System Review (CPSR)
7. Cost Allowability
8. Industry Standards
9. Testing/Item Unique Identification (IUID) Use
10. Reporting
11. Clauses
12. Obsolete Parts
13. Other Comments
1. Comment Period
Comment: Five respondents submitted comments on this subject. Three
respondents recommended extending the public comment period. One
recommended an extension of 12 months, another recommended aligning the
comment period for this DFARS rule with that of the two associated FAR
proposed rules, and a third respondent recommended delaying this case
until formal publication of the report of the Intellectual Property
Enforcement Coordinator. Two of these respondents also recommended
establishment of a formal Government-industry dialogue to ``minimize
costs and avoid adverse impacts to . . . supply chains.'' A respondent
recommended that, given the complexities of this issue, DoD would
benefit from issuing a second proposed rule and soliciting additional
public comment. However, one respondent argued strongly against any
further delay, citing the threats that counterfeit parts pose to
warfighters and the country's economic and physical security.
Response: While DoD is aware that many issues associated with

[[Page 26093]]

management of the counterfeit parts problem remain to be resolved, DoD
cannot afford to wait to take action. Further, the Congress has spoken
on counterfeit electronic parts and mandated certain DoD implementation
actions in section 818 of the NDAA for FY 2012. All of the
possibilities cited by respondents above were considered, and the best
course of action was determined to be issuance of this final rule
without undue delay. However, a means of accomplishing the suggested
Government-industry dialogue is being pursued, and future changes to
the DFARS regulations will be considered as they are identified.
2. Definitions
a. ``Counterfeit [Electronic] Part'' and ``Suspect Counterfeit
[Electronic] Part''
Twenty three respondents provided comments on the definitions of
``counterfeit part'' and ``suspect counterfeit part.''
i. Definition of ``Counterfeit Part''
Comment: One respondent said that the proposed definition of
``counterfeit part'' is too broad and allows for undefined and
unregulated purchases of electronic parts from sources not authorized
by the original manufacturer. Six respondents said that the definition
must be limited to electronic parts, i.e., counterfeit electronic
parts.'' One respondent recommended using the term ``item'' rather than
``part'' (see DFARS 202.101 and 252.246-7007).
Response: DoD has revised the definition to limit it to electronic
parts. The DFARS definition for ``electronic part'' is the statutory
definition included at paragraph (f)(2) of section 818 (see paragraph
2.d. of this section, ``Electronic part''). The coverage in this final
rule is clearly limited to electronic parts. Therefore, ``part'' is
retained in lieu of ``item'' in accordance with the language used by
the Congress in section 818.
Comment: Several respondents cited a preference for the definitions
from the SAE AS5553A and (pending) AS6081 standards (``A fraudulent
part that has been confirmed to be a copy, imitation, or substitute
that has been represented, identified, or marked as genuine, and/or
altered by a source without legal right with intent to mislead,
deceive, or defraud''). Another respondent suggested that the
definition of ``counterfeit item'' should be the same as that provided
in DoDI 4140.67, DoD Counterfeit Prevention Policy.
Response: The revised definition takes into account current
published agency and industry definitions. Some changes have been made
to bring the DFARS definition in line with the best features of these
definitions. However, because of the continually evolving nature of the
definitions in industry standards and the inconsistencies among the
definitions in the standards, it was not possible to adopt the
definitions as included in industry standards. For example, the
definition is revised to (1) address the element of intent by adding
``misrepresented'' and (2) add ``unlawful or unauthorized
substitution.'' Given the wide variety of industry standards and the
evolving state of knowledge on the elements needed to be included in a
workable definition, it is likely there will continue to be differences
between industry standards. Furthermore, using the definition of
``counterfeit item'' in DoDI 4140.67 verbatim was not feasible because
it was developed before the public comment period for this DFARS case
and did not benefit from the information provided during the public
comment period.
Comment: A number of other respondents provided various alternative
definitions.
Response: DoD carefully reviewed all suggested wording and
formulated a comprehensive definition that includes many of the
respondents' recommendations (see response immediately above).
Comment: Several respondents commented that the element of
``intent'' was missing from the definition in the proposed rule, and,
as claimed by one of these respondents, the definition therefore is
inconsistent with 18 U.S.C. 2320. Another respondent agreed that the
definition needs an ``intent'' element. In the estimation of this
respondent, ``intent'' is especially important because, without it,
many more costs become unallowable under the terms of DFARS 231.205-71.
Two additional respondents said, by omitting an ``intent'' element,
inadvertent delivery of an incorrect part by a bona fide source could
result in liabilities and other obligations that should be limited to
situations where there is evidence of intent to mislead or deceive.
Another respondent stated that adding an intent element to the
definition would mitigate the strict-liability aspect present in the
proposed rule. However, the respondent's proposed definition includes
``reckless'' and ``negligent'' ``misrepresentation'' in addition to
``knowingly misrepresented'' in order to prevent occurrences of willful
blindness or lack of due care. A last element related to ``intent''
came from a respondent who said that parts that are out of warranty or
are genuine but out of specification or suffer from quality
deficiencies should be addressed under the warranty provisions of the
contract rather than treated as counterfeit parts.
Response: DoD has added an element of intent to the definition of
``counterfeit electronic part'' by including the term
``misrepresented.'' Terms indicating supplier failure to exercise
appropriate counterfeit detection and avoidance measures, such as
``recklessly'' and ``negligently,'' are not included in the definition
because they have no bearing on whether the part itself is counterfeit
(i.e., supplier negligence cannot change the status of a counterfeit
part to a non-counterfeit part).
Comment: Many comments addressed one or more of the three parts of
the definition in the proposed rule. Regarding Part 1 of the
definition, two respondents noted favorably that it conformed to DoDI
4140.67. Another respondent recommended adding ``, reproduction,
overrun,'' after ``copy'' and before ``or substitute.'' A respondent
stated that the definition of ``legally authorized source'' would have
to be expanded to include the authorized distributor before the
respondent could agree with it.
Response: Based on comments received, DoD added to the definition
to explain what is meant by ``unlawful or unauthorized substitution.''
This enabled deletion of the third portion of the ``counterfeit''
definition in the proposed rule.
Comment: With regard to Part 2 of the proposed rule's definition, a
respondent said that it was inconsistent with the intent of the statute
and utilized the Lanham Act meanings. Another respondent recommended
revising Part 2 to use the term ``legally authorizing source'' because
it would be clearer to apply the term to the source of the item rather
than the item itself. A third respondent said that Part 2 constitutes
fraud and should be considered in the appropriate areas of law that
deal with fraud. Another respondent asked if Part 2 was intended to be
different from Part 1. A respondent stated that ``intended use'' was
ambiguous.
Four respondents offered a solution by recommending that Part 2 of
the three elements be deleted, given that Part 1, in their estimation,
captured the intent of Part 2. A respondent said that an item
misrepresented to be an authorized item of the legally authorized
source could exclude supply by bona-fide distributors or brokers that
acquire excess and out-of-production authentic parts.
Response: DoD has revised the definition of ``counterfeit
electronic part'' to list the sources legally

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authorized to permit manufacturing or resale of the item (see above
responses in this section). In addition, the reference to ``intended
use'' is removed.
Comment: Commenting on Part 3 of the definition, one respondent
concluded that Part 3 was overbroad because it equated contract-
requirements compliance with counterfeiting. This respondent
recommended that Part 3 of the definition be struck altogether. A
respondent said that it was alright to use ``previously used parts
represented as new,'' but other terms went too far (e.g., new, unused
genuine part from the original manufacturer that is discovered to have
an unintentional quality issue). Several respondents stated that Part 3
is overly broad because ``even newly made parts from original
manufacturers that fail acceptance tests would be deemed counterfeits
that contractors would be liable for.'' One respondent suggested that
requiring willful misrepresentation may narrow the scope of the
definition appropriately. According to one respondent, basing a
counterfeit determination solely on age-related criteria or solely on
performance requirements is unnecessary and goes beyond the concerns
articulated by Congress. The respondent recommended deleting Part 3 and
using a single definition. A respondent proposed to revise Part 3 of
the definition to read ``(3) A used, outdated, or expired genuine item
from any source that is misrepresented to the end user as new or as
meeting new part performance requirements'' because the revised wording
focuses on genuine parts that may not perform as new due to the passage
of time or prior misuse. A respondent said that Part 3 of the
definition is incorrect because ``any source'' includes sources that
have the right to re-mark, re-label, and reconfigure their device to
meet performance specifications. This respondent recommended the
following Part 3 language: ``A new, used, outdated, or expired item
that has been represented, identified, or marked as genuine, and/or
altered by a source without legal right as meeting the performance
requirements for the intended use.'' Another respondent proposed to
revise Part 3 into two parts. The respondent, as justification, noted
that the AS5553 definition of ``counterfeit part'' is focused on the
misrepresentation of the origin of the part, not its performance with
respect to the end user's requirements, and it is unnecessary to
protect the DoD supply chain.
A respondent said that a nonconforming item, even one that is
wholly unintentional and furnished by its original source, would be
considered ``counterfeit''. Out-of-specification escapes could well be
unintentional and unobserved by the supplier and thus represented to
the customer ``as meeting the performance requirements for the intended
use;'' this would expose the supplier to False Claims Act liability.
Two respondents were concerned with ``misrepresentation'' issues.
An escape due to a temporary lapse of manufacturing and testing process
control could be unintentional and unobserved, these respondents said,
and could subject the supplier to False Claims Act liability. Further,
``misrepresented'' could be misinterpreted manufacturing defects.
Several respondents addressed the use of terms like ``new, used,
outdated, or expired item.'' These respondents said that ``outdated''
may indicate a date code or lot number that may or may not be equal to
either an older or newer date code, and that, left undefined,
``expired'' could be read to mean packing material such as humidity
indicator cards, shelf life that can legitimately be restored in most
parts, and other transactions as long as the customer is fully informed
and approves. The respondents asked whether an obsolete but original
part carried in distributor inventory and still in use in fielded
products was considered to be an ``outdated'' or ``expired'' item.
Similarly, several respondents raised concerns with regard to
``intended use,'' asking who determines what the ``intended use'' is.
The respondents said that the DoD end-user ``would certainly have
knowledge for the `intended use' of the equipment containing the
electronic part but would likely not have design application knowledge
for the `intended use' for the electronic part within the design of the
equipment.''
Response: DoD addressed concerns about Part 3 of the definition by
removing it and including an ``intent'' element in the revised
definition.
Comment: A respondent recommended that the definition be revised to
delete ``from a legally authorized source that is misrepresented by any
source to the end user.'' Another respondent recommended deleting
``from a legally authorized source.'' A third respondent said that the
definition of ``legally authorized source'' would have to be revised
before the respondent could accept Parts 1 and 2 of the definition. A
respondent wondered how a legally authorized source was identified and
who gets to decide.
Response: DoD is revising the definition of ``counterfeit part'' to
specify what constitutes the legally authorized source, i.e., the
current design activity, the original manufacturer, or a source with
the express written authority of the original manufacturer or current
design activity, including an authorized aftermarket manufacturer. The
separate definition of that term has been deleted (see also paragraph
2.c. of this section, ``Legally authorized source'').
Comment: A respondent recommended removing references to substitute
equipment because genuine replacement equipment may be ``identified
(or) marked . . . by a source other than the part's legally authorized
source.'' According to the respondent, this could exclude legitimate
substitutes for, or alternatives to, original-manufacturer parts due to
such circumstances as a legally authorized source no longer producing
the equipment. The current definition, the respondent said, could also
be interpreted as precluding the use of certain commercially available
off-the-shelf (COTS) items.
Response: The word ``substitute'' is replaced with the term
``unlawful or unauthorized substitution'' in order to distinguish such
items from legitimate substitutes.
Comment: One respondent suggested replacing ``meeting the
performance requirements'' with ``being the current or authorized
part.'' This respondent also recommended deleting ``new'' and
inserting, between ``outdated,'' and ``or expedited item,''
``decommissioned, recalled.''
Two respondents suggested that the final rule provide a definition
for ``outdated or expired'' item. Another respondent recommended
defining ``authentic part'' as ``a part manufactured by the original
component manufacturer or by a source authorized by the original
component manufacturer, including the authorized aftermarket
manufacturer.'' A respondent asked that the term ``source'' be revised
to ``supplier'' in two places and ``item'' to ``part'' in two places.
Response: Part 3 of the proposed definition, which referred to
outdated or expired items and items that do not meet performance
requirements, is removed. These items, as well as decommissioned and
recalled items, fall under the revised definition of counterfeit, which
includes ``unlawful or unauthorized substitutions.''
ii. Definition of ``Suspect Counterfeit [Electronic] Part''
Comment: One respondent suggested that DFARS should set forth who
has the burden of proof, including

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procedures for determination, how it is done, and what should be done
with the part once it is classified as ``suspect.'' This respondent
suggested that any part obtained from a non-authorized source be
considered a ``suspect counterfeit part'' if the non-authorized source
does not use detection, avoidance, testing, and/or verification
processes in accordance with industry standards. One respondent stated
its belief that any finding based on testing ``can, and should, be
supported by `visual inspection' and `other information.'''
Several respondents provided alternate definitions. Two respondents
declared the definition to be overbroad. Another respondent said that,
to be consistent with legal precedents, the definition should be
revised as follows: ``An electronic part for which there is an
indication that it may be Counterfeit based on analysis, testing and/or
evidence, although not yet confirmed.'' Yet another respondent
recommended a revised definition as follows: ``An electronic item, or
any electronic component thereof, for which visual inspection, testing,
or other information provide reason to believe that an electronic part
may be a counterfeit item.'' A different respondent recommended that
the definition should be ``one for which there is reasonable cause
under the circumstances to believe a part is counterfeit, based on
either (1) physical inspection of the part, or (2) credible evidence
from other sources.'' The respondent considered this to be a better
definition because ordinary quality problems could emerge that are
treated initially as suspect counterfeit parts but, after
investigation, turn out to be otherwise. But, the respondent said, the
cost principle at DFARS 231.205-71 would make any costs associated with
the item unallowable. Industry should have the authority, according to
the respondent, to make a determination whether a part is a ``suspect
counterfeit'' part, and the rule should clarify the processes that
should be followed.
Response: As with all nonconforming items, the contracting officer
is the official responsible for acceptance under the FAR. The
definition is revised to include the phrase ``credible evidence,''
along with examples, to strengthen the fact-based approach. It is not
practical or cost effective to test in every case of a suspected
counterfeit.
b. ``Trusted Supplier''
Comment: Nineteen respondents submitted comments requesting a
definition for ``trusted supplier,'' many noting that section 818
relies heavily on the concept of trusted suppliers. Two of these
respondents stated that the law, at section 818(c)(3)(C), requires the
regulations to establish qualification requirements pursuant to which
DoD may identify trusted suppliers that have appropriate policies and
procedures in place to detect and avoid counterfeit electronic parts
and suspect counterfeit electronic parts. A respondent offered an
alternate definition, which was supported by a separate respondent as
consistent with SAE industry standards AS5553A and AS6081. A respondent
suggested that that term ``trustworthy supplier'' would be more
appropriate and less likely to be confused with other, existing
programs. A similar definition was provided by another respondent.
Concerns about confusion with other, existing programs were expressed
by another respondent, which requested that the DFARS require that
companies that are not Defense Microelectronics Activity (DMEA)-
accredited trusted suppliers be required to disclose this fact and,
further, that the final rule include a statement in the Federal
Register notice that ``clearly underscores that existing requirements
to use DMEA-accredited Trusted Suppliers remain in force.''
Other respondents suggested simpler definitions. One respondent
recommended that trusted supplier be equated to legally authorized
source, as long as these sources were able to document traceability and
chain of custody to the original manufacturer.
A respondent recommended that the term ``independent suppliers'' be
used in lieu of ``trusted suppliers,'' so as not to confuse it with
other programs, such as the Trusted Access Program. Another respondent
recommended that authorization to purchase electronic parts from
trusted suppliers should only be given when it is not possible to
purchase the parts from the original manufacturer or sources authorized
by the original manufacturer (legally authorized sources).
A respondent pointed out that the DFARS hadn't defined ``supplier''
and suggested that the final rule add such a definition. A respondent
provided a definition of ``authorized distributor.'' One respondent
stated that it had signed agreements between it and various suppliers
that bind the company's relationship to ensure original manufactured
product only is supplied to customers; consideration of these
agreements was not included in the proposed rule and, according to the
respondent, would unfairly designate authorized distribution as an
illegal source. One respondent suggested that use and qualification of
trusted suppliers should be defined by the contractor, not by the
Government.
One respondent noted that industry is well aware that it should
purchase electronic parts from original manufacturers and their
authorized distributors, but this is not always possible because there
are thousands of systems in the inventory for which parts remain in
demand but are not available from such trusted suppliers.
Response: Paragraph (c)(3)(A)(i) of section 818 requires that DoD,
and its contractors and subcontractors, whenever possible, obtain
electronic parts that are in production or currently available in stock
from the original manufacturer, dealers authorized by the original
manufacturer, or from trusted suppliers that ``obtain such parts
exclusively from the original manufacturers of the parts or their
authorized dealers.''
Paragraph (c)(3)(A)(ii) of section 818 also permits the acquisition
of electronic parts that are not in production or currently available
in stock from trusted suppliers. Paragraphs (c)(3)(C) and (c)(3)(D)
require DoD and contractors and subcontractors to establish procedures
and criteria for the identification of such trusted suppliers. DoD
contemplates further implementation with regard to identification of
trusted suppliers under DFARS Case 2014-D005.
Paragraph (c)(3)(B) of section 818 requires DoD regulations to
establish requirements for notification of DoD and inspection, testing,
and authentication of electronic parts that a DoD contractor or
subcontractor obtains from any source other than a source identified in
paragraph (c)(3)(A).
Therefore, testing or additional inspection is not generally
required for electronic parts purchased from the original manufacturer,
the design authority, or an original manufacturer-authorized dealer(s).
Furthermore, DFARS 252.246-7007(c)(2) specifies that selection of tests
and inspection shall be based on minimizing risk to the Government. One
of the criteria for determination of risk is the assessed probability
of receiving a counterfeit electronic part.
DoD is concerned that defining and using the term ``trusted
supplier,'' or a variation of it, would create confusion due to the use
of this term in other, current DoD and industry initiatives.
Accordingly, the systems criteria in DFARS are revised to express what
is intended by ``trusted supplier'' without directly using the term,
e.g., 252.246-7007(c)(5) uses the phrase ``suppliers that meet
applicable counterfeit

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detection and avoidance system criteria.''
c. ``Legally Authorized Source''
Comment: Seventeen respondents commented on the definition of
``legally authorized source'' at DFARS 202.101 in the proposed rule.
Many of the comments alleged ambiguity in the definition and expressed
concerns about the treatment of millions of parts made by original
manufacturers that are in circulation worldwide and are purchased
legally by responsible brokers and distributors, parts that are still
in demand. Three respondents recommended adding ``or distribute''
between ``produce'' and ``an item,'' in order to capture distributors
that have agreements in place with the original manufacturers to
distribute items sourced direct from the original manufacturer. Similar
changes were recommended by another respondent. Other respondents
recommended adding reputable, or authorized, distributors to the
definition. Four respondents supported the change with a more strongly
worded alternate definition. One of these respondents noted the
proposed definition of ``legally authorized source'' is consistent with
the definition of ``current design activity'' in MIL-STD-130N. A
respondent wanted to revise the definition to include licensors of
software to clarify that the term applies to both hardware and
software.
However, two respondents stated that using the term ``legally''
added unnecessary complexity to the definition. Another respondent took
a different approach, stating that the term ``authorized source''
needed its own definition. One other respondent was concerned that the
current definition could be construed to mean that the actions of an
authorized reseller could create a legal liability for the original
manufacturer where the reseller integrated third-party components to
configure or customize the product at DoD's direction.
Response: DoD has removed the definition of ``legally authorized
source'' and, instead, spelled out at DFARS 246.870-2(b)(5) the
entities that are authorized to produce a genuine item, i.e., the
original manufacturer, current design activity, or an authorized
aftermarket manufacturer.
d. ``Electronic Part''
Comment: Five respondents provided comments on the definition of
electronic part at DFARS 202.101 in the proposed rule. One respondent
proposed adding to the end of the definition provided in the statute
(section 818(f)(2)) the phrase ``, or materials used to produce
assemblies and cables.'' Another respondent stated that electronic
parts are usually more inclusive than indicated in the proposed rule's
definition. A third respondent recommended that the definition
expressly include software, so that there was no opportunity to assume
that software was not included. Two other respondents suggested that,
for electronic parts where physical marking is not possible and where
the risk of counterfeit parts presents a significant mission, security,
or safety hazard, DoD should consider requiring ``electronic unique
identification.''
Response: Paragraph (f) of section 818 provided only two
definitions, one for ``covered contractor'' and the other for
``electronic part.'' The proposed definition directly implements the
statutory definition.
However, while retaining the statutory definition, DoD has added to
the definition the statement that ``The term electronic part includes
any embedded software or firmware.''
Requiring electronic unique identification is addressed in
paragraph 9.b. of this section, IUID use.
3. System Criteria
a. General
Comments: Twenty respondents submitted comments on this subject
area. A number of respondents criticized the proposed rule for merely
repeating the system criteria from section 818 without elaboration. One
respondent said that, while the DFARS requires an operational system,
it does not define the approval criteria or specify who will conduct
the review or the frequency of reviews. Many of the respondents
concluded that the proposed rule did not correctly implement section
818 of the law, specifically the requirement at section 818(b)(2) ``to
implement a risk-based approach to minimize the impact of counterfeit
electronic parts or suspect counterfeit electronic parts on DoD.'' In
the opinion of some respondents, the proposed rule would impose
unreasonable strict liability standards on industry, regardless of
significant and good-faith efforts to address the issue. This comment
was supported by other respondents that stated, considering the
potentially unaffordable costs of treating all acquisitions of
electronic parts equally, the final rule should provide for weighing
the odds of occurrence and the potential consequences in responding to
potential threats of counterfeit parts, which can vary from serious
impact to negligible impact. One of these respondents recommended that
DoD enable its largest contractors to take the lead in detection and
avoidance of counterfeit electronic parts by allowing those contractors
to make risk-based decisions on how best to implement supply chain
assurance measures.
A respondent suggested that one way to address the broad-ranging
concerns would be to revise DFARS 246.870-2(a) effectively to define a
``counterfeit avoidance and detection system'' to mean ``the
contractor's system for risk analysis based on inspection and testing
to mitigate the acquisition and use of counterfeit electronic parts
from the supply chain.'' The respondent's use of the term ``mitigate''
would alleviate the strict liability requirement for 100 percent
detection in the proposed rule. A second respondent supported the use
of ``mitigation'' in lieu of a 100 percent avoidance requirement.
Response: The final rule adds criteria to the system requirements
and expands and clarifies the intent of the criteria in the clause at
252.246-7007. The respondent stating that the DFARS does not define the
approval criteria or specify who will conduct the review is referred to
FAR subpart 44.3, Contractor Purchasing Systems Reviews, and its
supplement, DFARS subpart 244.3. DCMA has developed and published
guidance for the conduct of Contractor Purchasing Systems Reviews
(CPSRs) that is available on the agency's Web site. In addition, DCMA
is developing a ``Counterfeit Detection and Avoidance System
Checklist'' that will be available when finalized.
The DFARS does take a risk-based approach, as is further clarified
in the final rule. DoD has modified DFARS 246.870-2(b) to read, ``A
counterfeit electronic part detection and avoidance system shall
include risk-based policies and procedures that address . . .''. This
change conforms the final rule with DoDI 4140.67. The contractor is
responsible for establishing a risk-based counterfeit detection and
avoidance system with the amount of risk based on the potential for
receipt of counterfeit parts from different types of sources. Three
additional system criteria are added to the nine criteria set forth in
the statute. These criteria are elaborated in the additions to the
system criteria that are included in the final rule in the clause at
DFARS 252.246-7007.
Comment: One respondent made specific suggestions for improving the
system criteria at DFARS 246.870-2(b) by requiring the use of ``secure
mass serialization with alphanumeric tokens for digital
authentication'' and not

[[Page 26097]]

limiting the coverage only to electronic parts.
Response: DoD does not endorse specific mechanisms or technology in
the rule, but rather focuses on the desired outcome. Furthermore, DoD
is restricting initial implementation to electronic parts as specified
in section 818, although other items are considered critical and can be
subject to counterfeiting.
b. Training of Personnel
Comment: With regard to DFARS 246.870-2(b)(1) (training of
personnel), a respondent noted that the training criteria and the scope
of the required training were not identified in the listing of minimum
system criteria.
Response: DoD agrees with the respondent's statement, but notes
that this is an intentional omission. DoD is providing contractors with
the flexibility to determine the appropriate type of training required
for individual firms, based upon each contractor's assessment of what
programs and capabilities are already in place within the firm and the
assessment of what more is needed.
c. Inspection and Testing
Comment: Another respondent, commenting on DFARS 246.870-2(b)(2)
(inspection and testing of electronic parts), suggested that DoD
provide a listing of minimum inspections and tests.
Response: DoD agrees that requiring the contractor to test and
inspect all electronic parts would be prohibitive. However, the DFARS
does not require all electronic parts to be treated equally. The
requirement to test or inspect is dependent on the source of the
electronic part. The potential for receipt of counterfeit electronic
items is considerably lower when the item is procured from authorized
sources and retains traceability. The final rule allows contractors to
make risk-based decisions based on supply chain assurance measures.
d. Proliferation of Counterfeit Electronic Parts
Comment: For DFARS 246.870-2(b)(3) (processes to abolish
counterfeit parts proliferation), a respondent commented that DoD
should provide minimum requirements for selection of suppliers that
include a requirement to purchase products from authorized suppliers
whenever possible. Another respondent recommended the addition of the
phrase ``, such as the quarantine of counterfeit parts.'' The
respondent stated that this addition would provide a path of legal
justification for quarantining counterfeit parts.
Response: DoD has amended DFARS 246.870-2(b)(4) and (b)(6) to
address quarantining of counterfeit electronic parts and suspect
counterfeit electronic parts. These criteria are elaborated on in
paragraph (c) of the clause at DFARS 252.246-7007.
e. Traceability
Comment: Multiple respondents commented on the traceability
requirements in DFARS 246.870-2(b)(4) (process for maintaining
electronic traceability). Two respondents took issue with the perceived
significant implementation and compliance problems posed by
traceability. One respondent suggested that DoD incorporate a
traceability provision that is in accordance with prevailing industry
standards to ensure that covered contractors establish and verify the
source of electronic parts and the chain of custody. One respondent
stated that traceability cannot resolve unreliability concerns and
recommended that purchase of electronic parts from an independent
supplier should be permitted only after an exhaustive search of all
legally authorized sources proved fruitless, and any such purchases
must come with required testing. A third respondent stated that the use
of the term ``mechanisms'' required something more than ``best
practices,'' and strongly recommended that DoD establish a technology
solution that is proactive and strategic, and one which provides
quality, measurable data.
Two other respondents recommended requiring the use of Item Unique
Identification (IUID) as a mandatory traceability mechanism.
Another respondent expressed its strong belief that, although the
requirement to maintain traceability is taken directly from the
statute, it is not realistic to promulgate a zero-tolerance standard.
Instead, the respondent recommended that paragraph (b)(4) be revised to
make it clear that DoD will be satisfied if a contractor has a system
that meets applicable industry standards.
Response: DoD intentionally did not mandate specific technology
solutions for traceability. The rule provides a contractor flexibility
to utilize industry standards and best practices to achieve the
required outcome of traceability.
References to IUID marking are added to the final rule as an
optional means of maintaining traceability.
With regard to mission-critical electronic parts and electronic
parts that could impact human safety, DoD does have a zero-tolerance
policy.
f. Trusted Suppliers
Comment: For DFARS 246.870-2(b)(5)(use and qualification of trusted
suppliers), a respondent recommended that it include guidance on what
would need to be included in a trusted supplier program. The respondent
stated its belief that the Congress intended that a trusted supplier
should be one that can demonstrate that it has processes in place to
evidence traceability to the original manufacturer or its authorized
distributor chain. The respondent stated that, because of the
importance of this change to contractors' purchasing systems
requirements, any standards imposed by DoD related to trusted suppliers
should be subject to notice and comment by industry. A respondent
stated that DoD should have a list or checklist of requirements for
determining what is a trusted supplier, including auditing processes.
Another respondent said that there is a pressing need for industry to
receive more guidance about how to handle situations where parts are
obsolete or not available from authorized sources or original
manufacturers. A third respondent suggested that paragraph (b)(5) would
be much improved by adding, at the end, the phrase ``as defined by the
contractor.''
Response: For reasons explained in detail in paragraph 2.b. of this
section, ``Trusted supplier'', the term ``trusted supplier'' is not
defined in the final rule. However, a categorization of what types of
suppliers may be deemed ``trusted'' and therefore treated differently
from other suppliers is included in the system criteria and explained
further in paragraph (c) of the clause at DFARS 252.246-7007.
g. Reporting and Quarantining
Comment: Two respondents commented that DFARS 246.870-2(b)(6)(The
reporting and quarantining of counterfeit electronic parts and suspect
counterfeit electronic parts) should be revised by adding, at the end,
``by use of a global serialized item identifier or IUID per MIL STD
130.'' Another respondent referenced section 818(c)(4), (5), and
(e)(2)(a)(vi), noting that these provisions directed revision of the
DFARS to address reporting requirements, reporting methods, and
reporting-related civil liability protections, but paragraph (b)(6)
referred only to the requirement to report and did not address the
level of reporting detail DoD expects or to whom at DoD or elsewhere
the contractor should report. One respondent recommended adding a
qualification

[[Page 26098]]

that the requirement to report and quarantine didn't come into play
until ``confirmation of a suspect status by a third-party inspection
and, if necessary, testing to the extent of destructive testing of a
sample(s).''
Response: DoD agrees with respondents who requested additional
guidance on reporting and quarantining procedures. The clause at DFARS
252.246-7007 is expanded in the final rule to provide information on
where to report, what to report, and the circumstances that require a
report. Additionally, the Government plans to address reporting and
quarantining requirements more fully in FAR Case 2013-002, Expanded
Reporting of Nonconforming Supplies.
h. Suspect Counterfeit Electronic Parts
Comment: With regard to DFARS 246.870-2(b)(7)(methodologies to
identify suspect counterfeit electronic parts and to determine if a
suspect counterfeit electronic part is counterfeit), a respondent said
that only the original manufacturer, not the prime contractor, can make
the determination that a particular part is actually counterfeit, but
experience indicates that the original manufacturer will not
participate, in most cases, in an investigation. Further, the
respondent claimed, it is often more cost effective for both the prime
contractor and the Government to declare the parts suspect or scrap and
reprocure the parts.
Response: DFARS 246.870-2(b)(7) requires the contractor's
counterfeit electronic part detection and avoidance system to address
methodologies to identify suspect parts and to rapidly determine if a
suspect counterfeit part is, in fact, counterfeit. However, the rule
provides the contractor flexibility to employ a risk-based approach to
tests and inspections.
i. Design, Operations, and Maintenance of System
Comment: A respondent commented on DFARS 246.870-2(b)(8) (Design,
operation, and maintenance of systems to detect and avoid counterfeit
electronic parts and suspect counterfeit electronic parts) and asked
whether compliance with industry standards such as AS5553 would fulfill
the requirement. Another respondent recommended inserting the phrase
``the use and supply of'' after ``detect and avoid'' and before
``counterfeit electronic parts.''
Response: DoD does not specify industry standards in the rule,
because industry standards are continually evolving. However, a
contractor may elect to use current Government- and industry-recognized
standards to meet this requirement. This clarification has been added
to the clause 252.246-7007 in paragraph (c)(8). ``Use and supply of''
is implied in the current language.
j. Flow Down
Comment: With regard to DFARS 246.870-2(b)(9) (the flow down of
counterfeit detection and avoidance requirements to subcontractors),
two respondents recommended the addition, at the end of ``including the
use of IUID to enable supply chain traceability.''
Response: Paragraph (b)(9) requires the flow down of all
counterfeit detection and avoidance requirements, without the need to
specifically identify or list individual requirements. See the response
at paragraph 9.b. of this section, IUID use.
4. Applicability
Comments: Eighteen respondents submitted comments on applicability.
a. CAS-Covered Contractors
Comments: Several respondents objected to limiting the
applicability of the rule to CAS-covered contractors. Although
recognizing that the statute (section 818(f)(1), with reference to
section 893(f)(2) of the National Defense Authorization Act for Fiscal
Year 2011), defined ``covered contractor'' to mean a CAS-covered
contractor, a respondent expressed concern that limiting applicability
to CAS-covered contractors might provide undue risk for the
infiltration of counterfeit parts into the DoD supply chain.
Another respondent questioned the exclusion of educational
institutions, Federally Funded Research and Development Centers
(FFRDCs), and University Associated Research Centers (UARCs) from the
new requirements. The respondent stated that the statute does not carve
out any of the institutions listed in the proposed rule as exempt from
the counterfeit parts strictures. The respondent said that the proposed
rule did not sufficiently explain why DoD exempted these institutions
and whether they are exempt from the rule even if they are a
subcontractor to prime contracts that do include the clause.
Some other respondents, however, interpreted the flowdown
requirement not to apply to subcontractors unless the subcontractor
also was subject to CAS, leaving, in the opinion of one respondent, a
substantial gap in the regulatory coverage.
One of these respondents, for example, stated that ``(r)ather than
. . . directing counterfeit prevention requirements toward lower-tier
suppliers that tend to be associated with the sale of suspect
counterfeit electronic parts, the proposed rule focuses on prime and
upper-tier subcontractors (large entities that are subject to CAS) that
are not as well positioned to `eliminate counterfeit electronic parts
from the defense supply chain.' '' Regardless of this interpretation,
these respondents recommended making all subcontractors at all tiers
subject to the requirements of the rule.
A respondent noted that the preponderance of sales of counterfeit
items is far less than the limits required here and said that it was
unclear if subcontracts under the CAS threshold were covered.
One respondent objected that small entities, educational
institutions, FFRDCs, and UARCs could be impacted by the rule as
subcontractors to CAS-covered prime contractors.
A respondent asked how the regulations would apply to contractors
and subcontractors subject to modified-CAS.
Response: Section 818 specifically limited to ``covered
contractors'' the applicability of paragraphs--
(c)(2)(1)(A) (the responsibility for detecting and
avoiding the use or inclusion of counterfeit parts or suspect
counterfeit electronic parts and for rework or corrective action); and
(e) (Improvement of Contractor Systems for Detection and
Avoidance of Counterfeit Electronic Parts).
The definition of ``covered contractor'' at 818(f)(1) referred to
the definition at section 893(f)(2) of the National Defense
Authorization Act for Fiscal Year 2011, i.e., ``the term `covered
contractor' means a contractor that is subject to the cost accounting
standards under section 26 of the Office of Federal Procurement Policy
Act (41 U.S.C. 422.'' Section 422, in conjunction with the
recodification of title 41 of the United States Code, is now sections
1501-1504 of title 41.
As an initial implementation of section 818, this rule has limited
application at the prime contract level (including implementation of
paragraph (c)(3) of section 818 (Trusted Suppliers)) to CAS-covered
contractors.
The final rule does not specifically exempt educational
institutions, FFRDCs, and UARCs from application of the rule. Rather,
the clause specifies that it does not apply to any contractor that is
not CAS-covered pursuant to 41 U.S.C. chapter 15, as implemented in
regulations found at 48 CFR 9903.201-1.
The final rule does exclude set-asides for small business from the
clause prescriptions for 252.246-7007,

[[Page 26099]]

Contractor Counterfeit Electronic Part Detection and Avoidance System
(and thus indirectly 252.244-7001, Contractor Purchasing System
Administration-Alternative I), because CAS does not apply to contracts
with small businesses.
However, all levels of the supply chain have the potential for
introducing counterfeit or suspect-counterfeit electronic items into
the end items contracted for under a CAS-covered prime contract. The
prime contractor cannot bear all responsibility for preventing the
introduction of counterfeit parts. By flowing down the prohibitions
against counterfeit and suspect counterfeit electronic items and the
requirements for systems to detect such parts to all subcontractors
that provide electronic parts or assemblies containing electronic parts
(without regard to CAS-coverage of the subcontractor), there will be
checks instituted at multiple levels within the supply chain, reducing
the opportunities for counterfeit parts to slip through into end items.
As requested by many respondents, the flowdown requirement is clarified
by the addition of a paragraph in the clause at DFARS 252.246-7007 (see
also paragraph 5. of this section, Flowdown requirements).
It is correct that small entities, educational institutions,
FFRDCs, and UARCS may be impacted by the rule as subcontractors to CAS-
covered prime contractors.
With regard to contractors or subcontractors with modified CAS-
coverage, the law does not specify a distinction. Therefore any prime
contract subject to CAS coverage, whether full or modified, is subject
to the final rule.
b. Commercial Items, Especially COTS Items
Comments: Several respondents questioned making the rule applicable
to commercial items in general and commercially available off-the-shelf
(COTS) items in particular. One respondent noted that it would not be
in DoD's best interest to apply the Government-unique requirements of
section 818 to COTS items. Two respondents recommended that, instead,
DoD should recognize that commercial and COTS items purchased directly
from the original manufacturers and their authorized distributors
should be held only to the requirements of the commercial warranties
and any other standard commercial obligations. One respondent suggested
that, if a COTS item is purchased directly from the original
manufacturer, then its authenticity should not be subject to question.
Another respondent stated its belief that the Congress intended to
exclude commercial and COTS items from the coverage of the statute.
A respondent concluded that the rule must not be applicable to
commercial items because the Federal Register notice for the proposed
rule did not contain a determination (required by law) that it would
not be in the best interest of DoD to exempt commercial items. While
agreeing that it was proper to exempt commercial items, the respondent
wanted that exemption for commercial items clearly stated in the rule.
Response: Section 818 does not specifically address application to
contracts or subcontracts for the acquisition of commercial items,
either to exempt or to make applicable. However, the provisions of
section 818 that require implementation in a contract clause meet the
criteria for a covered law subject to 41 U.S.C. 1906 and 1907. That
means that DoD shall not apply the clauses to implement section 818 to
contracts or subcontracts for the acquisition of commercial items
(including COTS items), unless the Director, DPAP, makes a written
determination that it would not be in the best interest of the
Government to exempt contracts and subcontracts for the acquisition of
commercial items (including COTS items) from the applicability of the
provisions of section 818.
Therefore, the final rule, like the proposed rule, does not
prescribe the clause at 252.246-7007 (and the related clause at
252.244-7001, Alternate I) for use in prime contracts for the
acquisition of commercial items (including COTS items). In order to
require application to the acquisition of commercial items, it would be
necessary to list the clauses at 212.301. However, CAS does not apply
to acquisitions of commercial items, and therefore most contractors
providing commercial items are not CAS-covered (unless they also
provide non-commercial items to the Government under contracts covered
by CAS).
The Director, DPAP has determined that the aforementioned clauses
in the final rule do apply to subcontracts for the acquisition of
commercial items (including COTS items). The proposed rule required at
252.246-7007(c)(9) that the contractor shall flow down counterfeit
detection and avoidance requirements to all levels in the supply chain,
and did not specify any exceptions. Because this requirement did not
specify mandatory flow down of the clause itself, it was not covered by
252.244-7000, which specifies that the contractor is not required to
flow down the terms of DFARS clauses in subcontracts for commercial
items, unless so specified in the clause. The final rule adds a
flowdown paragraph to the clause at 252.246-7007 and makes
applicability to subcontracts for commercial items explicit (see
paragraph 5. of this section, Flowdown requirement).
Any electronic part procured by a CAS-covered prime contractor is
therefore subject to the restrictions concerning counterfeit and
suspect counterfeit parts, without regard to whether the purchased part
is a commercial or COTS item. Further, studies have shown that a large
proportion of proven counterfeit parts were initially purchased as
commercial or COTS items.
c. Parts Already on the Shelf
Comment: A respondent asked how the rules would be applied to parts
that had been purchased already and were on the shelf.
Response: If the parts are already on the contractor's shelf or in
inventory, and they were not procured in connection with a previous DoD
contract, they will be subject to the same requirements, such as
traceability and authentication.
d. Other
Comments: One respondent objected to limiting applicability to
electronic parts and suggested that the rule should apply to all types
of DoD purchases. Another respondent wanted to know if the rule was
intended to apply only to contractual deliverables or also to
``tooling, GSE or other manufacturing aides that are procured with
contract funds.''
Response: DoD is restricting initial implementation to electronic
parts as specified in section 818, although other items are considered
critical and can be subject to counterfeiting.
Comments: One respondent recommended that the final rule apply not
only to the acquisition of electronic parts but also to their use, as
the latter may well involve software through which malware or exploits
are introduced into a company's information technology networks.
Response: DoD is not expanding upon the applicability required by
the statute, but understands the term ``electronic part'' to include
embedded software. Accordingly, the definition at 202.101 for
``electronic part'' is revised to add ``The term ``electronic part''
includes any embedded software or firmware.''

[[Page 26100]]

5. Flowdown Requirements
Comments: Ten respondents submitted comments on flowdown
requirements. Several respondents strongly recommended that the final
rule must ensure compliance throughout the supply chain, and the clause
must therefore include a mandatory flowdown requirement for use in all
subcontracts at every tier. Some of these respondents did note that,
even if the requirements were flowed down by prime contractors, there
is no way to ensure that a subcontractor would accept the mandatory
flowdown. One of these respondents said that ``(s)ome companies
important to the Department, below the level of primes, but in the
higher tiers of the supply chain, may choose not to participate in the
defense market if they are forced to shoulder excess risk and cost but
have no effective means of control over exposure to counterfeit
parts.'' In such cases, the respondent urged that a mechanism be
provided for notification to DoD and relief from the flowdown
requirement or other instruction or assumption of responsibility by
DoD.
Another position was taken by two respondents that recommended that
a legally authorized source, including an original manufacturer and
distributor that only purchases from an original manufacturer,
regardless of what subcontractor tier it might reside at, should not be
subjected to the unnecessary costs and man-hours associated with a
counterfeit detection and avoidance requirement.
A respondent believed that the flowdown requirement was unnecessary
and burdensome and recommended that DoD utilize instead a requirement
for compliance with the industry standard AS5553A ``that many companies
have already implemented.''
Response: The final rule flows down the requirements to all
subcontractors of prime CAS-covered contractors, at all tiers, without
regard to whether the subcontractor itself is subject to CAS or is a
commercial item (see also paragraphs 4.a. and 4.b. of this section,
CAS-covered contractors and Commercial items (especially CORS items).
DoD has expanded system criterion at (e)(2)(A)(ix) of the statute and
clarified the flowdown requirements for the clause at DFARS 252.246-
7007 by also adding a flowdown paragraph that applies when the
subcontractor is providing electronic parts or assemblies containing
electronic parts.
6. Contractor Purchasing Systems Review (CPSR)
Comments: Fifteen respondents submitted comments on the inclusion
of the counterfeit detection and avoidance system as part of the
contractor's purchasing system. Several respondents were dubious that
DCMA has the manpower to execute the additional requirements associated
with this rule.
Response: The DCMA CPSR Group will include a review of the
counterfeit electronic parts detection and avoidance system of a
contractor when performing a CPSR. The review will include assistance
from the local DCMA Quality Assurance Representative. Based on yearly
risk assessments and requests from administrative contracting officers
(ACOs), the CPSR Group performs as many reviews as possible. A priority
determination is considered when preparing the yearly schedule of
contractors to be reviewed to mitigate the demand exceeding
capabilities.
Comment: A respondent noted that section 818 did not specifically
require the creation of a new business system or the inclusion of a
counterfeit parts detection and avoidance system in an existing
business system. This respondent pointed out its interpretation that a
contractor's failure to establish and maintain an acceptable detection
and avoidance system could result in disapproval of the contractor's
entire purchasing system and the withholding of payments. Another
respondent requested that DoD ensure that a deficiency solely related
to the counterfeit part detection and avoidance system would not
prevent the overall purchasing system from functioning as if approved.
One respondent further requested that the clauses be revised to ``make
it clear that a `significant deficiency' in a counterfeit system should
not result in the imposition of a withhold in addition to any withholds
due to such significant deficiency findings in the CPSR system audit.''
Several respondents considered that inclusion of the counterfeit parts
detection and avoidance system within the purchasing system goes well
beyond the intended scope of a contractor's purchasing system, fails to
address the many other contractor systems (e.g., design, engineering,
and quality assurance), and fails to acknowledge or incentivize
responsible corrective action. If DoD were to proceed as in the
proposed rule and retain this as part of the contractor's purchasing
system, then a respondent recommended that any part purchased from a
legally authorized source be exempted. Another respondent suggested
that contractors be given wide discretion in their use of industry
standards and internal processes to meet goals, particularly with
regard to commercial items, and that DoD be given the authority to
provide short-term waivers for the introduction of new technology
products. Another alternative came from a respondent recommending that
the rule include a contractor self-certification declaration of the
contractor's compliance with the AS5553A standard. Two respondents
suggested that compliance would be possible if DoD adopted a
requirement to capture and authenticate the DoD IUID of each electronic
part received from a supplier. (See also section B.9.)
Other respondents stated unequivocally that paragraph (c)(21) of
the clause at DFARS 252.244-7001 (the requirement to comply with the
counterfeit parts detection and avoidance system (DFARS 246.870-2(b))
could not be met until those requirements are defined with more
specificity.
Response: If a deficiency is determined by the ACO to be
significant in reference to the counterfeit electronic parts detection
and avoidance system, the purchasing system may be disapproved, and a
withholding of payments can result. There are factors considered by
DCMA when making a determination of significance, some of which include
public law violations and repeat occurrences.
A CPSR can include the expertise from technical support personnel
such as engineering and quality assurance. A contractor's corrective
actions are considered when performing a CPSR, but no incentive program
has been developed.
When performing a CPSR, the contractor's subcontract management
policies and procedures are reviewed to ensure they are effective and
are being followed. The review will include an examination of the
contractor's policies and procedures related to the detection and
avoidance of counterfeit electronic parts.
The definition of legally authorized source is addressed in the
definition section of this document. The NDAA for FY 2012 (Pub. L. 112-
81) requires that, whenever possible, electronic parts be purchased
from original manufacturers, their authorized dealers, or trusted
suppliers. DoD reads this requirement as requiring suppliers to have a
counterfeit detection and avoidance system that meets the requirements
of DFARS 246.870-2(b) and section 818.
The prime contractor is responsible for accepting only non-
counterfeit electronic parts from its subcontractors

[[Page 26101]]

and suppliers. Requiring electronic unique identification is addressed
at section paragraph 9.b. of this section, IUID use.
A CPSR currently ensures compliance with paragraph (c)(21) of DFARS
252.244-7001 by examining the contractor's vendor rating system or
equivalent. There is no need for additional definition or
clarification.
Comment: A respondent recommended that the following sentence be
added to paragraph (a) of DFARS 244.303, Extent of review: ``Criteria
for assessing the adequacy of rationale documenting ``commercial item''
determinations shall be based on guidance from the `DoD Commercial Item
Handbook.' ''
Response: The respondent's comment is outside the scope of this
case.
7. Cost Allowability
Comments: Seven respondents submitted comments on the cost
allowability section of the proposed rule. The majority of these
respondents deemed the cost principle at DFARS 231.205-71 an overreach
because it would apply, not just to contractors covered by the Cost
Accounting Standards (CAS), but to their suppliers and subcontractors
as well. Another respondent read the proposed rule to apply only to a
contractor or subcontractor subject to CAS, which argues, at the least,
for clarification of the flowdown requirements in the final rule. A
respondent stated that the report of the Senate Armed Services
Committee assumed ``that contractors will recover costs associated with
counterfeit part quality escapes from their lower-tier suppliers that
provided the counterfeit.'' This respondent claimed that the Senate
Armed Services Committee report and the DFARS proposed rule do not
acknowledge realities that a DoD contractor faces.
Response: Section 818 paragraph (c)(2)(B) (subsequently modified to
provide limited exceptions by section 833 of the NDAA for FY 2013)
makes the blanket statement that the regulations shall provide that the
cost of counterfeit electronic parts and suspect counterfeit electronic
parts and the cost for rework or corrective action that may be required
. . . are not allowable costs under Department contracts. This requires
treatment in the regulations like any other cost principle. The new
cost principle has been located in DFARS subpart 231.2, Contracts with
Commercial Organizations. It is therefore applicable to any contract
with a commercial organization (i.e., not an educational institution
State, local, or federally recognized Indian tribal government; or a
non-profit institution). The cost principles are applied to the pricing
of contracts, subcontracts, and modifications to contracts and
subcontracts whenever cost analysis is performed, and is used for the
determination, negotiation, or allowance of costs when required by a
contract clause (see FAR 31.000).
To clarify applicability of the cost principle, the final rule has
been modified by removing the statement of contractor responsibility
(derived from section 818(c)(2)(A)) that was included in the proposed
rule at 231.205-71(b) and could lead to misinterpretation of the
applicability of the cost principle.
The prime contractor's responsibility with regard to dealing with
unallowable costs incurred by a subcontractor is no different for this
cost principle than for any other cost principle.
Comment: Two respondents pointed out that the use of ``expressly''
in the phrase ``expressly unallowable'' makes the associated costs
subject to penalties and, because the statute did not use the term
``expressly,'' suggested that it be removed from the DFARS.
Response: DoD has removed the term ``expressly'' from the final
rule. Section 833 does not employ the term ``expressly.'' However, even
without the inclusion of the term ``expressly'' in the regulations, the
costs are nevertheless expressly unallowable, because DFARS 231.205-71
explicitly states that the costs are unallowable. Therefore, inclusion
of the term is unnecessary.
Comment: Some respondents read section 833 to apply only a two-part
test, i.e., when (1) the contractor has an approved system or the parts
at issue were provided by the Government and (2) timely notice was
provided to DoD. However, other respondents read both the statute and
DoD as applying a three-part test for allowability. One respondent
considered that the use of the conjunctive ``and'' between the second
and third prongs could create ambiguity, given that there is no
conjunction between the first and second prongs. Several of these
respondents recommended revisions to the cost principle to make it a
two-part test rather than a three-part test, as it was expressed in the
proposed rule. These respondents also submitted that it would clarify
the issue of cost allowability if DoD were to express a preference for
purchases from the original manufacturer or a Government procurement
center (e.g., the Defense Logistics Agency), thus effectively isolating
contractors from any liability associated with such parts.
Response: Subsequently, the NDAA for FY 2013 (Pub. L. 112-239) was
enacted on January 2, 2013. It contained section 833, which modified
the language of section 818 quoted above, to read as follows:
``(T)he cost of counterfeit electronic parts and suspect
counterfeit electronic parts and the cost of rework or corrective
action that may be required to remedy the use or inclusion of such
parts are not allowable costs under Department contracts, unless--
(i) The covered contractor has an operational system to detect and
avoid counterfeit parts and suspect counterfeit electronic parts that
has been reviewed and approved by the Department of Defense pursuant to
subsection (e)(2)(B);
(ii) the counterfeit electronic parts or suspect counterfeit
electronic parts were provided to the contractor as Government property
in accordance with part 45 of the Federal Acquisition Regulation; and
(iii) the covered contractor provides timely notice to the
Government pursuant to paragraph (4).''
The proposed rule correctly reflects the most recent statutory
language, i.e., section 833. Furthermore, review of the legislative
history indicated that this structure and resultant meaning was
deliberate.
Comments: Several respondents proffered other safe-harbor proposals
(see also prior comment and response) as follows:
Change the requirement for notice to the Government from
``timely'' to ``immediate.''
The costs of rework and corrective action should be exempt
from the express unallowability of costs if the part was purchased from
the original manufacturer or a source authorized by the original
manufacturer, or, alternatively, if the contractor ``mitigated'' (as
opposed to ``avoided'') counterfeit electronic parts.
When ``evidence reveals that questioned parts stemmed from
an overt criminal enterprise or the work of foreign intelligence
attack, the prime contractor's liability should be limited.''
A safe harbor should be created for old parts that the
original manufacturer no longer manufactures and for which no trusted
suppliers have been named.
Response: The term ``immediate'' would institute an unreasonable
requirement, and it would not conform to the section 818(c)(4)
requirement for the contractor to ``report in writing within 60 days to
appropriate Government authorities and the Government-Industry Data
Exchange Program (or a similar program designated by the Secretary).''
Thus, the laws define ``timely'' as 60 days, not ``immediately.'' Sixty
days is also the

[[Page 26102]]

time period specified in DoDI 4140.67. DoD agreed that ``timely,'' as
used in DFARS 231.205-71(c)(3), would be clearer if a reference to the
60-day period were added.
The language of section 833 does not allow for the additional
exemptions or carve-outs as suggested by respondents.
Comment: One respondent noted that, if adopted as final, DFARS
231.205-71(c) would conflict with the clause at FAR 52.245-1,
Government Property, by adding an extra requirement (i.e., the
requirement at DFARS 231.205-71(c)(1) for the contractor to have an
approved, operational system to detect and avoid counterfeit parts)
that contractors must meet before they are able to receive equitable
adjustment for delivery of Government-furnished property in a condition
not suitable for its intended use. The respondent considered this to
have relieved the Government of a responsibility that currently exists
within FAR 52.245-1, to provide conforming material without regard to
whether the contractor has an approved operational system to detect and
avoid counterfeit parts.
Response: The requirements of DFARS 231.205-71(c), as written, do
not conflict with FAR 52.245-1. First, the clause at FAR 52.245-1
places Government contract property management requirements on the
contractor. This clause does not contain terms and conditions related
to the allowability of costs (which can found at FAR part 31). Further,
the cost principle included at DFARS 231.205-71 is based on the
statutory language contained in section 833.
8. Industry Standards
Comments: Eleven respondents submitted comments on the issue of
industry standards. Most of these respondents urged DoD, for its
contractors' use, to adopt industry standards such as SAE AS5553A,
entitled ``Counterfeit Electronic Parts; Avoidance, Detection,
Mitigation, and Disposition,'' which respondents said provided uniform
requirements, practices, and methods to mitigate the risk of receiving
and installing counterfeit electronic parts, including requirements,
practices, and methods related to (i) parts management, (ii) supplier
management, (iii) procurement, (iv) inspection, test, and evaluation,
and (v) response strategies when suspect counterfeit electronic parts
are discovered. One respondent stated that DoD and NASA already have
adopted the AS5553A standard for their own use. Another respondent
recommended that AS5553A be used to delineate detection and avoidance
system criteria by express reference to industry standards. A
respondent noted that the use of a standard-based approach would be
technology neutral and afford industry with a variety of choices that
enable flexibility in implementation rather than imposing rigid and
potentially harmful Government regulations. Using the available
industry standards, according to another respondent, would consider
source, traceability, part application, risk assessment, and testing
requirements. Some of these respondents noted that current industry
standards, e.g., AS5553A, require processes to prevent the
reintroduction of counterfeit and suspect counterfeit parts back into
the supply chain. If AS5553A were adopted, a respondent said, then
contractors should be allowed to self-certify their compliance with the
standard; upon such self-certification, a contractor should be
considered to have an acceptable system for counterfeit part detection
and avoidance, until determined otherwise.
Other respondents focused on the ``secondary market,'' i.e.,
distributors and brokers, stating that these types of sources are
necessary. These respondents recommended that covered contractors
should be encouraged, if not required, to impose known industry
standards, such as AS5553A, AS6081, or AS6171 on their secondary market
sources and small business suppliers.
A cautionary note was struck, however, by one respondent, which
stated that industry standards on counterfeit parts currently vary and
continue to evolve in response to industry advances, requirements, and
applicable regulations, which might lead to the risk of procurements
involving the same part specifying different standards. Another
respondent recommended the use of industry standards, including IDEA-
STD-1010 as well as AS5553A and AS6081, but cautioned that there are
still many artifacts and characteristics found under inspection that
remain controversial. The respondent provided examples, such as
``striations on the body of an electronic part due to normal shuffling
within the product's protective carrier during transportation (or)
authorized remarking of a part by the/an authorizing entity.''
Response: DoD concurs that industry consensus standards could be
used for the development and implementation of internal counterfeit
parts detection and avoidance systems. It is Government policy to
participate on industry standard writing bodies (see OMB Circular A-
119) and Government/industry conformity assessment initiatives (see 15
CFR Part 287, Guidance on Federal Conformity Assessment Activities) and
to adopt industry standards wherever practical. DoD will continue to be
an active participant on industry counterfeit avoidance standard-
writing bodies. An additional system criterion is added to DFARS
246.870-2(b) to require contractors to have a process for keeping
continually informed of current counterfeiting information and trends.
However, DoD agrees with the respondent noting that industry standards
on counterfeit parts currently vary and continue to evolve. For this
reason, DoD has not mandated the use of specific industry standards but
left their use to the contractor, and DoD has not adopted the still-
changing definitions in industry standards.
9. Testing/IUID Use
In this category, eight respondents submitted comments.
a. Testing
Comments: To help make the determination of whether a part is
``suspect counterfeit,'' and to mitigate the risk of inclusion of
``counterfeit'' or ``suspect counterfeit'' electronic parts, one
respondent recommended that ``parts acquired from brokers be tested as
part of the acceptable counterfeit avoidance and detection system
described by proposed DFARS 246.870-2, in alignment with the test
requirements of the DoD-adopted SAE standard AS6081, `Fraudulent/
Counterfeit Electronic Parts: Avoidance, Detection, Mitigation, and
Disposition--Independent Distribution,' currently invoked by the
Defense Logistics Agency's Qualified Testing Suppliers List (QTSL)
Program.'' Another respondent recommended testing of all items, parts,
and components when they are received by the procuring entity.
Response: DoD agrees with the respondent's recommendation to
specify testing requirements when parts are procured from sources that
present elevated risk. Appropriate text is added in the system criteria
at DFARS 246.870-2(b) and the clause at DFARS 252.246-7007.
b. IUID Use
Comments: Many respondents stated their belief that the detection
and avoidance of counterfeit electronic parts is predicated on the
successful implementation of Item Unique Identification (IUID) for each
electronic part. Several of the respondents noted that considerable
policy already exists in DoD that could be leveraged to assist with the
identification of counterfeit

[[Page 26103]]

electronic parts. The respondents cited the required use of automatic
identification technology (AIT) or automatic identification and data
capture (AIDC) technologies, and some cited, in support, GAO report
GAO-10-389, entitled ``DoD Should Leverage Ongoing Initiatives in
Developing Its Program to Mitigate Risk of Counterfeit Parts.'' Two of
these respondents referred to section 807, Sense of Congress on the
Continuing Progress of the Department of Defense in Implementing its
Item Unique Identification Initiative, of the NDAA for FY 2013. The
Congress found that IUID ``has the potential for realizing significant
cost savings and improving the management of defense equipment and
supplier throughout their life cycle'' (section 807(a)(2)), as well as
being able to ``help the Department combat the growing problem of
counterfeit parts in the military supply chain'' (section 807(a)(3)).
These respondents stated that requiring suppliers to assign IUIDs to
electronic parts and register those parts in the DoD IUID Registry
would better enable contractors to verify their sources as part of a
contractor purchasing system review. The respondents noted that DoD has
a policy that supports serialized item management for material
maintenance (DoDI 4151.19), and another policy, at DoDI 8320.04, that
requires any DoD serially managed items to be marked with an IUID-
compliant mark. Further, one of the respondents stated that DoD's IUID
policy requires the use of the IUID Registry, which includes, along
with the Unique Item Identifier, pedigree data. A major component of
the pedigree data, according to the respondent, is the Enterprise
Identifier (EID), which mostly corresponds to the original item
manufacturer. For electronic parts where physical marking is not
possible, two respondents said that technology exists and standards are
evolving for electronic unique identification.
Response: DoD concurs with the benefits of item unique
identification (IUID) described by the respondents. DoDI 4140.67
requires DoD component heads to ``(a)pply item unique identification
(IUID) using unique item identifier (UII) for critical materiel
identified as susceptible to counterfeiting to enable authoritative
life-cycle traceability and authentication.'' For purposes of this
final rule, DoD focused on the desired outcome of traceability without
mandating the means to achieve the outcome.
Currently, the clause at DFARS 252.211-7003, Item Identification
and Valuation, requires an IUID for items with an acquisition cost of
$5,000 or more. In an individual contract, the DoD may request
assignment of an IUID for items with a lower acquisition cost, when
identified by the requiring activity as critical materiel identified as
susceptible to counterfeiting, serially managed, mission essential, or
controlled inventory, or the requiring activity determines that
permanent identification is required. IUID marking and registry is
already required by the DFARS for electronic items that meet those
criteria (see DFARS 211.274).
A complete discussion of DoD's IUID system is found at http://www.acq.osd.mil/dpap/pdi/uid/data_submission.information.html. The
registry, located on the Internet at https://www.bpn.gov/iuid, is an
acquisition gateway to identify (a) what the item is; (b) how and when
it was acquired; (c) the initial value of the item; (d) current custody
(Government or contractor); and (e) how it is marked.
10. Reporting
Comment: A respondent recommended revisions to DFARS 246.870-
2(b)(6) and the clause at 252.246-7007(c)(iv) to include specific
reporting requirements consistent with the current reporting of
possible violations of a contractor's code of business ethics and
conduct (DFARS 203.1003(b)). The respondent's recommended change would
revise the text as follows:
``The reporting and quarantining of counterfeit electronic parts
and suspect counterfeit electronic parts, in writing, to the
contracting officer and the Department of Defense Inspector General, in
accordance with DFARS 203.1003(b), within 60 days of identifying the
counterfeit or suspect counterfeit electronic parts.''
Response: Not all counterfeit or suspect counterfeit parts are due
to fraud, and, in any case, reporting of fraudulent activity to the DoD
IG is already required by various DoD and Governmentwide clauses and
provisions. FAR Case 2013-002, Enhanced Reporting of Nonconforming
Parts, has been opened to further address reporting requirements. In
that case, the requirements to report to the contracting officer and to
the Government-Industry Data Exchange Program (GIDEP) will be clear, as
is the existing requirement (at other parts of the FAR and DFARS) to
report fraud to the IG. Although DoD recognizes the importance of the
``mandatory disclosure'' rules, this may not be an appropriate use of
them because it suggests a contractor has committed an ``ethical or
code of conduct violation.''
Comment: A respondent recommended adding, at DFARS 246.870-2(b)(6),
to whom the occurrence (of a counterfeit or suspect counterfeit
electronic part) must be reported and within what period of time it
must be reported. The respondent wanted to know whether it would be
acceptable to report to industry associations, law enforcement, or
other organizations in other countries if the counterfeit was
discovered outside the U.S.
Response: In accordance with section 818, the reporting is intended
to be made to GIDEP within 60 days, but these requirements are being
addressed in a FAR case (2013-002, Expanded Reporting of Nonconforming
Items) that had not been released for public comment at the time the
public comment closed for this DFARS case. The FAR signatories intend
for all such reports to be made to GIDEP, regardless of where the
counterfeit was identified.
Comment: A respondent noted that Congress was insistent on improved
reporting by DoD and industry and said that it is through reporting
that industry and Government inform each other of known risks and
identified threats. The respondent acknowledged that a draft FAR case
(2013-002) will address reporting, but the DFARS rule essentially
ignored reporting. The respondent expressed concern about anecdotal
evidence of lower reporting to the GIDEP since enactment of section 818
and urged DoD to conduct a review of reporting frequency to GIDEP
subsequent to December 13, 2011.
Response: The frequency of reports made to GIDEP is outside the
scope of this case.
11. Clauses
Comment: A respondent recommended reversing the order of the words
``detection'' and ``avoidance'' in the clause title of 252.246-7007 and
in lines 3 and 5 of paragraph (b), so as to reflect the actual process,
i.e., one cannot avoid what one has not detected.
Response: DoD has made appropriate revisions to DFARS 246.870-2 and
-3 and the clauses at 252.244-7001, its Alternate I, and 252.244-7007.
Comment: One respondent recommended revising the prescription for
the clause at FAR 52.246-7007 to add statutory references and
references to the Code of Federal Regulations.
Response: The clause prescription is revised to ensure the clarity
of its applicability, but statutory references and references to the
CFR generally are not included in clause prescriptions.

[[Page 26104]]

12. Obsolete Parts
Comment: One respondent stated that the issue of obsolete parts
must be addressed, possibly through a definition for ``obsolete part.''
Noting that electronic parts have life cycles far shorter than the
defense and aerospace products utilizing them, the respondent said that
it is incumbent on DoD to provide clear guidance so that contractors
can develop supply chain processes to mitigate risks inherent with
obsolete parts requisitioning.
Response: The following definition of ``obsolete electronic part''
is added in the final rule: ``An electronic part that is no longer in
production by the original manufacturer or an aftermarket manufacturer
that has been provided express written authorization from the design
activity or original manufacturer.'' Obsolescence control is a
fundamental aspect of counterfeit prevention and should be addressed by
the contractor in its counterfeit detection and avoidance system (see
DFARS 246.870-2(b)(12) and paragraph (c)(12) of the clause at DFARS
252.246-7007).
Comments: Several respondents expressed concerns about obsolete
parts. One respondent stated that the rule should address ``(a) known
risks and challenges of DoD's continued use of obsolete and out-of-
production parts, (b) the vulnerability created by the continued demand
for obsolete and out-of-production parts, (c) the increasing
constraints on DoD's ability to support and fund ways to eliminate
continued use of obsolete and out-of-production parts needed to (i)
support fielded systems, and (ii) manufacture new orders to aged,
legacy designs and specifications.'' This respondent recommended some
mechanism for contractors to assess the bill of materials for products
being supported, recommend alternatives, and expect direction from each
DoD customer as to how to proceed.
A respondent recommended that contractors be instructed to purchase
directly from legally authorized sources. The respondent recognized,
however, that there may be circumstances where a part is unavailable
from any legally authorized source, including authorized aftermarket
sources, and recommended that, after a contractor in good faith
determines this to be the case, it should be permitted to purchase a
part from a ``trusted supplier.'' Another respondent stated that DoD
had not recognized the role parts brokers play in supplying obsolete
parts for long life-cycle DoD systems when the original manufacturer
has discontinued manufacturing a part long before a system is retired.
Response: Parts obsolescence is a matter of concern because it can
create vulnerabilities in the supply chain. DoD is adding a definition
of ``obsolete electronic part'' in the final rule, and the system
criteria at DFARS 246.870-2(b) and 252.246-7007(c)(12) are modified to
address obsolete parts. Detailed guidance and mechanisms concerning
supply chain processes to mitigate risks inherent with obsolete parts
are outside the scope of this case. Guidance and mechanisms concerning
obsolete parts mitigation are discussed collaboratively via the
Government's Diminishing Manufacturing and Material Shortages (DMSMS)
Program and its Knowledge Sharing Portal. See https://acc.dau.mil/dmsms.
13. Other Comments
Comment: Recognizing that DoD was constrained by the terms of the
legislation in drafting this rule, a respondent recommended that DoD
push in the future for a legislative change that the respondent
considered would give DoD and its contractors an opportunity to
establish plans for addressing part obsolescence and balance the cost
of design modifications to eliminate obsolete parts against the risk of
purchasing obsolete parts from riskier sources of supply.
Response: Legislative proposals are outside the scope of this case.
Comment: A respondent noted that a large challenge will be to
ensure adequate workforce training across the Federal Government.
Response: The determination and provision of appropriate training
for the DoD workforce is outside the scope of this rule and is being
assessed by the Defense Acquisition University.
Comments: Three respondents provided information about their
products that they assert are proven and acceptable methods for
detecting counterfeit parts and rapidly determining if a suspect part
is, in fact, counterfeit.
Response: DoD does not advocate for individual products.
Comment: A respondent noted that a major rule is defined as one
that is likely to result in (a) an annual effect on the economy of $100
million or more, (b) a major increase in cost or prices for consumers,
individual industries, Federal, State, or local government agencies, or
geographic regions, or (c) significant adverse effects on competition,
employment, investment, productivity, innovation, or on the ability of
the U.S.-based firms to compete with foreign-based firms in domestic
and export markets. Given the definition, the respondent suggested that
DoD should reexamine whether this rule should be re-classified as a
major rule because of the potential for understatement as a result of
the flowdown requirement to all subtiers.
Response: DoD has reassessed the cost impact of this rule and does
not consider that it meets the criteria for classification as a major
rule. The Office of Information and Regulatory Affairs also did not
find this rule to be a major rule.
C. Other Changes
The proposed rule contained a definition of ``counterfeit
electronic part avoidance and detection system'' in the clause at DFARS
252.246-7007. Because the revisions and extensive additions made in the
final rule to the system criteria at DFARS 246.870-2(b) and the clause
at DFARS 252.246-7007 effectively define this system more thoroughly
than did the definition in the proposed rule, the definition has been
removed from the clause in the final rule.

III. Executive Orders 12866 and 13563

Executive Orders (E.O.s) 12866 and 13563 direct agencies to assess
all costs and benefits of available regulatory alternatives and, if
regulation is necessary, to select regulatory approaches that maximize
net benefits (including potential economic, environmental, public
health and safety effects, distributive impacts, and equity). E.O.
13563 emphasizes the importance of quantifying both costs and benefits,
of reducing costs, of harmonizing rules, and of promoting flexibility.
This is a significant regulatory action and, therefore, was subject to
review under section 6(b) of E.O. 12866, Regulatory Planning and
Review, dated September 30, 1993. This rule is not a major rule under 5
U.S.C. 804.

IV. Regulatory Flexibility Act

A final regulatory flexibility analysis has been prepared
consistent with the Regulatory Flexibility Act, 5 U.S.C. 601, et seq.,
and is summarized as follows:
This final rule partially implements section 818 of the National
Defense Authorization Act for Fiscal Year 2012 and implements section
833 of the National Defense Authorization Act for Fiscal Year 2013 in
DoD-wide regulations on contractors' requirements to identify, avoid,
and report counterfeit and suspect counterfeit parts.
No significant issues were raised by the public with regard to the
initial regulatory flexibility analysis. However,

[[Page 26105]]

several respondents commented in favor of, or against, flowing down the
counterfeit parts detection and avoidance system required of prime CAS-
covered contractors to small business suppliers. Small business
subcontractors that supply electronic parts or assemblies containing
electronic parts to CAS-covered prime contractors will incur some costs
for complying with prime contractors' requirements.
No comments were received from the Chief Counsel for Advocacy of
the Small Business Administration.
The rule does not apply to small entities as prime contractors. The
requirements apply only to prime contractors that are subject to the
Cost Accounting Standards (CAS) under 41 U.S.C. chapter 15, as
implemented in regulations found at 48 CFR 9903.201-1. Prime contracts
with small entities are exempt from CAS requirements.
There is, however, the potential for an impact on small entities in
the supply chain of a CAS-covered prime contractor, but only when the
prime contractor is supplying electronic parts or assemblies containing
electronic parts and the subcontractor is also supplying electronic
parts or assemblies containing electronic parts. In that case, the
prohibitions against counterfeit and suspect counterfeit electronic
items and the requirements for systems to detect such parts flow down
to all levels of the supply chain. There will, therefore, be some
impact on small entities that supply electronic parts to DoD CAS-
covered prime contractors but no impact on small entities when they
supply electronic parts directly to DoD.
The rule uses the existing requirements for contractors' purchasing
systems as the basis for the anti-counterfeiting compliance (see the
clause at DFARS 252.244-7001, Contractor Purchasing System
Administration, and its Alternate I).
Suppliers, including small entities, will need to be able to trace
the source of the electronic parts they are supplying to the original
source if they are not the original manufacturer or current design
activity, including an authorized aftermarket manufacturer.
The economic impact on small entities has been minimized by--
(a) Using the existing requirements (and contract clause) for
contractors' purchasing systems, rather than creating separate, new
systems; and
(b) Restraining applicability only to small businesses that are
subcontractors supplying electronic parts or assemblies containing
electronic parts to CAS-covered prime contractors.
Seven comments were received on the Regulatory Flexibility Act
section during the public comment period:
Comments: Several respondents concluded that, because small
business suppliers are part of every CAS-covered contractor's supply
chain, small businesses will be impacted by this rule, even though they
would otherwise be exempted as prime contractors (not subject to CAS).
Despite the different impact on small businesses as subcontractors/
suppliers versus small businesses as prime contractors, one of these
respondents stated that it was important to make the clause at DFARS
252.246-7007 a mandatory flowdown requirement for use in all
subcontracts at every tier. However, a different respondent strongly
recommended that the impact on small businesses should be minimized by
clarifying the applicability of the cost allowability limitations to
prime CAS-covered contractors and limiting the flowdown of counterfeit
detection and avoidance requirements to subcontractors operating under
CAS-covered subcontracts. A third respondent approached this subject by
noting that, ``(a)nalytically, DoD should be just as concerned about
the impact of a counterfeit from a small business as from a large
contractor . . . (b)ut important socio-economic policies are served by
small business participation requirements.'' This respondent favored
flowdown to all subcontractors/suppliers but suggested that DoD fashion
some sort of safety valve to address situations where the only sources
of required parts refuse to accept flowdown and won't agree to conform
to risk-mitigation requirements.
Other respondents stated that the impact on small business
subcontractors/suppliers would not be negligible because the flowdown
of counterfeit detection and avoidance requirements will always have
costs. The proposed rule would require all affected subcontractors,
including small businesses, to incur substantial overhead costs to
establish the necessary compliance systems, according to one
respondent. Two other respondents stated that the impact on small
entities would likely be significant, either due to the associated
costs of detection and avoidance or the inability to compete without
such capabilities.
Response: DoD agrees with those respondents that deemed small
businesses will be impacted as subcontractors. The requirement for
flowdown is addressed in a previous section of this rule. However,
affected subcontractors, including small businesses, will not
necessarily incur substantial new overhead costs to establish necessary
compliance systems, as suggested by some respondents. Most firms that
produce or distribute electronic parts or assemblies containing
electronic parts are well aware of their obligation not to furnish
counterfeit electronic parts and have programs in place to protect
themselves and their customers from the consequences of counterfeit
parts. DoD's analysis of the impact of this rule on small businesses
reflects this circumstance.

V. Paperwork Reduction Act

This rule affects the information collection requirements in the
provisions at DFARS subpart 244.3 and the clause at DFARS 252.244-7001,
currently approved under OMB Control Number 0704-0253, entitled
Purchasing Systems, in accordance with the Paperwork Reduction Act (44
U.S.C. chapter 35). The current information collection estimates that
90 respondents will submit one response annually, with 16 hours per
response. We estimate that the additional information collection burden
associated with the clause at 52.244-7001--Alternate, will be as much
as five percent more than the existing burden. Therefore, the change to
the current annual reporting burden for OMB Control Number 0704-0253 is
estimated as follows:
Respondents: 5.
Responses per respondent: 1.
Total annual responses: 5.
Preparation hours per response: 16.
Total hours: 80.
One comment was received on the Paperwork Reduction Act section of
the proposed rule:
Comment: A respondent noted that the numbers submitted in the
proposed rule estimated that DCMA would conduct 90 CPSRs annually and
that, if these numbers were accurate, then DCMA would be unable to
complete audits of all 1,200 CAS- and partial-CAS-covered contractors
for a first-time audit of their counterfeit parts enhancements for over
a decade. In addition, the respondent said, the DoD estimate did not
factor in the cost and paperwork associated with the enhanced CPSRs for
the other potentially impacted subcontractors, which it claimed could
number in the tens of thousands.
Response: A complete CPSR is not always necessary for all
contractors. Further, DCMA continually assesses its oversight
obligations and modifies its priorities and assignments as required.

[[Page 26106]]

List of Subjects in 48 CFR Parts 202, 231, 244, 246, and 252

Government procurement.

Manuel Quinones,
Editor, Defense Acquisition Regulations System.

Therefore, 48 CFR parts 202, 231, 244, 246, and 252 are amended as
follows:

0
1. The authority citation for 48 CFR parts 202, 231, 244, 246, and 252
continues to read as follows:

Authority: 41 U.S.C. 1303 and 48 CFR chapter 1.

PART 202--DEFINITIONS OF WORDS AND TERMS

0
2. In section 202.101 add, in alphabetical order, the definitions
``counterfeit electronic part,'' ``electronic part,'' ``obsolete
electronic part,'' and ``suspect counterfeit electronic part'' to read
as follows:

202.101 Definitions.

* * * * *
Counterfeit electronic part means an unlawful or unauthorized
reproduction, substitution, or alteration that has been knowingly
mismarked, misidentified, or otherwise misrepresented to be an
authentic, unmodified electronic part from the original manufacturer,
or a source with the express written authority of the original
manufacturer or current design activity, including an authorized
aftermarket manufacturer. Unlawful or unauthorized substitution
includes used electronic parts represented as new, or the false
identification of grade, serial number, lot number, date code, or
performance characteristics.
* * * * *
Electronic part means an integrated circuit, a discrete electronic
component (including, but not limited to, a transistor, capacitor,
resistor, or diode), or a circuit assembly (section 818(f)(2) of Pub.
L. 112-81). The term ``electronic part'' includes any embedded software
or firmware.
* * * * *
Obsolete electronic part means an electronic part that is no longer
in production by the original manufacturer or an aftermarket
manufacturer that has been provided express written authorization from
the current design activity or original manufacturer.
* * * * *
Suspect counterfeit electronic part means an electronic part for
which credible evidence (including, but not limited to, visual
inspection or testing) provides reasonable doubt that the electronic
part is authentic.
* * * * *

PART 231--CONTRACT COST PRINCIPLES AND PROCEDURES

0
3. Add section 231.205-71 to read as follows:
231.205-71 Cost of remedy for use or inclusion of counterfeit
electronic parts and suspect counterfeit electronic parts.
(a) Scope. This subsection implements the requirements of section
818(c)(2), National Defense Authorization Act for Fiscal Year 2012
(Pub. L. 112-81) and section 833, National Defense Authorization Act
for Fiscal Year 2013 (Pub. L. 112-239).
(b) The costs of counterfeit electronic parts or suspect
counterfeit electronic parts and the cost of rework or corrective
action that may be required to remedy the use or inclusion of such
parts are unallowable, unless--
(1) The contractor has an operational system to detect and avoid
counterfeit parts and suspect counterfeit electronic parts that has
been reviewed and approved by DoD pursuant to 244.303;
(2) The counterfeit electronic parts or suspect counterfeit
electronic parts are Government-furnished property as defined in FAR
45.101; and
(3) The contractor provides timely (i.e., within 60 days after the
contractor becomes aware) notice to the Government.

PART 244--SUBCONTRACTING POLICIES AND PROCEDURES

0
4. In section 244.303, designate the text as paragraph (a) and add a
new paragraph (b) to read as follows:

244.303 Extent of review.

* * * * *
(b) Also review the adequacy of the contractor's counterfeit
electronic part detection and avoidance system under clause 252.246-
7007, Contractor Counterfeit Electronic Part Detection and Avoidance
System.

0
5. Revise section 244.305-71 to read as follows:

244.305-71 Contract clause.

Use the Contractor Purchasing System Administration basic clause or
its alternate as follows:
(a) Use the clause at 252.244-7001, Contractor Purchasing System
Administration--Basic, in solicitations and contracts containing the
clause at FAR 52.244-2, Subcontracts.
(b) Use the clause at 252.244-7001, Contractor Purchasing System
Administration--Alternate I, in solicitations and contracts that
contain the clause at 252.246-7007, Contractor Counterfeit Electronic
Part Detection and Avoidance System, but do not contain FAR 52.244-2,
Subcontracts.

PART 246--QUALITY ASSURANCE

0
6. Add subpart 246.8 to read as follows:
Subpart 246.8--Contractor Liability for Loss of or Damage to Property
of the Government
Sec.
246.870 Contractors' counterfeit electronic part detection and
avoidance systems.
246.870-1 Scope.
246.870-2 Policy.
246.870-3 Contract clause.

Subpart 246.8--Contractor Liability for Loss of or Damage to
Property of the Government

246.870 Contractors' counterfeit electronic part detection and
avoidance systems.

246.870-1 Scope.

This section--
(a) Implements section 818(c) of the National Defense Authorization
Act for Fiscal Year 2012 (Pub. L. 112-81); and
(b) Prescribes policy and procedures for preventing counterfeit
electronic parts and suspect counterfeit electronic parts from entering
the supply chain when procuring electronic parts or end items,
components, parts, or assemblies that contain electronic parts.

246.870-2 Policy.

(a) General. Contractors that are subject to the Cost Accounting
Standards (CAS) and that supply electronic parts or products that
include electronic parts and their subcontractors that supply
electronic parts or products that include electronic parts, are
required to establish and maintain an acceptable counterfeit electronic
part detection and avoidance system. Failure to do so may result in
disapproval of the purchasing system by the contracting officer and/or
withholding of payments (see 252.244-7001, Contractor Purchasing System
Administration).
(b) System criteria. A counterfeit electronic part detection and
avoidance system shall include risk-based policies and procedures that
address, at a minimum, the following areas (see 252.246-7007,
Contractor Counterfeit Electronic Part Detection and Avoidance System):
(1) The training of personnel.
(2) The inspection and testing of electronic parts, including
criteria for acceptance and rejection.
(3) Processes to abolish counterfeit parts proliferation.

[[Page 26107]]

(4) Processes for maintaining electronic part traceability.
(5) Use of suppliers that are the original manufacturer, sources
with the express written authority of the original manufacturer or
current design activity, including an authorized aftermarket
manufacturer or suppliers that obtain parts exclusively from one or
more of these sources.
(6) The reporting and quarantining of counterfeit electronic parts
and suspect counterfeit electronic parts.
(7) Methodologies to identify suspect counterfeit electronic parts
and to rapidly determine if a suspect counterfeit electronic part is,
in fact, counterfeit.
(8) Design, operation, and maintenance of systems to detect and
avoid counterfeit electronic parts and suspect counterfeit electronic
parts.
(9) Flow down of counterfeit detection and avoidance requirements.
(10) Process for keeping continually informed of current
counterfeiting information and trends.
(11) Process for screening the Government-Industry Data Exchange
Program (GIDEP) reports and other credible sources of counterfeiting
information.
(12) Control of obsolete electronic parts.

246.870-3 Contract clause.

(a) Except as provided in paragraph (b) of this section, use the
clause at 252.246-7007, Contractor Counterfeit Electronic Part
Detection and Avoidance System, in solicitations and contracts when
procuring--
(1) Electronic parts;
(2) End items, components, parts, or assemblies containing
electronic parts; or
(3) Services where the contractor will supply electronic parts or
components, parts, or assemblies containing electronic parts as part of
the service.
(b) Do not use the clause in solicitations and contracts that are
set-aside for small business.

PART 252--SOLICITATION PROVISIONS AND CONTRACT CLAUSES

0
7. Amend section 252.244-7001 by--
0
a. Revising the introductory text, clause title and date;
0
b. Revising paragraphs (c)(19), (20) and (21); and
0
c. Adding Alternate I.
Revised text reads as follows:

252.244-7001 Contractor Purchasing System Administration.

As prescribed in 244.305-71, use one of the following clauses:
Basic. As prescribed in 244.305-71(a), use the following clause.

CONTRACTOR PURCHASING SYSTEM ADMINISTRATION--BASIC (MAY 2014)

* * * * *
(c) * * *
(19) Establish and maintain policies and procedures to ensure
purchase orders and subcontracts contain mandatory and applicable
flowdown clauses, as required by the FAR and DFARS, including terms
and conditions required by the prime contract and any clauses
required to carry out the requirements of the prime contract,
including the requirements of 252.246-7007, Contractor Counterfeit
Electronic Part Detection and Avoidance System, if applicable;
(20) Provide for an organizational and administrative structure
that ensures effective and efficient procurement of required quality
materials and parts at the best value from responsible and reliable
sources, including the requirements of 252.246-7007, Contractor
Counterfeit Electronic Part Detection and Avoidance System, if
applicable;
(21) Establish and maintain selection processes to ensure the
most responsive and responsible sources for furnishing required
quality parts and materials and to promote competitive sourcing
among dependable suppliers so that purchases are reasonably priced
and from sources that meet contractor quality requirements,
including the requirements of 252.246-7007, Contractor Counterfeit
Electronic Part Detection and Avoidance System, and the item marking
requirements of 252.211-7003, Item Unique Identification and
Valuation, if applicable;
* * * * *
Alternate I. As prescribed in 244.305-71(b), use the following
clause, which amends paragraph (c) of the basic clause by deleting
paragraphs (c)(1) through (c)(18) and (c)(22) through (c)(24), and
revising and renumbering paragraphs (c)(19) through (c)(21) of the
basic clause.

CONTRACTOR PURCHASING SYSTEM ADMINISTRATION--ALTERNATE I (MAY 2014)

The following paragraphs (a) through (f) of this clause do not
apply unless the Contractor is subject to the Cost Accounting
Standards under 41 U.S.C. chapter 15, as implemented in regulations
found at 48 CFR 9903.201-1.
(a) Definitions. As used in this clause--
Acceptable purchasing system means a purchasing system that
complies with the system criteria in paragraph (c) of this clause.
Purchasing system means the Contractor's system or systems for
purchasing and subcontracting, including make-or-buy decisions, the
selection of vendors, analysis of quoted prices, negotiation of
prices with vendors, placing and administering of orders, and
expediting delivery of materials.
Significant deficiency means a shortcoming in the system that
materially affects the ability of officials of the Department of
Defense to rely upon information produced by the system that is
needed for management purposes.
(b) Acceptable purchasing system. The Contractor shall establish
and maintain an acceptable purchasing system. Failure to maintain an
acceptable purchasing system, as defined in this clause, may result
in disapproval of the system by the Contracting Officer and/or
withholding of payments.
(c) System criteria. The Contractor's purchasing system shall--
(1) Establish and maintain policies and procedures to ensure
purchase orders and subcontracts contain mandatory and applicable
flowdown clauses, as required by the FAR and DFARS, including terms
and conditions required by the prime contract and any clauses
required to carry out the requirements of the prime contract,
including the requirements of 252.246-7007, Contractor Counterfeit
Electronic Part Detection and Avoidance System;
(2) Provide for an organizational and administrative structure
that ensures effective and efficient procurement of required quality
materials and parts at the best value from responsible and reliable
sources, including the requirements of 252.246-7007, Contractor
Counterfeit Electronic Part Detection and Avoidance System, and, if
applicable, the item marking requirements of 252.211-7003, Item
Unique Identification and Valuation; and
(3) Establish and maintain selection processes to ensure the
most responsive and responsible sources for furnishing required
quality parts and materials and to promote competitive sourcing
among dependable suppliers so that purchases are from sources that
meet contractor quality requirements, including the requirements of
252.246-7007, Contractor Counterfeit Electronic Part Detection and
Avoidance System.
(d) Significant deficiencies. (1) The Contracting Officer will
provide notification of initial determination to the Contractor, in
writing, of any significant deficiencies. The initial determination
will describe the deficiency in sufficient detail to allow the
Contractor to understand the deficiency.
(2) The Contractor shall respond within 30 days to a written
initial determination from the Contracting Officer that identifies
significant deficiencies in the Contractor's purchasing system. If
the Contractor disagrees with the initial determination, the
Contractor shall state, in writing, its rationale for disagreeing.
(3) The Contracting Officer will evaluate the Contractor's
response and notify the Contractor, in writing, of the Contracting
Officer's final determination concerning--
(i) Remaining significant deficiencies;
(ii) The adequacy of any proposed or completed corrective
action; and
(iii) System disapproval, if the Contracting Officer determines
that one or more significant deficiencies remain.
(e) If the Contractor receives the Contracting Officer's final
determination of significant deficiencies, the Contractor shall,
within 45 days of receipt of the final determination, either correct
the significant deficiencies or submit an acceptable corrective
action plan showing milestones and actions to eliminate the
deficiencies.
(f) Withholding payments. If the Contracting Officer makes a
final

[[Page 26108]]

determination to disapprove the Contractor's purchasing system, and
the contract includes the clause at 252.242-7005, Contractor
Business Systems, the Contracting Officer will withhold payments in
accordance with that clause.

(End of clause)

0
8. Add new section 252.246-7007 to read as follows:

252.246-7007 Contractor Counterfeit Electronic Part Detection and
Avoidance System.

As prescribed in 246.870-3, use the following clause:

CONTRACTOR COUNTERFEIT ELECTRONIC PART DETECTION AND AVOIDANCE SYSTEM
(MAY 2014)

The following paragraphs (a) through (e) of this clause do not
apply unless the Contractor is subject to the Cost Accounting
Standards under 41 U.S.C. chapter 15, as implemented in regulations
found at 48 CFR 9903.201-1.
(a) Definitions. As used in this clause--
Counterfeit electronic part means an unlawful or unauthorized
reproduction, substitution, or alteration that has been knowingly
mismarked, misidentified, or otherwise misrepresented to be an
authentic, unmodified electronic part from the original
manufacturer, or a source with the express written authority of the
original manufacturer or current design activity, including an
authorized aftermarket manufacturer. Unlawful or unauthorized
substitution includes used electronic parts represented as new, or
the false identification of grade, serial number, lot number, date
code, or performance characteristics.
Electronic part means an integrated circuit, a discrete
electronic component (including, but not limited to, a transistor,
capacitor, resistor, or diode), or a circuit assembly (section
818(f)(2) of Pub. L. 112-81). The term ``electronic part'' includes
any embedded software or firmware.
Obsolete electronic part means an electronic part that is no
longer in production by the original manufacturer or an aftermarket
manufacturer that has been provided express written authorization
from the current design activity or original manufacturer.
Suspect counterfeit electronic part means an electronic part for
which credible evidence (including, but not limited to, visual
inspection or testing) provides reasonable doubt that the electronic
part is authentic.
(b) Acceptable counterfeit electronic part detection and
avoidance system. The Contractor shall establish and maintain an
acceptable counterfeit electronic part detection and avoidance
system. Failure to maintain an acceptable counterfeit electronic
part detection and avoidance system, as defined in this clause, may
result in disapproval of the purchasing system by the Contracting
Officer and/or withholding of payments.
(c) System criteria. A counterfeit electronic part detection and
avoidance system shall include risk-based policies and procedures
that address, at a minimum, the following areas:
(1) The training of personnel.
(2) The inspection and testing of electronic parts, including
criteria for acceptance and rejection. Tests and inspections shall
be performed in accordance with accepted Government- and industry-
recognized techniques. Selection of tests and inspections shall be
based on minimizing risk to the Government. Determination of risk
shall be based on the assessed probability of receiving a
counterfeit electronic part; the probability that the inspection or
test selected will detect a counterfeit electronic part; and the
potential negative consequences of a counterfeit electronic part
being installed (e.g., human safety, mission success) where such
consequences are made known to the Contractor.
(3) Processes to abolish counterfeit parts proliferation.
(4) Processes for maintaining electronic part traceability
(e.g., item unique identification) that enable tracking of the
supply chain back to the original manufacturer, whether the
electronic parts are supplied as discrete electronic parts or are
contained in assemblies. This traceability process shall include
certification and traceability documentation developed by
manufacturers in accordance with Government and industry standards;
clear identification of the name and location of supply chain
intermediaries from the manufacturer to the direct source of the
product for the seller; and where available, the manufacturer's
batch identification for the electronic part(s), such as date codes,
lot codes, or serial numbers. If IUID marking is selected as a
traceability mechanism, its usage shall comply with the item marking
requirements of 252.211-7003, Item Unique Identification and
Valuation.
(5) Use of suppliers that are the original manufacturer, or
sources with the express written authority of the original
manufacturer or current design activity, including an authorized
aftermarket manufacturer or suppliers that obtain parts exclusively
from one or more of these sources. When parts are not available from
any of these sources, use of suppliers that meet applicable
counterfeit detection and avoidance system criteria.
(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.
(7) Methodologies to identify suspect counterfeit parts and to
rapidly determine if a suspect counterfeit part is, in fact,
counterfeit.
(8) Design, operation, and maintenance of systems to detect and
avoid counterfeit electronic parts and suspect counterfeit
electronic parts. The Contractor may elect to use current
Government- or industry-recognized standards to meet this
requirement.
(9) Flowdown of counterfeit detection and avoidance
requirements, including applicable system criteria provided herein,
to subcontractors at all levels in the supply chain that are
responsible for buying or selling electronic parts or assemblies
containing electronic parts, or for performing authentication
testing.
(10) Process for keeping continually informed of current
counterfeiting information and trends, including detection and
avoidance techniques contained in appropriate industry standards,
and using such information and techniques for continuously upgrading
internal processes.
(11) Process for screening GIDEP reports and other credible
sources of counterfeiting information to avoid the purchase or use
of counterfeit electronic parts.
(12) Control of obsolete electronic parts in order to maximize
the availability and use of authentic, originally designed, and
qualified electronic parts throughout the product's life cycle.
(d) Government review and evaluation of the Contractor's
policies and procedures will be accomplished as part of the
evaluation of the Contractor's purchasing system in accordance with
252.244-7001, Contractor Purchasing System Administration--Basic, or
Contractor Purchasing System Administration--Alternate I.
(e) The Contractor shall include the substance of this clause,
including paragraphs (a) through (e), in subcontracts, including
subcontracts for commercial items, for electronic parts or
assemblies containing electronic parts.

(End of clause)
[FR Doc. 2014-10326 Filed 5-5-14; 8:45 am]
BILLING CODE 5001-06-P