[Federal Register Volume 81, Number 168 (Tuesday, August 30, 2016)]
[Rules and Regulations]
[Pages 59510-59515]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-20475]
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DEPARTMENT OF DEFENSE
Defense Acquisition Regulations System
48 CFR Part 231
[Docket DARS-2016-0002]
RIN 0750-AI86
Defense Federal Acquisition Regulation Supplement: Costs Related
to Counterfeit Electronic Parts (DFARS Case 2016-D010)
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 Defense Federal
Acquisition Regulation Supplement (DFARS) to implement a section of the
[[Page 59511]]
National Defense Authorization Act for Fiscal Year 2016 that amends the
allowability of 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.
DATES: Effective August 30, 2016.
FOR FURTHER INFORMATION CONTACT: Ms. Amy G. Williams, telephone 571-
372-6106.
SUPPLEMENTARY INFORMATION:
I. Background
DoD published a proposed rule in the Federal Register at 81 FR
17055 on March 25, 2016, to implement section 885(a) of the National
Defense Authorization Act (NDAA) for Fiscal Year (FY) 2016 (Pub. L.
114-92). Section 818(c)(2)(B) of the NDAA for FY 2012, as amended by
section 885(a), provides that 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 not allowable unless--
The covered contractor has an operational system to detect
and avoid counterfeit electronic parts and suspect counterfeit
electronic parts that had been reviewed and approved by DoD;
The counterfeit electronic parts or suspect counterfeit
electronic parts were provided to the covered contractor as Government
property in accordance with the Federal Acquisition Regulation (FAR)
part 45, or were obtained by the contractor in accordance with the
regulations described in paragraph (c)(3) of section 818 of the NDAA
for FY 2012, as amended;
The contractor discovers the counterfeit electronic parts
or suspect counterfeit electronic parts and provides timely (i.e.,
within 60 days after the contractor becomes aware) notice to the
Government, pursuant to section 818(c)(4).
Section 885 is the third in a series of amendments to section
818(c) of the NDAA for FY 2012, summarized as follows:
----------------------------------------------------------------------------------------------------------------
FY 2012 Pub. L. 112-81 FY 2013 FY 2015 FY 2016
----------------------------------------------------------------------------------------------------------------
Sec. 833 Sec. 817
Section 818 amended amended Sec. 885 amended
----------------------------------------------------------------------------------------------------------------
(a) Assessment of DoD Policies and Systems.
(b) Actions Following Assessment.
(c) Regulations............................. (c)(2)(B) (c)(3) (c)(2)(B)
(c)(3)(D)
* * * * * * *
(e) Improvement of Contractor Systems for
Detection and Avoidance of Counterfeit
Electronic Parts.
(f) Definitions.
* * * * * * *
----------------------------------------------------------------------------------------------------------------
Section 803 of the NDAA for FY 2014, entitled Identification and
Replacement of Obsolete Electronic Parts, did not modify section 818 of
the NDAA for FY 2012 and is not directly related to the detection and
avoidance of counterfeit electronic parts.
DoD has processed several DFARS cases to implement section 818 and
its subsequent amendments as follows:
------------------------------------------------------------------------
DFARS case Title Implements Published
------------------------------------------------------------------------
2012-D055............ Detection and Sec. 818 Final rule
Avoidance of (b)(1), published 5/6/
Counterfeit (c)(partial), 2014.
Electronic (e), and (f);
Parts. as amended by
sec. 833 of
NDAA for FY
2013.
2014-D005............ Detection and Sec. 818 Final rule
Avoidance of (c)(3); as published 8/2/
Counterfeit amended by 2016.
Electronic sec. 817 of
Parts--Further NDAA for FY
Implementation. 2015, except
sec. 818
(c)(3)(C).
2015-D020............ DoD Use of Sec. Not yet
Trusted 818(c)(3)(C). published.
Suppliers for
Electronic
Parts.
2016-D010............ Costs Related Sec. This final
to Counterfeit 818(c)(2)(B), rule.
Electronic as amended by
Parts. sec 885(a) of
NDAA for FY
2016.
2016-D013............ Amendments Sec. Proposed rule
Related to 818(c)(3)(D)(i published 8/2/
Sources of i), as amended 2016.
Electronic by sec. 885(b)
Parts. of NDAA for FY
2016.
------------------------------------------------------------------------
In addition, there are two related FAR cases:
FAR Case 2012-032, Higher-Level Contract Quality
Requirements, does not specifically implement section 818 of the NDAA
for FY 2012, but the performance of higher-level quality assurance for
critical items does assist in the detection and avoidance of
counterfeit electronic parts (final rule published November 25, 2014,
effective December 26, 2014).
FAR Case 2013-002, Expanded Reporting of Nonconforming
Items, expands beyond the requirements of section 818(c)(4), applying
Governmentwide (not just DoD) to certain parts with a major or critical
nonconformance (not just counterfeit electronic parts) (proposed rule
published June 10, 2014).
Two respondents submitted public comments in response to the
proposed rule.
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:
[[Page 59512]]
A. Summary of Changes From the Proposed Rule in Response to Public
Comments
The final rule includes the following changes from the proposed
rule at DFARS 231.205-71(b):
1. (b)(1)--Replaced ``counterfeit parts'' with ``counterfeit
electronic parts'' (see section II.B.5. of this preamble).
2. (b)(3)(i)--Replaced ``Discovers'' with ``Becomes aware of'' and
added clarifying language (see section II.B.3.c. of this preamble).
3. (b)(3)(ii)--Added the requirement to provide notice of
counterfeit parts to Government Industry Exchange Program (GIDEP), with
some exceptions (see section II.B.3.d. of this preamble).
B. Analysis of Public Comments
1. Support for the Statute
Comment: One respondent stated that industry wholeheartedly
supports the change to the statute to expand the conditional safe
harbor from strict liability for costs to remedy damage resulting from
the discovery of counterfeit electronic parts and suspect counterfeit
electronic parts in end products delivered to DoD.
Response: Noted.
2. Number and Timing of Cases
Both respondents commented on the number and timing of cases in
process to implement section 818 of the NDAA for FY 2012, as amended.
Comment: One respondent applauded the deliberate and thoughtful
approach by DoD to proceed with great care over a period of years to
ensure the requirements are implemented with minimal disruption to the
DoD supply chain.
Response: Noted.
Comment: One respondent recommended comprehensive, rather than
``piecemeal'' regulations. The respondent was concerned that this case
should be considered and resolved together with DFARS cases 2014-D005
and 2016-D013 in a proposed rule with opportunity for notice and
comment on the entire rule. The other respondent requested that DoD
align the open cases to create a safe harbor that is efficient and
complementary to the goal of building a risk-based framework to reduce
the risk of counterfeit electronic parts from entering the DoD supply
chain.
Response: Sometimes the best way to achieve a goal is to divide the
task into segments that can be accomplished sequentially. Furthermore,
the legislation to be implemented was enacted in four separate statutes
over a period of 4 years, necessitating additional cases to implement
the statutory amendments. DFARS Case 2014-D005 had already been
published as a proposed rule on September 21, 2015, prior to enactment
of the NDAA for FY 2016 on November 25, 2016. DoD carefully considered
whether the new amendments should be incorporated into the existing
rule, or whether DFARS Case 2014-D005 should be finalized and followed
by the two cases to implement section 885(a) and (b) of the NDAA for FY
2016.
Because both DFARS cases 2016-D010 and 2016-D013 required
publication for public comment, they could not be incorporated in a
final rule under 2014-D005.
At the time of public comment on this rule, the
respondents were able to view the proposed rule under DFARS Case 2014-
D005. If the two new cases were published as proposed rules, separately
or in combination with DFARS Case 2014-D005, the respondents would
still not know what the final rule under 2014-D005 would be, at the
time of commenting on the new aspects of the case. Furthermore,
implementation of DFARS Case 2014-D005 would be delayed by at least a
year if it were not finalized prior to implementation of the new
requirements of section 885 of the NDAA for FY 2016.
DoD considered it important to reduce supply chain risk as
soon as possible by proceeding to finalize DFARS Case 2014-D005. DFARS
Case 2014-D005 further implements section 818(c)(3)(A), (B), and (D) to
provide detailed regulations to all DoD contractors and subcontractors
that provide electronic parts to the Government, either as end items or
components (not just cost accounting standards (CAS)-covered
contractors and their subcontractors). If each phase of implementation
of the rule were delayed until every new amendment was ready to be
incorporated, DoD would still have nothing in place to protect against
the hazards of counterfeit electronic parts in the DoD supply chain.
DFARS Case 2016-D013 could not be published as a proposed
rule until DFARS case 2014-D005 was finalized (81 FR 50635 on August 2,
2016), in order to provide the baseline for the required change.
There was interest in expediting this DFARS Case 2016-
D010, because it impacts cost allowability, and the text of this case
is not overlapping with the text of DFARS Case 2014-D005. Therefore,
this case was published as a proposed rule prior to publication of the
final rule under DFARS Case 2014-D005.
Although the respondents did not have the opportunity to
see the final rule under DFARS Case 2014-D005 prior to providing
comments on this case, DoD considered all other related cases when
finalizing DFARS Case 2014-D005, proposing DFARS Case 2016-D013, and
now finalizing this case.
3. Contractor Requirements Related to Allowability of Costs (Safe
Harbor)
a. Have an Approved Operational System
Comment: One respondent stated that DFARS Case 2014-D005 addresses
precisely what would be considered an operational system, who provides
the needed approval, and how approval will be obtained.
Response: DFARS Case 2012-D055 (finalized May 6, 2014) added the
regulations on--
The contractors' purchasing system reviews (DFARS
244.305), which also cover review of the adequacy of the contractor's
counterfeit electronic part detection and avoidance system; and
The contractors' counterfeit electronic part detection and
avoidance system (DFARS 246.870 and the clause at 252.246-7007). DFARS
Case 2014-D005 (finalized August 2, 2016) did not make any changes to
the coverage at DFARS 244.305, so did not impact who approves the
operational system and how the approval is obtained. DFARS Case 2014-
D005 did implement section 818(c)(3)(D) at DFARS 246.870-2(a),
authorizing contractors and subcontractors to identify and use
additional trusted suppliers (contractor-approved suppliers) in some
circumstances. Therefore, DFARS Case 2014-D005 amended one of the 12
system criteria at DFARS 246.870 (i.e., the criterion relating to use
of suppliers) by providing a cross reference to the more detailed
coverage on sources of electronic parts now provided at DFARS 246.870-
2(a). In addition, the clause at DFARS 252.246-7007 included some
additional definitions of terms relating to sources of electronic
parts, and cross-referenced to the new clause at DFARS 252.246-7008 for
consistency in the requirements relating to traceability and sources of
electronic parts between CAS-covered contractors with operational
systems and all other DoD contractors and subcontractor supplying
electronic parts or items containing electronic parts.
Comment: One respondent noted that, while the rules on the elements
of the Detection and Avoidance System and
[[Page 59513]]
the Contractor Purchasing System have been finalized, both systems are
dependent on the forthcoming rules on use of trusted suppliers (DFARS
Case 2014-D005) and timely reporting (FAR Case 2013-002). The
respondent was concerned that, when finalized, those rules may shape
those policies and systems in ways not contemplated in this rulemaking.
The respondent recommended that, where finalization of pending rules
cause contractor or subcontractor systems to go out of alignment with
any of the elements related to cost allowability herein, or their
previously approved systems, DoD should adopt a ``time-out'' from
compliance enforcement and allow contractors and subcontractors time to
adjust those systems to any new or modified requirements impacting the
safe harbor.
Response: DFARS Case 2014-D005, although not yet finalized at the
time the comments were submitted, has now been in effect since August
2, 2016. The system criterion in paragraph (c)(6) of the clause at
DFARS 252.246-7007 already requires reporting of counterfeit electronic
parts and suspect counterfeit electronic parts to GIDEP. Paragraph
(c)(11) also requires a process for screening GIDEP reports to avoid
the purchase or use of counterfeit electronic parts. Although the FAR
case may provide some additional details, the primary purpose of the
FAR Case 2013-002 is to expand the requirement for GIDEP reporting to
agencies other than DoD and to encompass parts other than electronic
parts.
b. Obtain the Counterfeit Electronic Part in Accordance With
Regulations
Comment: One respondent commented on the sourcing of electronic
parts as a condition of cost allowability. Using the terminology of the
proposed rule published under DFARS Case 2014-D005, the respondent
noted three categories of suppliers each with its own unique set of
qualities and conditions needed to meet the conditions for safe harbor.
The respondent was concerned about the meaning of the statement
that the contractor is responsible for the authenticity of the parts,
when buying from what is now termed a ``contractor-approved'' supplier.
The respondent requested clarification and confirmation that the safe
harbor condition based on acquiring parts in accordance with the DFARS
252.246-7008 clause will be broadly construed and available where
contractors acquire from any of the categories of suppliers defined in
the proposed version of the 252.246-7008 clause. The respondent was
concerned that use of the terms ``trustworthy'' or ``non-trusted'' may
be perceived to imply a standard inferior to that of ``trusted
supplier'' and imply that use of such sources could prevent contractors
from availing themselves of the safe harbor.
Response: It is correct that the statute and the final rule under
DFARS Case 2014-D005 provided for a tiered approach for sources of
electronic parts, although the final rule no longer uses the terms
``trusted supplier,'' ``trustworthy,'' or ``non-trusted supplier.''
Category 1: Electronic parts that are in production or
currently available in stock. The contractor shall obtain the parts
from the original manufacturer, their authorized suppliers, or from
suppliers that obtain such parts exclusively from the original
manufacturers of the parts or their authorized dealers.
Category 2: Electronic parts that are not in production
and not currently available in stock. The contractor shall obtain parts
from suppliers identified by the contractor as contractor-approved
suppliers, subject to certain conditions.
Category 3: Electronic parts that are not in production
and not available from any of the above sources; electronic parts from
a subcontractor (other than the original manufacturer) that refuses to
accept flowdown of 252.246-7008; or electronic parts that the
contractor or subcontractor cannot confirm are new or that the
electronic parts have not been comingled in supplier new production or
stock with used, refurbished, reclaimed, or returned parts: The
contractor may buy such electronic parts subject to certain conditions.
Section 818(c)(3)(C) imposes, as one of the conditions for
contractor identification and use of contractor-approved suppliers
(category 2), the requirement that the contractor or subcontractor
``assume responsibility for the authenticity of parts provided by such
suppliers as provided in paragraph (2)'' (i.e., section 818(c)(2),
entitled ``Contractor Responsibilities,'' which states that covered
contractors that supply electronic parts or products that include
electronic parts are responsible for detecting and avoiding the use or
inclusion of counterfeit electronic parts or suspect counterfeit
electronic parts in such products and for any rework or corrective
action that may be required to remedy the use or inclusion of such
parts). The contractor assumes responsibility for the inspection,
testing, and authentication in accordance with existing applicable
standards, consistent with the requirements at DFARS 252.246-7008(c)(2)
if the contractor cannot establish traceability from the original
manufacturer for a specific electronic part.
The safe harbor provision of the statute at section 818(c)(2)(B),
as amended, does not exclude applicability to electronic parts acquired
from any of the categories of sources, as long as the contractor
complies with all of the conditions associated with that category. The
allowability of the costs of any counterfeit electronic parts and any
rework or corrective action that may be required to remedy the use or
inclusion of such parts must be based upon an analysis of the facts of
the case, in accordance with section 818(c)(2)(B), as amended, DFARS
231.205-71, 246.870-2, and the associated clauses at DFARS 252.246-7007
and 252.246-7008.
Comment: One respondent recommended that ``pending approval'' be
added to the definition of ``trusted suppliers'' and that contractor-
designated trusted suppliers be assumed to be approved by the DoD
officials until DoD notifies the designating contractor that the
supplier is not approved. According to the respondent, this change to
the regulations is necessary in order to prevent contractors and their
suppliers from having costs relating to detection and remediation
deemed unallowable because DoD officials have not conducted and
completed the approval process for a contractor-approved supplier.
Response: DoD approval of contractor-approved suppliers is the
subject of DFARS Case 2016-D013, Amendments Related to Sources of
Electronic Part, which was published in the Federal Register as a
proposed rule on August 2, 2016. Although that rule is not yet
finalized, the proposed rule stated explicitly that the contractor may
proceed with the acquisition of electronic parts from a contractor-
approved supplier unless notified otherwise by DoD.
c. Discover the Counterfeit Electronic Part
Comment: One respondent recommended that broadening the concept of
``discovers'' would be consistent with the underlying policy concerns.
The respondent recommended that the word ``discover'' should also
include the situation where a contractor reviews a GIDEP alert about a
suspect counterfeit electronic part and determines that it has
incorporated the part in its DoD products and makes a report.
The respondent recommended replacing the word ``discover'' with
``learns of and acts upon.'' According to
[[Page 59514]]
the respondent, a narrow definition of ``discovers'' could result in a
``first to discover'' race that would thwart the timely sharing of
information. The respondent feared that entities might not take
sufficient care to gather and analyze all of the necessary information
in their haste to be the first to report.
Response: Although the definition of ``discover'' frequently has
the meaning of finding out something previously unknown, it also has
the meaning of learning or becoming aware of something that the person
making the ``discovery'' did not know about before. So, if a contractor
became aware of a counterfeit electronic part on GIDEP and then took
action with regard to its use of that part, this would fall within the
meaning of ``discover.'' It would be outside the scope of the meaning
of ``discover'' if the Government discovered that the contractor was
using counterfeit electronic parts, and notified the contractor of that
fact. To make the meaning clearer, DoD has substituted the words
``becomes aware'' for the word ``discovers,'' because this is the term
used in section 818(c)(4), the paragraph to which section
818(c)(2)(B)(iii) refers, and is already used in DFARS 231.205-71(b)(3)
and 252.246-7007(c)(6). The final rule adds clarifying language that
the contractor may learn of the counterfeit electronic parts or suspect
counterfeit electronic parts through inspection, testing, and
authentication efforts of the contractor or its subcontractors; through
a GIDEP alert; or by other means.
d. Provide Timely Notice
Comment: One respondent recommended it would be beneficial to use a
central point of contact contracting officer for reporting. The
respondent also recommended clarification as to which level of
contractor in the supply chain must provide notice to the Government.
Response: It is not feasible for the contractor to notify just one
contracting officer, and expect that contracting officer to coordinate
will all other contracting officers dealing with that contractor. It is
the responsibility of the contractor to notify each contracting officer
for each contract affected. However, the clause at DFARS 252.246-7007,
Contractor Counterfeit Electronic Part Detection and Avoidance System,
in compliance with section 818 paragraphs (c)(4) and (e), already
requires that a counterfeit electronic part detection and avoidance
system shall include risk-based policies and procedures that address
reporting of counterfeit electronic parts and suspect counterfeit
electronic parts. Reporting is required to the contracting officer and
to 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 DoD, or purchased by a
contractor for delivery to, or on behalf, of, DoD, contains counterfeit
electronic parts or suspect counterfeit electronic parts. The notice
required under this cost principle should be consistent with the
statutory and regulatory required criterion for an approved system to
detect and avoid counterfeit electronic parts and suspect counterfeit
electronic parts. Therefore, the final rule requires notice to the
cognizant contracting officer(s) and GIDEP (with limited exceptions).
4. Process To Adjudicate Allowability
Comment: One respondent stated the need to establish an effective
process for contracting officers to be able to fairly and promptly
adjudicate claims related to the safe harbor conditions.
Response: The process for adjudicating the allowability of costs
related to counterfeit electronic parts and suspect counterfeit
electronic parts is no different than the process for adjudicating
other potentially unallowable costs. If a contractor incurs costs
related to counterfeit electronic parts or suspect counterfeit
electronic parts, the contracting officer will check with the Defense
Contract Management Agency to determine whether the contractor meets
the criteria at DFARS 231.205-71(b). If the contracting officer
determines that the costs are unallowable, the Defense Contract Audit
Agency determines the amount of the unallowable costs.
5. Editorial Correction
Comment: One respondent noted that in proposed DFARS 231.205-
71(b)(1) the word ``electronic'' was omitted in one place in the
sentence ``The contractor has an operational system to detect and avoid
counterfeit parts and suspect counterfeit electronic parts . . . .''
Response: The omission of the word ``electronic'' in this context
was baseline DFARS, consistent with the original section 818 language.
The statutory language was subsequently amended by section 885 of the
NDAA for FY 2016 and has been corrected in the final rule.
C. Other Changes
The final rule--
Specifies at DFARS 231.205-71(b)(2) the cites of the DFARS
regulations with which the contractor must comply, as published in the
Federal Register on August 2, 2016, under DFARS Case 2014-D005; and
Replaces ``notice'' with ``written notice'' at DFARS
231.205-71(b)(3)(ii), for consistency with the statute.
III. Applicability to Contracts at or Below the Simplified Acquisition
Threshold (SAT) and for Commercial Items, Including Commercially
Available Off-the-Shelf (COTS) Items
This case does not add any new provisions or clauses or impact any
existing provisions or clauses.
IV. 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 not a significant regulatory action and, therefore, was not
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.
V. Regulatory Flexibility Act
A final regulatory flexibility analysis (FRFA) has been prepared
consistent with the Regulatory Flexibility Act, 5 U.S.C. 601, et seq.
The FRFA is summarized as follows:
This final rule implements section 885(a) of the National Defense
Authorization Act (NDAA) for Fiscal Year (FY) 2016 (Pub. L. 114-92).
The objective of this rule is to amend the allowability of costs for
counterfeit parts or suspect counterfeit parts and the cost of rework
or corrective action that may be required to remedy the use or
inclusion of such parts. Such costs may be allowable if the parts were
obtained by the contractor/subcontractor in accordance with DFARS
clause 252.246-7008, Sources of Electronic Parts, and timely notice is
provided to the Government.
There were no significant issues raised by the public in response
to the initial regulatory flexibility analysis.
DoD is unable to estimate the number of small entities that will be
impacted by this rule. This rule will apply to all DoD prime and
subcontractors with cost contracts. This rule will only impact cost
allowability if the contractor or subcontractor has complied with
[[Page 59515]]
DFARS 246.870, but nevertheless acquired, used, or included counterfeit
electronic parts or suspect counterfeit electronic parts in performance
of a DoD contract or subcontract, and has learned of such parts and
provided timely notification to the cognizant contracting officer(s)
and the Government Industry Data Exchange Program (unless an exception
applies).
There is no change to the projected reporting, recordkeeping, or
other compliance requirements associated with the rule.
DoD has not identified any alternatives that are consistent with
the stated objectives of the applicable statute. However, DoD notes
that the impacts of this rule are expected to be beneficial, because it
expands the allowability of costs for counterfeit parts or suspect
counterfeit parts and the cost of rework or corrective action that may
be required to remedy the use or inclusion of such parts.
VI. Paperwork Reduction Act
The rule does not contain any information collection requirements
that require the approval of the Office of Management and Budget under
the Paperwork Reduction Act (44 U.S.C. chapter 35).
List of Subjects in 48 CFR Part 231
Government procurement.
Jennifer L. Hawes,
Editor, Defense Acquisition Regulations System.
Therefore, 48 CFR part 231 is amended as follows:
PART 231--CONTRACT COST PRINCIPLES AND PROCEDURES
0
1. The authority citation for 48 CFR part 231 continues to read as
follows:
Authority: 41 U.S.C. 1303 and 48 CFR chapter 1.
0
2. Revise section 231.205-71 to read as follows:
231.205-71 Costs related to counterfeit electronic parts and suspect
counterfeit electronic parts.
(a) Scope. This section implements the requirements of section
818(c)(2), National Defense Authorization Act for Fiscal Year 2012
(Pub. L. 112-81), as modified by section 833, National Defense
Authorization Act for Fiscal Year 2013 (Pub. L. 112-239), and section
885 of the National Defense Authorization Act for Fiscal Year 2016
(Pub. L. 114-92).
(b) The costs of counterfeit electronic parts and suspect
counterfeit electronic parts and the costs 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 electronic parts and suspect counterfeit electronic parts
that has been reviewed and approved by DoD pursuant to 244.303(b);
(2) The counterfeit electronic parts or suspect counterfeit
electronic parts are Government-furnished property as defined in FAR
45.101 or were obtained by the contractor in accordance with the clause
at 252.246-7008, Sources of Electronic Parts; and
(3) The contractor--
(i) Becomes aware of the counterfeit electronic parts or suspect
counterfeit electronic parts through inspection, testing, and
authentication efforts of the contractor or its subcontractors; through
a Government Industry Data Exchange Program (GIDEP) alert; or by other
means; and
(ii) Provides timely (i.e., within 60 days after the contractor
becomes aware) written notice to--
(A) The cognizant contracting officer(s); and
(B) GIDEP (unless the contractor is a foreign corporation or
partnership that does not have an office, place of business, or fiscal
paying agent in the United States; or the counterfeit electronic part
or suspect counterfeit electronic part is the subject of an on-going
criminal investigation).
[FR Doc. 2016-20475 Filed 8-29-16; 8:45 am]
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