Statement by Dr. James A. Hayward on the Publication of DFARS Case 2012-D055, Detection and Avoidance of Counterfeit Electronic Parts

May 6, 2014
By Dr. James A. Hayward, CEO and President, Applied DNA Sciences
Today the Federal Register published a new set of regulations for defense suppliers about which the government and industry have been wrangling for nearly 2 1/2 years. It will change everything in electronics.
Known as DFARS Case 2012-D055, this deceptively lifeless government identifier denotes an historic moment for the electronics industry.
It is the day when anti-counterfeiting processes and technologies became, not just law, but law with teeth.
As a company which has worked for years to help protect the safety of our warfighters from the silent scourge of counterfeit parts, and contribute to the health of an electronics supply system under attack, we applaud this moment. While the regulations are not perfect, and will continue to be shaped (either for better or worse) we stand proud to be in the mainstream of those offering solutions to the counterfeit crisis, the target of today's event.
A bit of explanation. Publication in the Federal Register is the trigger-point that signals implementation of new regulations for defense suppliers. It is the final step to codifying procurement guidelines which finally are in the Defense Federal Acquisition Regulation Supplement (DFARS), the daunting, gigantic document that governs all federal defense procurement.
Today's regulations implement the anti-counterfeiting provisions in the National Defense Authorization Act for Fiscal Year 2012, Section 818, and a section of the National Defense Authorization Act for Fiscal Year 2013, both of which required direct suppliers to bring anti-counterfeiting systems online. Enforcement is via strict financial and, in extreme cases, legal consequences.
Now that the Case is published, we will see rules which find their way into contracts, procurement guidelines, and internal Department of Defense oversight processes which will change the way we all do business, our customers and ourselves.
At their heart, the new regulations demand for the first time that defense contractors must establish policies and procedures to eliminate counterfeit electronics from their parts lists destined for the military. Contractors must “monitor and detect” counterfeits, or face rework and replacement charges, or legal remedies including suspension and debarment. We believe that the counterfeiters will surely face much stricter defenses, and far more powerful interdiction technologies such as the ones we offer.
Business as usual? Just another empty government edict? Not quite. Indeed, only a month after Section 818 and was signed into law by President Obama, the Council of Defense and Space Industry Associations (CODSIA) wrote in a letter that the law would "fundamentally change the nature of the existing global supply chain for the defense industrial base.”
When the DOD opened a public hearing for comments on the regulation, back in June, 2013, there was what can only be described as a roar of criticism. There were positive comments too, but it is clear that the regulations were not perfect.
The regulations have been changed in some significant ways in response to the criticism. We intend to assess the changes and make our opinions public. But for the moment, what stands out in today's statement is the federal government’s determination to move ahead, their conviction that the crisis is too imminent and too deep to warrant any delayed action (from the preamble to the final rule): "While DoD is aware that many issues associated with management of the counterfeit parts problem remain to be resolved, DoD cannot afford to wait to take action."
To those who have been waiting for the legislation to go away, or become watered-down or otherwise neutered, we advise them to think again. As Robert Metzger said of Section 818 in an article in February, "The national interest in achieving greater supply chain and cyber security is so compelling that, in the author’s estimation, the federal government will act irrespective of industry’s doubts."
The time is now. Let's adopt technologies, standards, procedures that will be concrete actions against the counterfeiters. There is no time to lose.

Counterfeit Prevention Authentication (CPA) Program

The ability to verify originality or provenance of parts comes at a critical time for defense contractors. As counterfeit parts continue to infiltrate the military supply chain, the government is preparing new regulations requiring strict new anti-counterfeiting systems for their suppliers, attracting much attention in the industry.

The CPA program empowers end users to verify the originality or provenance of parts which have been marked by their suppliers with ADNAS’ SigNature® DNA. It is a low-cost entry point for contractors to begin using a preventive anti-counterfeit technology in compliance with NDAA FY 2012 Section 818, as illustrated below.

(2) CONTRACTOR RESPONSIBILITIES- The revised regulations issued pursuant to paragraph (1) shall provide that–

(A) covered contractors who 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; and

(B) the 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

In this context, the CPA Program provides an accessible and immediate action for companies whose suppliers are currently marking with SigNature DNA. Dozens of companies are already using the platform and over 500,000 electronic parts have already been marked. These SigNature DNA-marked parts are now circulating in the electronics supply chain, providing end-users with unprecedented ability to identify parts or gain valuable traceability data. The aim of the aggressively priced packages is to encourage commercial OEM’s and contract manufacturers in all industries to participate in forensically securing their supply chains. 

CPA Program: Forensically Secured Supply Chain


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