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No effective system for detecting counterfeit parts? Senate says time to get one -- amendment passes
November 30, 2011
The Senate today approved an amendment by the the Senate Armed Services Committee to combat the flood of counterfeit electronic parts coming into the defense supply system.
If you have been reading our blog, you knew this was coming, and coming soon.
The provisions are somewhat more comprehensive then many predicted, and will hit the electronics industry where it hurts--on its bottom line.
Among the most impactful provisions:
- Contractors can no longer bill the Defense Department for the cost of fixing the problem when counterfeit parts are discovered. Recall, rework, resubmission are presumably included in these costs.
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Requires the Defnese Department and its contractors whenever possible to buy electronic parts from original component manufacturers and their authorized dealers or trusted suppliers. A closer reading is necessary to find the penalties for violating this and buying from one of the hordes of small distributors, including those who operate on line.
- Requires military officials and contractors who learn of counterfeit parts in the supply chain to provide written notification to the contracting officer, the Department of Defense Inspector General and to the Government-Industry Data Exchange Program. Contractors, in other words, are being held closely accountable.
The amendment is being fast-tracked, as we predicted, as an amendment to the 2012 National Defense Authorization Act by Sens. Carl Levin, D-Mich., and John McCain, R-Ariz., the chairman and ranking member of the committee. It follows a November 8 hearing which found upwards of 1,800 instances of counterfeit electronic parts in the defense supply chain. It now becomes part of the Authorization Act, now being debated on the Senate floor.
“These counterfeit parts endanger our troops, harm national security and cost taxpayers,” Levin said. “The flood of counterfeit parts must stop, and this amendment provides tools and incentives that will help stop it.”
Senator Levin's web site tells us that "the committee’s investigation found that counterfeit parts have made their way into important systems such as the Navy’s SH-60B helicopter and P-8 Poseidon aircraft; Air Force C-130J, C-27J and C-17 aircraft; and Marine and Army helicopters such as the AH-64 and CH-46. Committee investigators tracked well over 100 individual cases of counterfeit parts, and found more than 70 percent originated in China, where an open market in counterfeit electronic parts thrives."
The investigation also found instances in which contractors were unaware of the presence of counterfeit parts in their products, or had failed to notify the military of counterfeit cases even when they were aware.
According to the web site , the key provisions of the amendment are these:
- Prohibits contractors from charging the Defense Department for the cost of fixing the problem when counterfeit parts are discovered.
- Requires the department and its contractors whenever possible to buy electronic parts from original component manufacturers and their authorized dealers or trusted suppliers who meet established standards for detecting and avoiding counterfeit parts.
- Requires military officials and contractors who learn of counterfeit parts in the supply chain to provide written notification to the contracting officer, the Department of Defense Inspector General and to the Government-Industry Data Exchange Program.
- Requires the Secretary of Homeland Security to establish a methodology for the enhanced inspection of electronic parts after consulting with the Secretary of Defense as to the sources of counterfeit parts in the defense supply chain.
- Requires large defense contractors to establish systems for detecting and avoiding counterfeit parts, and authorizes reductions in contract payments to contractors who fail to do so.
- Requires DoD to adopt policies and procedures for detecting and avoiding counterfeit parts in its direct purchases, and for assessing and acting on reports of counterfeits.
- Adopts provisions of a bill sponsored by Sen. Sheldon Whitehouse, D-R.I., to toughen criminal sentences for counterfeiting of military goods or services.
- Requires DoD to define the term “counterfeit part,” and at a minimum to include in that definition previously used parts represented as new.
