On August 2, 2016, the Department of Defense (DoD) issued a final rule amending supply chain requirements in the Defense Federal Acquisition Regulation Supplement (DFARS) to require that contracting officers more carefully scrutinize contractors’ purchases of electronic parts from third parties. Under the new rule, if a defense contractor’s supplier does not meet the trusted source requirements, the contractor itself is responsible for inspecting, testing and authenticating the parts. Although documentation of these additional processes will consume contractor resources, the rule’s specific guidance will also save contractors time and effort by helping them map out procedures in the event that a subcontractor is unwilling or unable to fully authenticate a part. Also, if contractors obtain a part from the US government, then the US government will now be solely responsible for its authenticity.

The amendments were built around existing industry standards and best practices for identifying, assessing, addressing and mitigating risks, and represent a multi-year effort aimed at stemming the influx of inferior parts into the DoD supply chain. A draft rule was published in September 2015 implementing changes enacted by the Fiscal Year (FY) 2012 National Defense Authorization Act (NDAA) and amended in the FY 2015 version of the NDAA. By preventing the proliferation of counterfeit parts, the DoD hopes to avoid critical systems failures in the field, thereby protecting the lives and safety of American soldiers and civilians.

While certain Pentagon contractors will benefit from added confidence regarding their supply chain requirements, some concern has arisen that small businesses are not excluded. Substantial administrative burdens in documenting part traceability or performing testing, authentication and inspection arguably will impact small businesses more severely than larger operations. The DoD concluded that counterfeit parts have been deemed such a significant risk that the benefit of avoiding potential part failures outweighs the burden on small businesses. Finally, a related rule makes technical amendments to the DFARS to provide needed editorial changes to implement the amendments. The rule became effective on August 2, 2016. (81 Fed. Reg. 50,635, 8/2/16)