On, August 2, 2016, the U.S. Department of Defense (DoD) issued a Final Rule aimed at detecting and avoiding counterfeit electronic parts in the DoD supply chain. The Final Rule – the latest in a series of recent rules aimed at combating counterfeit parts – imposes a strong preference on the acquisition and use of electronic parts from original or authorized manufacturers or their resellers. The costs of identifying these and other trusted suppliers, however, remain firmly the obligation of DoD contractors, creating potential pitfalls for contractors who do not carefully monitor their supply chains.

The signature feature of the Final Rule is a new contract clause for the Defense Federal Acquisition Regulation Supplement (DFARS), DFARS 252.246.7008, “Sources of Electronic Parts.” This clause requires contractors to obtain electronic parts either from the original manufacturer, from a business authorized by the original manufacturer to produce the part, or from a reseller who supplies the part directly from an original or authorized manufacturer. If the contractor cannot obtain a part from one of these suppliers, the contractor may identify suppliers it has approved in accord with industry standards – including inspection, testing and authentication – if it takes responsibility for the authenticity of the parts. Such contractor approval is subject to review and audit by the contracting officer.

In the event the contractor cannot identify any trusted source for the supply of electronic parts, the contractor may rely on non-trusted sources – including subcontractors unwilling to accept a flow-down of the clause – subject to certain conditions. In particular, the contractor must notify the contracting officer in writing when it intends to supply items from non-trusted sources, and must thoroughly document its inspection and testing results when authenticating such parts to provide to the government upon request. The clause also includes a traceability requirement for contractors who do not manufacture their electronic parts, requiring contractors to either trace the origin of the part to its original manufacturer or take responsibility for inspecting, testing and authentication of the part.

The Final Rule, which is effective immediately, applies to all DoD acquisitions involving the delivery of supplies or services incorporating electronic parts, including acquisitions for commercial items and those below the simplified acquisition threshold. Given the extensive reach of the new rule, contractors must ensure that their supply chain management procedures are prepared.