Defense Federal Acquisition Regulation Supplement: Costs Related to Counterfeit Electronic Parts (DFARS Case 2016-D010), 59510-59515 [2016-20475]
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59510
Federal Register / Vol. 81, No. 168 / Tuesday, August 30, 2016 / Rules and Regulations
other required information to the U.S.
Senate, the U.S. House of
Representatives, and the Comptroller
General of the United States prior to
publication in the Federal Register. A
major rule cannot take effect until 60
days after it is published in the Federal
Register. This action is not a ‘‘major
rule’’ as defined by 5 U.S.C. 804(2). This
action will be effective October 31,
2016.
List of Subjects in 40 CFR Part 271
Environmental protection,
Administrative practice and procedure,
Confidential business information,
Hazardous waste, Hazardous waste
transportation, Indian lands,
Intergovernmental relations, Penalties,
Reporting and recordkeeping
requirements.
Authority: This action is issued under the
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amended, 42 U.S.C. 6912(a), 6926, 6974(b).
Dated: August 12, 2016.
Shawn M. Garvin,
Regional Administrator, EPA Region III.
[FR Doc. 2016–20849 Filed 8–29–16; 8:45 am]
BILLING CODE 6560–50–P
DEPARTMENT OF DEFENSE
Defense Acquisition Regulations
System
[Docket DARS–2016–0029]
RIN 0750–AJ04
Defense Federal Acquisition
Regulation Supplement: Request for
Audit Services in France, Germany, the
Netherlands, or the United Kingdom
(DFARS Case 2016–D027)
Defense Acquisition
Regulations System, Department of
Defense (DoD).
ACTION: Final rule.
AGENCY:
DoD is issuing a final rule
amending the Defense Federal
Acquisition Regulation Supplement
(DFARS) to specify the countries with
which DoD has audit agreements.
DATES: Effective August 30, 2016.
FOR FURTHER INFORMATION CONTACT: Ms.
Amy G. Williams, telephone 571–372–
6106.
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SUMMARY:
SUPPLEMENTARY INFORMATION:
I. Background
DoD is amending DFARS 225.872–6
to specify the qualifying countries that
have audit agreements with the United
16:58 Aug 29, 2016
II. Publication of This Final Rule for
Public Comment Is Not Required by
Statute
The statute that applies to the
publication of the Federal Acquisition
Regulation (FAR) is 41 U.S.C. 1707
entitled ‘‘Publication of Proposed
Regulations.’’ Paragraph (a)(1) of the
statute requires that a procurement
policy, regulation, procedure, or form
(including an amendment or
modification thereof) must be published
for public comment if it relates to the
expenditure of appropriated funds, and
has either a significant effect beyond the
internal operating procedures of the
agency issuing the policy, regulation,
procedure, or form, or a significant cost
or administrative impact on contractors
or offerors. This final rule is not
required to be published for public
comment, because it only specifies the
qualifying countries that have audit
agreements with the United States,
rather than requiring each contracting
officer to contact the Deputy Director of
Defense Procurement and Acquisition
Policy (Contract Policy and
International Contracting), to determine
whether a qualifying country has such
an audit agreement. These regulations
affect only the internal operating
procedures of the Government.
III. Applicability to Contracts at or
Below the Simplified Acquisition
Threshold (SAT) and for Commercial
Items, Including Commercially
Available Off-the-Shelf (COTS) Items
48 CFR Part 225
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States (i.e., France, Germany, the
Netherlands, and the United Kingdom).
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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.
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V. Regulatory Flexibility Act
The Regulatory Flexibility Act does
not apply to this rule because this final
rule does not constitute a significant
DFARS revision within the meaning of
FAR 1.501–1, and 41 U.S.C. 1707 does
not require publication for public
comment.
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 225
Government procurement.
Jennifer L. Hawes,
Editor, Defense Acquisition Regulations
System.
Therefore, 48 CFR part 225 is
amended as follows:
PART 225—FOREIGN ACQUISITION
1. The authority citation for 48 CFR
part 225 continues to read as follows:
■
Authority: 41 U.S.C. 1303 and 48 CFR
chapter 1.
2. Revise section 225.872–6 to read as
follows:
■
225.872–6
Request for audit services.
Handle requests for audit services in
France, Germany, the Netherlands, or
the United Kingdom in accordance with
PGI 215.404–2(c), but follow the
additional procedures at PGI 225.872–6.
[FR Doc. 2016–20476 Filed 8–29–16; 8:45 am]
BILLING CODE 5001–06–P
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)
Defense Acquisition
Regulations System, Department of
Defense (DoD).
ACTION: Final rule.
AGENCY:
DoD is issuing a final rule
amending the Defense Federal
Acquisition Regulation Supplement
(DFARS) to implement a section of the
SUMMARY:
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Federal Register / Vol. 81, No. 168 / Tuesday, August 30, 2016 / Rules and Regulations
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
Section 818
Sec. 833
amended
Sec. 817
amended
Sec. 885
amended
(a) Assessment of DoD Policies and Systems.
(b) Actions Following Assessment.
(c) Regulations .............................................................................................................................
(c)(2)(B)
*
*
*
*
*
(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
*
*
DoD has processed several DFARS
cases to implement section 818 and its
subsequent amendments as follows:
Title
Implements
2012–D055 ........
Detection and Avoidance of Counterfeit
Electronic Parts.
2014–D005 ........
Detection and Avoidance of Counterfeit
Electronic Parts—Further Implementation.
DoD Use of Trusted Suppliers for Electronic Parts.
Costs Related to Counterfeit Electronic
Parts.
Amendments Related to Sources of
Electronic Parts.
Sec. 818 (b)(1), (c)(partial), (e), and (f);
as amended by sec. 833 of NDAA for
FY 2013.
Sec. 818 (c)(3); as amended by sec.
817 of NDAA for FY 2015, except
sec. 818 (c)(3)(C).
Sec. 818(c)(3)(C) ...................................
2016–D010 ........
2016–D013 ........
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*
*
DFARS case
2015–D020 ........
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).
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16:58 Aug 29, 2016
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Published
Sec. 818(c)(2)(B), as amended by sec
885(a) of NDAA for FY 2016.
Sec. 818(c)(3)(D)(ii), as amended by
sec. 885(b) of NDAA for FY 2016.
• 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.
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(c)(2)(B)
(c)(3)(D)
*
*
2012 and is not directly related to the
detection and avoidance of counterfeit
electronic parts.
(c)(3)
Final rule published 5/6/2014.
Final rule published 8/2/2016.
Not yet published.
This final rule.
Proposed rule published 8/2/2016.
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:
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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.
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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
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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
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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 (contractorapproved 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 crossreferenced 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
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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 ‘‘contractorapproved’’ 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
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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 contractorapproved 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
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59513
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 contractordesignated 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 contractorapproved supplier.
Response: DoD approval of contractorapproved 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 contractorapproved 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
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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
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16:58 Aug 29, 2016
Jkt 238001
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
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Fmt 4700
Sfmt 4700
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
E:\FR\FM\30AUR1.SGM
30AUR1
Federal Register / Vol. 81, No. 168 / Tuesday, August 30, 2016 / Rules and Regulations
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.
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 ongoing criminal investigation).
[FR Doc. 2016–20475 Filed 8–29–16; 8:45 am]
BILLING CODE 5001–06–P
Therefore, 48 CFR part 231 is
amended as follows:
DEPARTMENT OF DEFENSE
PART 231—CONTRACT COST
PRINCIPLES AND PROCEDURES
Defense Acquisition Regulations
System
1. The authority citation for 48 CFR
part 231 continues to read as follows:
■
48 CFR Chapter 2
Authority: 41 U.S.C. 1303 and 48 CFR
chapter 1.
[Docket DARS–2016–0001]
2. Revise section 231.205–71 to read
as follows:
RIN 0750–AI83
231.205–71 Costs related to counterfeit
electronic parts and suspect counterfeit
electronic parts.
mstockstill on DSK3G9T082PROD with RULES
■
Defense Federal Acquisition
Regulation Supplement: Instructions
for the Wide Area WorkFlow Reparable
Receiving Report (DFARS Case 2016–
D004)
(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
VerDate Sep<11>2014
16:58 Aug 29, 2016
Jkt 238001
Defense Acquisition
Regulations System, Department of
Defense (DoD).
ACTION: Final rule.
AGENCY:
DoD is amending the Defense
Federal Acquisition Regulation
Supplement (DFARS) to add
instructions for utilizing the Wide Area
WorkFlow Reparable Receiving Report.
DATES: Effective September 29, 2016.
SUMMARY:
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Frm 00091
Fmt 4700
Sfmt 4700
59515
Mr.
Tom Ruckdaschel, telephone 571–372–
6088.
SUPPLEMENTARY INFORMATION:
FOR FURTHER INFORMATION CONTACT:
I. Background
DoD published a proposed rule in the
Federal Register at 81 FR 17051 on
March 25, 2016, to revise appendix F of
the DFARS to add instructions for the
use, preparation, and distribution of the
Wide Area WorkFlow (WAWF)
Reparable Receiving Report (RRR). One
respondent submitted a public comment
in response to the proposed rule.
II. Discussion and Analysis
DoD reviewed the public comment in
the development of the final rule. A
discussion of the comment received
follows:
A. Summary of Significant Changes
From the Proposed Rule
There were no significant changes
made from the proposed rule.
B. Analysis of Public Comment
Comment: Consider removing or
revising the requirement for dollars to
be included on every receiving report
(RR) in the WAWF iRAPT (Invoice,
Receipt, Acceptance, and Property
Transfer) application. Many scenarios
occur in which it is not a viable option
to list a dollar value on a RR such as
nonseparately priced items or partial
shipments where a value may not be
assessed.
Response: This comment is outside
the scope of this rule. The requirement
to record a unit price on the WAWF
RRR is in accord with preexisting
DFARS language.
III. Applicability to Contracts at or
Below the Simplified Acquisition
Threshold and for Commercial Items,
Including Commercially Available Offthe-Shelf 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
E:\FR\FM\30AUR1.SGM
30AUR1
]]>Agencies
[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]
-----------------------------------------------------------------------
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.
-----------------------------------------------------------------------
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]
BILLING CODE 5001-06-P
