WASHINGTON -- The US Department of Defense (DoD) is issuing a final rule amending the Defense Federal Acquisition Regulation Supplement (DFARS) to implement a section of the National Defense Authorization Act for Fiscal Year 2016 that makes contractors and subcontractors subject to approval (as well as review and audit) by appropriate DoD officials when identifying a contractor-approved supplier of electronic parts.

The document is scheduled to be published in the Federal Register on May 4 and available online at https://federalregister.gov/d/2018-09491, and on FDsys.gov DoD published a proposed rule in the Federal Register at 81 FR 50680 on Aug. 2, 2016, to implement section 885(b) of the National Defense Authorization Act for fiscal 2016, which amends previous guidance and now provides that contractors and subcontractors are subject to approval (as well as review and audit) by appropriate DoD officials when identifying a contractor-approved supplier of electronic parts. Four respondents submitted public comments on the proposed rule.

The final rule clarifies at DFARS 246.870-2(a)(1)(ii)(C) and 252.246-7008(b)(2)(iii) that the review, audit, and approval of contractor-approved suppliers by the US government will generally be in conjunction with a contractor purchasing system review (CPSR) or other surveillance of purchasing practices by the contract administration office, unless the Government has credible evidence that a contractor-approved supplier has provided counterfeit parts.

In public comments, respondents shared concerns about the details of how, what, when, and by whom the Government approval (or disapproval) of contractor-approved suppliers would be conducted. There was also concern about the impact of disapproval, how the notification would occur, and the extent of flow-down to subcontracts.

Several respondents commented on whether the review, audit and approval are mandatory or discretionary. One respondent stated that the rule is silent as to whether the review, audit and approval will take place. Another respondent noted that it appears that contractor selection of contractor-approved suppliers can be subject to (emphasis added) review, audit, and approval by the contracting officer, implying that such processes are optional and not mandatory actions, whether that function is conducted on individual transactions or through a CPSR or other surveillance of purchasing practices. Yet another respondent questioned the criteria for deciding when to review, audit, and approve suppliers that have been approved by the contractor.

In response, the DoD noted it is not mandatory that the government review, audit and approve contractor-approved suppliers. The final rule has been amended at DFARS 246.870-2(a)(1)(ii)(C) and 252.246-7008(b)(2)(iii) to clarify that such review, audit, and approval will generally be in conjunction with a CPSR by the contract administration office, or if the government obtains credible evidence that a contractor-approved supplier has provided counterfeit parts.

The US government’s review, audit, and approval of contractor-approved suppliers of electronic parts generally will be conducted during the CPSR or other surveillance of purchasing practices to verify that the contractor is using established counterfeit prevention industry standards and processes (including inspection, testing, and authentication), such as the DoD-adopted standards at https://assist.dla.mil, to select their suppliers. The contractor’s authorization to identify and purchase electronic parts from their own contractor-approved suppliers and DoD’s authority to review, audit, and approve those contractor-approved suppliers relates only to those suppliers of electronic parts that are not in production by the original manufacturer or an authorized aftermarket manufacturer and that are not currently available in stock from the original manufacturer, their authorized suppliers, or suppliers that obtain such parts exclusively from the original manufacturers of the parts or their authorized suppliers

All respondents had concern about the timing of the review, audit, and approval of contractor-approved suppliers. The DoD’s authority to review, audit and approve contractor-approved suppliers relates only to those suppliers of electronic parts that are not in production by the original manufacturer or an authorized aftermarket manufacturer and that are not currently available in stock from the original manufacturer, their authorized suppliers, or suppliers that obtain such parts exclusively from the original manufacturers of the parts or their authorized suppliers.

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