Wednesday, September 7, 2016

New Cost Principle Addresses Allowability of Costs Related to Counterfeit Parts

The Department of Defense just published a final rule in its FAR Supplement (DFARS) that affects the allowability of certain costs - costs related to counterfeit electronic parts. The new cost principle can be found in DFARS 231.205-71. The "dash 71 means there is no corresponding cost principle in the FAR (Federal Acquisition Regulations).

This new cost principle implements various sections from the National Defense Authorization Acts from fiscal years 2012, 2013, and 2016 because many in Congress became concerned over the rising cost of counterfeit electronic parts creeping into our weapon systems with no monetary consequences to contractors whose responsibility was to ensure the prevention of such parts.

Specifically, the new cost principle states the following:
The costs of counterfeit electronic parts and suspect conterfeit 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 they satisfy at least one of the three following requirements.
  • The contractor has an operational system to detect and avoid counterfiet electronic parts and suspect counterfeit electronic parts that has been reviewed and approved by DoD
  • The counterfeit electronic parts or suspect counterfeit electronic parts are Government-furnished property.
  • The contractor becomes aware of the counterfeit electronic parts or suspect counterfeit electronic parts through inspection, testing, and authentication efforts of the contractor or its subcontractor; through a Government Industry Data Exchange Program (GIDEP) alert or by other means, and provides timely (i.e. 60 days) written notice to the contracting officer
No word on who in DoD is going to review and approve contractor systems to detect and avoid counterfeit parts but presumably it will fall to DCMA (Defense Contract Management Agency).

You can read more about the new cost principle here.

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