NDAA May Put Defense Contractors In Prison For Counterfeit Parts

Over at Forbes, where I write a column on Law, Policy and National Security, I’ve posted a piece entitled NDAA May Put Defense Contractors In Prison For Counterfeit Parts.  Here is an excerpt:

The NDAA, which was passed earlier this year, shifts the burden to contractors to screen their equipment for counterfeit parts.  This regulatory approach is similar to the burden shifting approach being debated for cyber security legislation.  However, unlike the proposed cyber security legislation, the provisions of the NDAA include civil and criminal penalties with the possibility of life in prison for those whose recklessness with regard to counterfeit parts results in death.

The NDAA addresses counterfeit parts in Section 818, specifically requiring DoD “conduct an assessment of Department of Defense acquisition policies and systems for the detection and avoidance of counterfeit electronic parts.”  Following that assessment, DoD must:

• establish Department wide definitions for the terms “counterfeit electronic part” and “suspect counterfeit electronic part”
• implement a risk-based approach to minimize the impact of counterfeit electronic parts
• establish a process for analyzing, assessing, and acting on reports of counterfeit electronic parts and suspect counterfeit electronic parts

The legislation’s provisions require DoD to promulgate regulations that:

• make contractors “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”
• prohibit contractors from passing those costs off to DoD as allowable costs under their contracts
• creates a safe harbor provision for contractors to avoid civil liability if they take reasonable efforts to avoid counterfeit parts or if they become aware of counterfeit parts report such parts to DoD within 60 days of detection