Latest News


Proposal Would Tighten DFARS Sourcing Rule

| September 28, 2015 | 2 Comments
facebooktwittergoogle_plusredditpinterestlinkedinmail

There are significant changes afoot that could tighten the requirements for companies that want to supply electronics components to the U.S. government and the Department of Defense (DoD). Proposed amendments to the existing Defense Federal Acquisition Regulation Supplement (DFARS) ruling would extend the regulation’s reach to commercial—as well as military-specification—electronics while narrowing the definition of “trusted suppliers” of components and subassemblies. The implications of the proposal are major changes regarding the regulation, flow down and traceability requirements for electronics companies seeking to do business with the DoD.

The amendments that were proposed in late September will tighten the requirements for contractors sourcing any electronic part, component, or sub-assembly. The proposal requires that these electronic parts be sourced from original component manufacturers (OCMs) or their authorized distributors, or from suppliers/distributors who exclusively buy from original and/or authorized sources. Furthermore, the flow-down of requirement now extends beyond the prime contractor through the contractor’s entire sourcing channel including DFARS-defined “small business” subcontractors.

The new rule would expand the scope of the regulation beyond military- and aerospace- specified (mil-spec) parts to include commercial off the shelf (COTS) parts procured for the DoD and the government. Also, the proposed rule would clarify the definitions of “authorized dealer,” “trusted supplier” and provide more guidance regarding the traceability requirements of suppliers and the parts.

The new DFARS 252.246-70XX proposal effectively narrows the electronics sourcing options for DoD contracts. A portion of the electronics supply chain has called for tighter definitions of the terms “suppliers” and “counterfeit” components to close perceived loopholes in the original rule. This would also have a significant impact on the supply chain in regard to COTS components.

Military and aerospace companies frequently source COTS parts in lieu of hard-to-find and/or more expensive mil-spec components. There is a significant amount of COTS electronics sourced for the government. To date, COTS sourcing issues have been handled differently than mil-spec requirements. The DFARS proposal states that COTS sourcing is one of the main reasons counterfeit components show up in the DoD supply chain. The proposal would curb the amount of counterfeits by amending the definition of key terms, such as sourcing agents; and key processes such as “traceability” and “flow-down” requirements.

Beyond the improvements to counterfeit mitigation for the DoD, the DFARS proposed rule would set a precedent for the commercial supply chain, just as the original ruling has. The definitions are of particular importance and hence are included in abbreviated form here:

  • […] An “authorized dealer,” however, has a contractual arrangement with the original manufacturer or current design activity, including an authorized aftermarket manufacturer, to buy, stock, repackage, sell, and distribute its product lines.

 

  • The term “trusted supplier” includes not only the original manufacturer, an authorized dealer for the part, or a supplier that obtains the part exclusively from the original component manufacturer of the part or an authorized dealer, but also includes a supplier that a contractor or subcontractor has identified as a trustworthy supplier, using DoD-adopted counterfeit prevention industry standards and processes, including testing, in accordance with section 818(c)(3)(A)(iii) and (D) of the NDAA for FY 2012, as modified by section 817 of the NDAA for FY 2015.

 

  • […] The rule also proposes a definition in DFARS 202.101 of “original manufacturer” to include the “contract electronics manufacturer,” the “original component manufacturer,” or the “original equipment manufacturer,” which are also defined. The term “contract electronics manufacturer” includes manufacturers that produce goods, using electronic parts, for other companies on a contract basis under the label or brand of the other organizations, or fabricate an electronic part under a contract with, or with the express written authority of, the original component manufacturer, based on the original components manufacturer’s designs.

 

  • […] In addition, the rule proposes to delete the sentence “The term ‘electronic part’ includes any embedded software or firmware” from the definition of “electronic part.” Although electronic parts may include embedded software or firmware, the requirements of this rule are more applicable to hardware. Further industry standards are still under development to address testing of embedded software or firmware in electronic parts.

Finally, the tightening of “traceability” requirements (especially important for EOL parts) is proposed as follows:

  • In addition to the requirements to acquire electronic components from trusted suppliers, contractors and subcontractors that are not the original manufacturer are required to have a risk-based system to trace electronic parts from the original manufacturer to product acceptance by the Government. If such traceability is not feasible for a particular part, the contractor system must provide for the consideration of an alternative part or utilization of tests and inspections in order to avoid counterfeit electronic parts. If it is not possible to obtain an electronic part from a trusted supplier, the contractor is required to notify the contracting officer. The contractor is then responsible for inspection, testing, and authentication, in accordance with existing applicable industry standards, of electronic parts obtained from sources other than a trusted supplier.

In short, the recent announcement on 9/21/15 by the U.S. government pertaining to DFARS Case 2014-D005 sets an important new framework for defining sourcing partners along the semiconductor and electronics supply chain. While the proposed rule is intended for contracts with the U.S. government and in particular DoD, these rulings have and will continue to set the bar for how best-in-class sourcing practices, and particularly counterfeit mitigation strategies, will be defined for the entire electronics supply chain, including the commercialized sector.

 

 

Tags: , , , ,

Category: Featured Blogs, News Analysis

About the Author ()

Lisa Ann Cairns, Ph.D., Contributor Lisa comes to EPS with a diverse background that includes 10 years of hands-on experience in IT as well as in semiconductor and electronics distribution. The majority of that time, Lisa spent in the role of Senior Market Analyst and Senior Contributor at a leading, independent distributor of semiconductor and electronics. Prior to that tenure, she was a professor of linguistic anthropology, engaged in social science research, modeling, and analysis. The skills of observing and explaining complex social patterns adds a rich framework in which to indentify and to understand the range variables that constantly affect today’s globalized marketplace. Lisa’s admixture of experiences brings a fresh eye and a contextualized understanding of the global semiconductor and electronics supply chain. Lisa’s market analyses provides readers with unique views spanning micro- to macro-level industry events, synthesized insights bridging business and economics, as well as connecting the dots between upstream to downstream industry events that affect and inform distribution strategies. Lisa has a Ph.D. and A.M. in Linguistics from The University of Chicago, during which time she was awarded the prestigious National Science Foundation Doctoral Dissertation Research Improvement Grant. She holds a B.A. from Hofstra University, where she was Hofstra's first woman undergraduate to be awarded a Fulbright-Hayes Grant for independent research prior to attending graduate school. Lisa is currently consulting and freelance writing and can be reached at lcairns@lcairnssolutions.com.

Leave a Reply

Your email address will not be published. Required fields are marked *