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Let the Seller Beware – NASA’s Proposed Rule Seeks to Limit the Presence of Counterfeit Electronic Parts

On January 7, 2020, the National Aeronautics and Space Administration (“NASA”) published a proposed rule seeking to amend the NASA Federal Regulation Supplement regarding counterfeit electronic parts. The proposed rule would add new language to the NASA regulations, requiring that contractors procure electronic parts directly from manufacturers and select suppliers in an effort to lessen the use of counterfeit electronics on NASA programs.

Specifically, the proposed rule would require “covered contractors and subcontractors at all tiers” to purchase electronic parts currently in production, and that are from:

  1. the original manufacturers of the parts,

  2. the manufacturers’ authorized dealers, or

  3. suppliers “who obtain such parts exclusively from the original manufacturers of the parts or their authorized dealers.”

For parts not currently in production, or if a contractor opts not to purchase electronic parts as described above, contractors must purchase the parts from either a NASA-identified or contractor-approved supplier. However, if the latter option is chosen, the contractor will “assume responsibility and be required to inspect, test, and validate the authentication of the parts.” Further, selection of a “contractor-approved” supplier will be subject to review and audit by the contracting officer. Notably, these changes will apply to “all procurements involving electronic parts, end items, components, parts, or assemblies containing electronic parts or services,” if such are to be supplied as part of the service.

The proposed rule seeks to implement Section 823(c)(2)(B) of the 2017 NASA Transition Authorization Act, Pub. L. 115-10, which cited a 2012 Congressional Committee on Armed Services investigation that discovered more than 1,800 instances of counterfeit parts being used in the Department of Defense’s supply chain, totaling over 1,000,000 counterfeit parts. According to the Act, “the presence of counterfeit electronic parts in the NASA supply chain poses a danger to the United States government astronauts, crew, and other personnel and a risk to the agency overall.” NASA was thus tasked with revising the NASA regulations “to improve the detection and avoidance of counterfeit electronic parts in the supply chain.” The proposed rule further recognizes at least one known instance of a suspected counterfeit part in the last 17 years.

NASA’s proposed rule echoes many requirements contractors currently face when selling to the Department of Defense under DFARS 252.246-7007 (Contractor Counterfeit Electronic Part Detection and Avoidance System) and 252.246-7008 (Sources of Electronic Parts). However, unlike the DFARS counterpart, the NASA proposed rule would not require a contractor to implement an electronic part detection and avoidance system. At least not yet. Ironically, the DFARS rules started out in 2014 as requiring only a counterfeit electronic part detection and avoidance system, but evolved in 2016 to require the broader DOD supply chain restrictions now in place. The NASA requirements may evolve over time, as well.

Contractors also may recall the FAR Council issued a final rule in November 2019 requiring contractors to report suspected counterfeit electronic parts to the Government-Industry Data Exchange Program (GIDEP). However, NASA’s proposed rule decidedly differs from its FAR counterpart. See also FAR 52.246-26 (Reporting Nonconforming Items).

Here are some of the key differences:

Click to view larger.

Contractors doing business with NASA are well-advised to continue closely monitoring these additional proposed counterfeit parts requirements, and ensuring that products purchased through the supply chain continue to match these evolving obligations. Comments on the proposed rule are due March 9, 2020.

*Nikole Snyder is a law clerk in Sheppard Mullin’s Washington, D.C. office.

Copyright © 2020, Sheppard Mullin Richter & Hampton LLP.National Law Review, Volume X, Number 31

TRENDING LEGAL ANALYSIS


About this Author

Ariel E. Debin DC Sheppard Mullin Government Contracts, Investigations and International Trade
Associate

Ariel Debin is an associate in the Government Contracts, Investigations and International Trade practice group in the firm's Washington D.C. office.

Ariel primarily assists with government contracts litigation and counseling. Her experience includes supporting government contractors in disputes involving False Claims Act litigation before the United States District Courts and the Court of Federal Claims; Contract Dispute Act litigation before the Court of Federal Claims; bid protests before the United States Government Accountability Office and the Court of Federal Claims; and...

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David Gallacher, Attorney, litigation, administrative, and counseling issues
Associate

David Gallacher is a partner in the Government Contracts, Investigations & International Trade Practice Group in the firm's Washington, D.C. office.

Areas of Practice

Mr. Gallacher's professional experience involves a wide variety of litigation, administrative, and counseling issues related to federal procurement laws. His experience is extensive and includes complex litigation in federal court under the qui tam provisions of the False Claims Act, claims disputes before the Boards of Contract Appeals and bid protest actions. He regularly counsels both domestic and foreign companies on issues relating to compliance with government regulations including, among other things, subcontract administration, country of origin requirements under the Buy American and Trade Agreements Acts, export controls, commercial item exceptions, merger and acquisition due diligence, cost accounting, suspension and debarment, and small business requirements. He also regularly conducts compliance reviews and internal investigations to assist companies ensure that they are in full compliance with the law.

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