New rule addresses supply chain assurance.

• Author: Metzger, Robert S.
• Position: Ethics Corner

Companies in the defense supply chain know well the threat of counterfeit parts. Clark Silcox wrote about this threat in his June National Defense article, "New Strategies to Combat Counterfeit Parts," and outlined two strategies for averting the hazard of such items.

The first strategy focuses on the source of the supply--principally China--and presents methods for increasing anti-counterfeit enforcement. Silcox's second strategy focuses on curtailing demand for counterfeits by improving industry efforts to assure receipt of authentic articles.

There are some new rules on counterfeit parts that defense contractors must now abide. Last November, the Defense Department issued an interim rule that empowers it to exclude sources deemed to represent "the risk that an adversary may sabotage, maliciously introduce unwanted function, or otherwise subvert a system."

The interim rule specifically focuses on counterfeits that harbor malicious code that could enable a cyber attack. When national intelligence agencies detect an "attack vector" capable of being exploited, the new rules empower the department to exclude a supplier without informing the company planning to use its part.

Every producer of sensitive defense equipment is cautioned to carefully scrutinize its supply chain. While Chinese-sourced parts should receive special scrutiny, especially if a supplier's ownership is connected to the People's Liberation Army, contractors should confirm the identity of whoever owns or controls key suppliers for mission critical items obtained from any location. For such trusted systems, the department expects that its contractors will be able to establish the provenance of key parts, to allay concern of interception or manipulation.

The notice and comment period for this interim rule has ended and a final rule is expected soon.

In May, the Defense Department issued a final Defense Acquisition Regulation System rule on counterfeit electronic parts. It implements, in part, Section 818 of the fiscal year 2012 National Defense Authorization Act, which was passed into law shortly after extensive hearings by the Senate Armed Services Committee that revealed the defense industry's failure to adequately self-protect against counterfeit electronics and report counterfeit incidents.

The rule applies directly only to about 1,200 government contractors that are governed by the cost accounting standards in whole or in part. These covered contractors, applying 12...