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[Federal Register Volume 78, Number 95 (Thursday, May 16, 2013)]
[Proposed Rules]
[Pages 28780-28785]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-11400]

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DEPARTMENT OF DEFENSE

Defense Acquisition Regulations System

48 CFR Parts 202, 231, 244, 246, and 252

RIN 0750-AH88

Defense Federal Acquisition Regulation Supplement: Detection and 
Avoidance of Counterfeit Electronic Parts (DFARS Case 2012-D055)

AGENCY: Defense Acquisition Regulations System, Department of Defense 
(DoD).

ACTION: Proposed rule.

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SUMMARY:  DoD is proposing to amend the Defense Federal Acquisition 
Regulation Supplement (DFARS) in partial implementation of a section of 
the National Defense Authorization Act for Fiscal Year 2012, and a 
section of the National Defense Authorization Act for Fiscal Year 2013, 
relating to the detection and avoidance of counterfeit electronic 
parts.

DATES:  Comment Date: Comments on the proposed rule should be submitted 
in writing to the address shown below on or before July 15, 2013, to be 
considered in the formation of a final rule.

ADDRESSES: Submit comments identified by DFARS Case 2012-D055, using 
any of the following methods:
    [cir] Regulations.gov: http://www.regulations.gov. Submit comments 
via the Federal eRulemaking portal by entering ``DFARS Case 2012-D055'' 
under the heading ``Enter keyword or ID'' and selecting ``Search.'' 
Select the

[[Page 28781]]

link ``Submit a Comment'' that corresponds with ``DFARS Case 2012-
D055.'' Follow the instructions provided at the ``Submit a Comment'' 
screen. Please include your name, company name (if any), and ``DFARS 
Case 2012-D055'' on your attached document.
    [cir] Email: dfars@osd.mil. Include DFARS Case 2012-D055 in the 
subject line of the message.
    [cir] Fax: 571-372-6094.
    [cir] Mail: Defense Acquisition Regulations System, Attn: Ms. 
Meredith Murphy, OUSD(AT&L)DPAP/DARS, Room 3B855, 3060 Defense 
Pentagon, Washington, DC 20301-3060.
    Comments received generally will be posted without change to http://www.regulations.gov, including any personal information provided. To 
confirm receipt of your comment(s), please check www.regulations.gov, 
approximately two to three days after submission to verify posting 
(except allow 30 days for posting of comments submitted by mail).

FOR FURTHER INFORMATION CONTACT: Ms. Meredith Murphy, Defense 
Acquisition Regulations System, OUSD(AT&L)DPAP/DARS, Room 3B855, 3060 
Defense Pentagon, Washington, DC 20301-3060. Telephone 571-372-6098; 
facsimile 571-372-6101.

SUPPLEMENTARY INFORMATION: 

I. Background

    DoD is proposing to revise the DFARS to partially implement section 
818 (paragraphs (c) and (f)) of the National Defense Authorization Act 
(NDAA) for Fiscal Year (FY) 2012 (Pub. L. 112-81, enacted December 31, 
2011). Section 818 is entitled ``Detection and Avoidance of Counterfeit 
Electronic Parts.'' Paragraph (c) of section 818 requires the issuance 
of DFARS regulations addressing contractor responsibilities for 
detecting and avoiding the use or inclusion of counterfeit electronic 
parts or suspect counterfeit electronic parts, the use of trusted 
suppliers, and requirements for contractors to report counterfeit 
electronic parts and suspect counterfeit electronic parts. Paragraph 
(f) of section 818 contains the definitions of ``covered contractor'' 
and ``electronic part.'' Other aspects of section 818 are being 
implemented separately.
    In addition, this proposed rule addresses the amendments to section 
818 that were made by section 833, entitled ``Contractor 
Responsibilities in Regulations Relating to Detection and Avoidance of 
Counterfeit Electronic Parts,'' of the NDAA for FY 2013 (Pub. L. 112-
239, enacted January 2, 2013).

II. Discussion

    The intent of section 818 is to hold contractors responsible for 
detecting and avoiding the use or inclusion of counterfeit electronic 
parts or suspect counterfeit electronic parts. Three specific areas 
were identified that required either modification or additions to DFARS 
in order to implement the requirements defined in section 818.
    A. Definitions. Several definitions are proposed. ``Electronic 
part'' is defined at paragraph (f) of section 818. Section 818(b)(1) 
requires definition of ``counterfeit electronic part'' and ``suspect 
counterfeit electronic part.'' As recommended by Government 
Accountability Office (GAO) Report GAO-10-389, entitled ``DoD Should 
Leverage Ongoing Initiatives in Developing Its Program to Mitigate Risk 
of Counterfeit Parts,'' to establish a clear and consistent definition 
of ``counterfeit parts.'' DoD is proposing to add a definition of 
``legally authorized source'' to the definition of ``counterfeit part'' 
as an important component of its program to mitigate risks posed by 
counterfeit parts. The new terms are proposed to be located at DFARS 
202.101, Definitions, because they will apply to multiple parts of the 
regulations.
    B. Contractor responsibilities. Detection and avoidance of 
counterfeit electronic parts or suspect counterfeit electronic parts. 
New policy on counterfeit parts is proposed to be added to DFARS 
subpart 246.8, Contractor Liability for Loss of or Damage to Property 
of the Government. The proposed new coverage includes a clause at DFARS 
252.246-7007, Contractor Counterfeit Electronic Part Avoidance and 
Detection System. In addition, this rule proposes to add compliance 
(with the requirements for identifying, avoiding, and reporting 
counterfeit parts) to the existing requirements for the contractor's 
purchasing system. To that end, the rule proposes to modify the clause 
at DFARS 252.244-7001, Contractor Purchasing System Administration, to 
add system criteria for the contractor's purchasing system. It also 
proposes an alternate which adds systems criteria for a less 
comprehensive review of the contractor's purchasing system that targets 
review of those elements relating to the detection and avoidance of 
counterfeit electronic parts and suspect counterfeit electronic parts. 
The alternate is prescribed for use in solicitations and contracts that 
include the clause at 252.246-7007, but do not include the clause at 
FAR 52.244-2, Subcontracts.
    (1) Unallowability of costs of rework and corrective action. A new 
subsection, DFARS 231.205-71, proposes to prohibit contractors from 
claiming, as a reimbursable cost under DoD contracts, the cost of 
counterfeit electronic parts or suspect counterfeit electronic parts or 
the cost of rework or corrective action that may be required to remedy 
the use or inclusion of such parts. However, section 833 of the NDAA 
for FY 2013 provides specific exceptions that would enable these costs 
to be reimbursed if (i) a contractor has a DoD-approved operational 
system to detect and avoid counterfeit parts; or the suspect 
counterfeit parts were provided as Government-furnished property; and 
(ii) the contractor has provided timely notice to the Government. These 
exceptions are included at DFARS 231.205-71(c) in the proposed rule.
    (2) Government role. The Government's role in reviewing and 
monitoring the contractor's processes and procedures for detecting and 
avoiding counterfeit or suspect counterfeit electronic parts (see 
section 818(e)(2)(B)) is addressed as part of a contractor's purchasing 
system review (see proposed DFARS 244.303(b)).

III. Executive Orders 12866 and 13563

    Executive Orders (E.O.s) 12866 and 13563 direct agencies to assess 
all costs and benefits of available regulatory alternatives and, if 
regulation is necessary, to select regulatory approaches that maximize 
net benefits (including potential economic, environmental, public 
health and safety effects, distributive impacts, and equity). E.O. 
13563 emphasizes the importance of quantifying both costs and benefits, 
of reducing costs, of harmonizing rules, and of promoting flexibility. 
This is a significant regulatory action and, therefore, was subject to 
review under section 6(b) of E.O. 12866, Regulatory Planning and 
Review, dated September 30, 1993. This rule is not a major rule under 5 
U.S.C. 804.

IV. Regulatory Flexibility Act

    DoD does not expect this proposed rule to have a significant 
economic impact on a substantial number of small entities within the 
meaning of the Regulatory Flexibility Act, 5 U.S.C. 601, et seq., 
because it applies only to contracts that are subject to the Cost 
Accounting Standards (CAS)(see section 818(f)). Contracts with small 
entities are exempt from CAS. However, an initial regulatory 
flexibility analysis has been performed and is summarized as follows:

[[Page 28782]]

    This proposed rule is intended to partially implement section 818 
of the National Defense Authorization Act for Fiscal Year 2012 and 
section 833 of the National Defense Authorization Act for Fiscal Year 
2013. Section 818 is entitled ``Detection and Avoidance of Counterfeit 
Electronic Parts;'' it requires DoD-wide regulations concerning 
contractors' requirements to identify, avoid, and report counterfeit 
and suspect electronic counterfeit parts. Further, paragraph (a) of 
section 818 requires DoD to establish and issue relevant DoD-wide 
definitions. Section 833 provides exceptions to cost unallowability if 
contractors take specific steps.
    The rule will not apply to small entities as prime contractors. The 
requirements will apply to contracts that are subject to the Cost 
Accounting Standards (CAS) under 41 U.S.C. chapter 15, as implemented 
in regulations found at 48 CFR 9903.201-1 (other than educational 
institutions, Federally Funded Research and Development Centers 
operated by educational institutions, or University Associated Research 
Centers). Contracts and subcontracts with small entities are exempt 
from CAS requirements.
    There is, however, the potential for an impact on small entities in 
the supply chain of a prime contractor with contracts subject to CAS. 
The impact should be negligible as long as the small entity is not 
supplying counterfeit electronic parts to the prime contractor.
    The proposed rule would use the existing requirements for 
contractors' purchasing systems as the basis for the anti-
counterfeiting compliance (see the clause at DFARS 252.244-7001, 
Contractor Purchasing System Administration).
    The rule does not duplicate, overlap, or conflict with any other 
Federal rules.
    The economic impact of this proposed rule on small entities has 
been minimized in the following ways:
    (a) The proposed rule would use the existing requirements (and 
contract clause) for contractors' purchasing systems, rather than 
creating a separate, new system.
    (b) The proposed rule would apply only to prime contractors that 
must comply with the Cost Accounting Standards, which excludes small 
entities without diminishing the ability of DoD to oversee compliance.
    DoD invites comments from small business concerns and other 
interested parties on the expected impact of this rule on small 
entities.
    DoD will also consider comments from small entities concerning the 
existing regulations in subparts affected by this rule in accordance 
with 5 U.S.C. 610. Interested parties must submit such comments 
separately and should cite 5 U.S.C. 610 (DFARS Case 2012-D055), in 
correspondence.

V. Paperwork Reduction Act

    The rule contains information collection requirements that require 
the approval of the Office of Management and Budget under the Paperwork 
Reduction Act (44 U.S.C chapter 35; however, these changes to the 
DFARS, as they pertain to contractors' purchasing systems, will 
generally not impose additional information collection requirements to 
the paperwork burden previously approved under OMB Control Number 0704-
0253, entitled Purchasing Systems. The current information collection 
estimates that 90 respondents will submit one response annually, with 
16 hours per response. We estimate that the additional information 
collection burden associated with the clause at 52.244-7001--Alternate, 
will be as much as five percent more than the existing burden. 
Therefore, the change to the current annual reporting burden for OMB 
Control Number 0704-0253 is estimated as follows:
    Respondents: 5.
    Responses per respondent: 1.
    Total annual responses: 5.
    Preparation hours per response: 16.
    Total hours: 80.

 B. Request for Comments Regarding Paperwork Burden

    Written comments and recommendations on the proposed information 
collection, including suggestions for reducing this burden, should be 
sent to Ms. Jasmeet Seehra at the Office of Management and Budget, Desk 
Officer for DoD, Room 10236, New Executive Office Building, Washington, 
DC 20503, or email Jasmeet_K._Seehra@omb.eop.gov, with a copy to the 
Defense Acquisition Regulations System, Attn: Ms. Meredith Murphy, 
OUSD(AT&L)DPAP/DARS, Room 3B855, 3060 Defense Pentagon, Washington, DC 
20301-3060. Comments can be received from 30 to 60 days after the date 
of this notice, but comments to OMB will be most useful if received by 
OMB within 30 days after the date of this notice.
    Public comments are particularly invited on: whether this 
collection of information is necessary for the proper performance of 
functions of the DFARS, and will have practical utility; whether our 
estimate of the public burden of this collection of information is 
accurate, and based on valid assumptions and methodology; ways to 
enhance the quality, utility, and clarity of the information to be 
collected; and ways in which we can minimize the burden of the 
collection of information on those who are to respond, through the use 
of appropriate technological collection techniques or other forms of 
information technology.
    To request more information on this proposed information collection 
or to obtain a copy of the proposal and associated collection 
instruments, please write to the Defense Acquisition Regulations 
System, Attn: Ms. Meredith Murphy, OUSD(AT&L)DPAP/DARS, Room 3B855, 
3060 Defense Pentagon, Washington, DC 20301-3060, or email 
dfars@osd.mil. Include DFARS Case 2012-D055 in the subject line of the 
message.''

List of Subjects in 48 CFR Parts 202, 231, 244, 246, and 252

    Government procurement.

Manuel Quinones,
Editor, Defense Acquisition Regulations System.

    Therefore, DoD proposes to amend 48 CFR parts 202, 231, 244, 246, 
and 252 as follows:

0
1. The authority citation for parts 202, 231, 244, and 252 continues to 
read as follows:

    Authority:  41 U.S.C. 1303 and 48 CFR Chapter 1.

PART 202--DEFINITIONS OF WORDS AND TERMS

0
2. Amend section 202.101 by adding, in alphabetical order, the 
following definitions to read as follows:

202.101  Definitions.

* * * * *
    Counterfeit part means--
    (1) An unauthorized copy or substitute part that has been 
identified, marked, and/or altered by a source other than the part's 
legally authorized source and has been misrepresented to be from a 
legally authorized source;
    (2) An item misrepresented to be an authorized item of the legally 
authorized source; or
    (3) A new, used, outdated, or expired item from a legally 
authorized source that is misrepresented by any source to the end-user 
as meeting the performance requirements for the intended use.
* * * * *
    Electronic part means an integrated circuit, a discrete electronic 
component (including, but not limited to, a transistor, capacitor, 
resistor, or diode), or a circuit assembly (section 818(f)(2) of Pub. 
L. 112-81).
* * * * *

[[Page 28783]]

    Legally authorized source means the current design activity or the 
original manufacturer or a supplier authorized by the current design 
activity or the original manufacturer to produce an item.
* * * * *
    Suspect counterfeit part means a part for which visual inspection, 
testing, or other information provide reason to believe that a part may 
be a counterfeit part.
* * * * *

PART 231--CONTRACT COST PRINCIPLES AND PROCEDURES

0
3. Add section 231.205-71 to read as follows:

231.205-71  Cost of remedy for use or inclusion of counterfeit 
electronic parts and suspect counterfeit electronic parts.

    (a) Scope. This subsection implements the requirements of section 
818(c)(2), National Defense Authorization Act for Fiscal Year 2012 
(Pub. L. 112-81) and section 833, National Defense Authorization Act 
for Fiscal Year 2013 (Pub. L. 112-239).
    (b) Contractors that are subject to the Cost Accounting Standards 
(CAS) under 41 U.S.C. Chapter 15, as implemented in regulations found 
at 48 CFR 9903.201-1 (see the FAR appendix), and that supply electronic 
parts or products that include electronic parts under CAS-covered 
contracts are 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.
    (c) The costs of counterfeit electronic parts or suspect 
counterfeit electronic parts and the cost of rework or corrective 
action that may be required to remedy the use or inclusion of such 
parts are expressly unallowable, unless--
    (1) The contractor has an operational system to detect and avoid 
counterfeit parts and suspect counterfeit electronic parts that has 
been reviewed and approved by DoD pursuant to 244.303;
    (2) The counterfeit electronic parts or suspect counterfeit 
electronic parts are Government-furnished property as defined in FAR 
45.101; and
    (3) The covered contractor provides timely notice to the 
Government.

PART 244--SUBCONTRACTING POLICIES AND PROCEDURES

0
4. Revise section 244.303 to read as follows:

244.303   Extent of review.

    (a) Also review the adequacy of rationale documenting commercial 
item determinations to ensure compliance with the definition of 
``commercial item'' in FAR 2.101.
    (b) Also review the adequacy of the contractor's counterfeit 
electronic part avoidance and detection system under DFARS 252.246-
70XX, Contractor Counterfeit Electronic Part Avoidance and Detection 
System.
0
5. Revise section 244.305-71 to read as follows:

244.305-71   Contract clause.

    Use the Contractor Purchasing System Administration clause or its 
alternate as follows:
    (a) Use the clause at 252.244-7001, Contractor Purchasing System 
Administration--Basic, in solicitations and contracts containing the 
clause at FAR 52.244-2, Subcontracts.
    (b) Use the clause at 252.244-7001, Contractor Purchasing System 
Administration--Alternate I, in solicitations and contracts that 
contain the clause at 252.246-70XX, Contractor Counterfeit Electronic 
Part Avoidance and Detection System, but do not contain FAR 52.244-2, 
Subcontracts.

PART 246--QUALITY ASSURANCE

0
6. The authority citation for part 246 is revised to read as follows:

    Authority:  41 U.S.C. 1303 and 48 CFR Chapter 1.
0
7. Add section 246.870 through 246.870-3 to read as follows:

246.870  Contractors' counterfeit electronic part avoidance and 
detection systems.

246.870-1  Scope.

    This section--
    (a) Implements section 818(c) of the National Defense Authorization 
Act for Fiscal Year 2012 (Pub. L. 112-81); and
    (b) Prescribes policy and procedures for preventing counterfeit 
parts and suspect counterfeit parts from entering the supply chain when 
procuring electronic parts or end items, components, parts, or 
materials that contain electronic parts.

246.870-2  Policy.

    (a) General. Contractors are required to establish and maintain an 
acceptable counterfeit electronic part avoidance and detection system. 
Failure to do so may result in disapproval of the purchasing system by 
the contracting officer and/or withholding of payments (see 52.244-
7001).
    (b) System criteria. A contractor's counterfeit electronic part 
avoidance and detection system must address, at a minimum, the 
following areas:
    (1) The training of personnel.
    (2) The inspection and testing of electronic parts, including 
criteria for acceptance and rejection.
    (3) Processes to abolish counterfeit parts proliferation.
    (4) Mechanisms to enable traceability of parts to suppliers.
    (5) Use and qualification of trusted suppliers.
    (6) The reporting and quarantining of counterfeit electronic parts 
and suspect counterfeit electronic parts.
    (7) Methodologies to identify suspect counterfeit parts and to 
rapidly determine if a suspect counterfeit part is, in fact, 
counterfeit.
    (8) The design, operation, and maintenance of systems to detect and 
avoid counterfeit electronic parts and suspect counterfeit electronic 
parts.
    (9) The flow down of counterfeit avoidance and detection 
requirements to subcontractors.

246.870-3  Contract clause.

    Use the clause at 252.246-70XX, Contractor Counterfeit Electronic 
Part Avoidance and Detection System, in solicitations and contracts 
(other than in contracts with educational institutions, Federally 
Funded Research and Development Centers (FFRDCs), or University 
Associated Research Centers (UARCs) operated by educational 
institutions) when procuring electronic parts or an end item, 
component, part, or material containing electronic parts or services 
where the contractor will supply electronic components, parts, or 
materials as part of the service and the resulting contract will be 
subject to the Cost Accounting standards under 41 U.S.C. chapter 15, as 
implemented in regulations found at 48 CFR 9903.201-1 (see the FAR 
Appendix).

PART 252--SOLICITATION PROVISIONS AND CONTRACT CLAUSES

0
8. Revise section 252.244-7001 to read as follows:

252.244-7001  Contractor purchasing system administration.

    As prescribed in 244.305-71, use one of the following clauses.
    Contractor Purchasing System Administration--Basic. For the 
specific use of the basic clause, see the prescription at 244.305-
71(a).

Contractor Purchasing System Administration--Basic (Date)

    (a) Definitions. As used in this clause--
    ``Acceptable purchasing system'' means a purchasing system that 
complies with the system criteria in paragraph (c) of this clause.
    ``Purchasing system'' means the Contractor's system or systems 
for

[[Page 28784]]

purchasing and subcontracting, including make-or-buy decisions, the 
selection of vendors, analysis of quoted prices, negotiation of 
prices with vendors, placing and administering of orders, and 
expediting delivery of materials.
    ``Significant deficiency'' means a shortcoming in the system 
that materially affects the ability of officials of the Department 
of Defense to rely upon information produced by the system that is 
needed for management purposes.
    (b) General. The Contractor shall establish and maintain an 
acceptable purchasing system. Failure to maintain an acceptable 
purchasing system, as defined in this clause, may result in 
disapproval of the system by the Contracting Officer and/or 
withholding of payments.
    (c) System criteria. The Contractor's purchasing system shall--
    (1) Have an adequate system description including policies, 
procedures, and purchasing practices that comply with the Federal 
Acquisition Regulation (FAR) and the Defense Federal Acquisition 
Regulation Supplement (DFARS);
    (2) Ensure that all applicable purchase orders and subcontracts 
contain all flowdown clauses, including terms and conditions and any 
other clauses needed to carry out the requirements of the prime 
contract;
    (3) Maintain an organization plan that establishes clear lines 
of authority and responsibility;
    (4) Ensure all purchase orders are based on authorized 
requisitions and include a complete and accurate history of purchase 
transactions to support vendor selected, price paid, and document 
the subcontract/purchase order files which are subject to Government 
review;
    (5) Establish and maintain adequate documentation to provide a 
complete and accurate history of purchase transactions to support 
vendors selected and prices paid;
    (6) Apply a consistent make-or-buy policy that is in the best 
interest of the Government;
    (7) Use competitive sourcing to the maximum extent practicable, 
and ensure debarred or suspended contractors are properly excluded 
from contract award;
    (8) Evaluate price, quality, delivery, technical capabilities, 
and financial capabilities of competing vendors to ensure fair and 
reasonable prices;
    (9) Require management level justification and adequate cost or 
price analysis, as applicable, for any sole or single source award;
    (10) Perform timely and adequate cost or price analysis and 
technical evaluation for each subcontractor and supplier proposal or 
quote to ensure fair and reasonable subcontract prices;
    (11) Document negotiations in accordance with FAR 15.406-3;
    (12) Seek, take, and document economically feasible purchase 
discounts, including cash discounts, trade discounts, quantity 
discounts, rebates, freight allowances, and company-wide volume 
discounts;
    (13) Ensure proper type of contract selection and prohibit 
issuance of cost-plus-a-percentage-of-cost subcontracts;
    (14) Maintain subcontract surveillance to ensure timely delivery 
of an acceptable product and procedures to notify the Government of 
potential subcontract problems that may impact delivery, quantity, 
or price;
    (15) Document and justify reasons for subcontract changes that 
affect cost or price;
    (16) Notify the Government of the award of all subcontracts that 
contain the FAR and DFARS flowdown clauses that allow for Government 
audit of those subcontracts, and ensure the performance of audits of 
those subcontracts;
    (17) Enforce adequate policies on conflict of interest, gifts, 
and gratuities, including the requirements of 41 U.S.C. chapter 87, 
Kickbacks;
    (18) Perform internal audits or management reviews, training, 
and maintain policies and procedures for the purchasing department 
to ensure the integrity of the purchasing system;
    (19) Establish and maintain policies and procedures to ensure 
purchase orders and subcontracts contain mandatory and applicable 
flowdown clauses, as required by the FAR and DFARS, including terms 
and conditions required by the prime contract and any clauses 
required to carry out the requirements of the prime contract, 
including the requirements of 252.246-70XX, Contractor Counterfeit 
Electronic Part Avoidance and Detection System, if applicable;
    (20) Provide for an organizational and administrative structure 
that ensures effective and efficient procurement of required quality 
materials and parts at the best value from responsible and reliable 
sources, including the requirements of 252.246-70XX, Contractor 
Counterfeit Electronic Part Avoidance and Detection System, if 
applicable;
    (21) Establish and maintain selection processes to ensure the 
most responsive and responsible sources for furnishing required 
quality parts and materials and to promote competitive sourcing 
among dependable suppliers so that purchases are reasonably priced 
and from sources that meet contractor quality requirements, 
including the requirements of 252.246-70XX, Contractor Counterfeit 
Electronic Part Avoidance and Detection System, if applicable;
    (22) Establish and maintain procedures to ensure performance of 
adequate price or cost analysis on purchasing actions;
    (23) Establish and maintain procedures to ensure that proper 
types of subcontracts are selected, and that there are controls over 
subcontracting, including oversight and surveillance of 
subcontracted effort; and
    (24) Establish and maintain procedures to timely notify the 
Contracting Officer, in writing, if--
    (i) The Contractor changes the amount of subcontract effort 
after award such that it exceeds 70 percent of the total cost of the 
work to be performed under the contract, task order, or delivery 
order. The notification shall identify the revised cost of the 
subcontract effort and shall include verification that the 
Contractor will provide added value; or
    (ii) Any subcontractor changes the amount of lower-tier 
subcontractor effort after award such that it exceeds 70 percent of 
the total cost of the work to be performed under its subcontract. 
The notification shall identify the revised cost of the subcontract 
effort and shall include verification that the subcontractor will 
provide added value as related to the work to be performed by the 
lower-tier subcontractor(s).
    (d) Significant deficiencies. (1) The Contracting Officer will 
provide notification of initial determination to the Contractor, in 
writing, of any significant deficiencies. The initial determination 
will describe the deficiency in sufficient detail to allow the 
Contractor to understand the deficiency.
    (2) The Contractor shall respond within 30 days to a written 
initial determination from the Contracting Officer that identifies 
significant deficiencies in the Contractor's purchasing system. If 
the Contractor disagrees with the initial determination, the 
Contractor shall state, in writing, its rationale for disagreeing.
    (3) The Contracting Officer will evaluate the Contractor's 
response and notify the Contractor, in writing, of the Contracting 
Officer's final determination concerning--
    (i) Remaining significant deficiencies;
    (ii) The adequacy of any proposed or completed corrective 
action; and
    (iii) System disapproval, if the Contracting Officer determines 
that one or more significant deficiencies remain.
    (e) If the Contractor receives the Contracting Officer's final 
determination of significant deficiencies, the Contractor shall, 
within 45 days of receipt of the final determination, either correct 
the significant deficiencies or submit an acceptable corrective 
action plan showing milestones and actions to eliminate the 
deficiencies.
    (f) Withholding payments. If the Contracting Officer makes a 
final determination to disapprove the Contractor's purchasing 
system, and the contract includes the clause at 252.242-7005, 
Contractor Business Systems, the Contracting Officer will withhold 
payments in accordance with that clause.

(End of clause)
    Contractor Purchasing System Administration--Alternate I. For the 
specific use of Alternate I, see the prescription at 244.305-71. 
Alternate I paragraph (c) does not include paragraphs (c)(1) through 
(c)(18) and (c)(22) through (c)(24) of the basic clause and paragraphs 
(c)(19) through (c)(21) of the basic clause are revised and renumbered 
in Alternate I.

Contractor Purchasing System Administration--Alternate I (Date)

    (a) Definitions. As used in this clause--
    Acceptable purchasing system means a purchasing system that 
complies with the system criteria in paragraph (c) of this clause.
    Purchasing system means the Contractor's system or systems for 
purchasing and subcontracting, including make-or-buy decisions, the 
selection of vendors, analysis of quoted prices, negotiation of 
prices with vendors, placing and administering of orders, and 
expediting delivery of materials.

[[Page 28785]]

    Significant deficiency means a shortcoming in the system that 
materially affects the ability of officials of the Department of 
Defense to rely upon information produced by the system that is 
needed for management purposes.
    (b) General. The Contractor shall establish and maintain an 
acceptable purchasing system. Failure to maintain an acceptable 
purchasing system, as defined in this clause, may result in 
disapproval of the system by the Contracting Officer and/or 
withholding of payments.
    (c) System criteria. The Contractor's purchasing system shall--
    (1) Establish and maintain policies and procedures to ensure 
purchase orders and subcontracts contain mandatory and applicable 
flowdown clauses, as required by the FAR and DFARS, including terms 
and conditions required by the prime contract and any clauses 
required to carry out the requirements of the prime contract, 
including the requirements of 252.246-70XX, Contractor Counterfeit 
Electronic Part Avoidance and Detection System;
    (2) Provide for an organizational and administrative structure 
that ensures effective and efficient procurement of required quality 
materials and parts at the best value from responsible and reliable 
sources, including the requirements of 252.246-70XX, Contractor 
Counterfeit Electronic Part Avoidance and Detection System; and
    (3) Establish and maintain selection processes to ensure the 
most responsive and responsible sources for furnishing required 
quality parts and materials and to promote competitive sourcing 
among dependable suppliers so that purchases are from sources that 
meet contractor quality requirements, including the requirements of 
252.246-70XX, Contractor Counterfeit Electronic Part Avoidance and 
Detection System.
    (d) Significant deficiencies. (1) The Contracting Officer will 
provide notification of initial determination to the Contractor, in 
writing, of any significant deficiencies. The initial determination 
will describe the deficiency in sufficient detail to allow the 
Contractor to understand the deficiency.
    (2) The Contractor shall respond within 30 days to a written 
initial determination from the Contracting Officer that identifies 
significant deficiencies in the Contractor's purchasing system. If 
the Contractor disagrees with the initial determination, the 
Contractor shall state, in writing, its rationale for disagreeing.
    (3) The Contracting Officer will evaluate the Contractor's 
response and notify the Contractor, in writing, of the Contracting 
Officer's final determination concerning--
    (i) Remaining significant deficiencies;
    (ii) The adequacy of any proposed or completed corrective 
action; and
    (iii) System disapproval, if the Contracting Officer determines 
that one or more significant deficiencies remain.
    (e) If the Contractor receives the Contracting Officer's final 
determination of significant deficiencies, the Contractor shall, 
within 45 days of receipt of the final determination, either correct 
the significant deficiencies or submit an acceptable corrective 
action plan showing milestones and actions to eliminate the 
deficiencies.
    (f) Withholding payments. If the Contracting Officer makes a 
final determination to disapprove the Contractor's purchasing 
system, and the contract includes the clause at 252.242-7005, 
Contractor Business Systems, the Contracting Officer will withhold 
payments in accordance with that clause.

(End of clause)
0
9. Amend subpart 252.2 by adding new section 252.246-70XX to read as 
follows:

252.246-70XX  Contractor Counterfeit Electronic Part Avoidance and 
Detection System.

    As prescribed in 246.870-3, use the following clause:

Contractor Counterfeit Electronic Part Avoidance and Detection System 
(Date)

    (a) Definitions. As used in this clause--
    Counterfeit part means--
    (1) An unauthorized copy or substitute part that has been 
identified, marked, and/or altered by a source other than the part's 
legally authorized source and has been misrepresented to be from a 
legally authorized source;
    (2) An item misrepresented to be an authorized item of the 
legally authorized source; or
    (3) A new, used, outdated, or expired item from a legally 
authorized source that is misrepresented by any source to the end-
user as meeting the performance requirements for the intended use.
    Counterfeit electronic part avoidance and detection system means 
the Contractor's system or systems for eliminating counterfeit 
electronic parts from the supply chain.
    Legally authorized source means the current design activity or 
the original manufacturer or a supplier authorized by the current 
design activity or the original manufacturer to produce an item.
    Suspect counterfeit part means a part for which visual 
inspection, testing, or other information provide reason to believe 
that a part may be a counterfeit part.
    (b) General. The Contractor shall establish and maintain an 
acceptable counterfeit electronic part avoidance and detection 
system. Failure to maintain an acceptable counterfeit electronic 
part avoidance and detection system, as defined in this clause, may 
result in disapproval of the purchasing system by the Contracting 
Officer and/or withholding of payments.
    (c) System criteria. The Contractor's counterfeit electronic 
part avoidance and detection system shall develop and implement 
policies and procedures that address--
    (i) The training of personnel;
    (ii) The inspection and testing of electronic parts, including 
criteria for acceptance and rejection;
    (iii) Processes to abolish counterfeit parts proliferation;
    (iv) Mechanisms to enable traceability of parts to suppliers;
    (v) Use and qualification of trusted suppliers;
    (vi) The reporting and quarantining of counterfeit electronic 
parts and suspect counterfeit electronic parts;
    (vii) Methodologies to identify suspect counterfeit parts and to 
rapidly determine if a suspect counterfeit part is, in fact, 
counterfeit;
    (viii) The design, operation, and maintenance of systems to 
detect and avoid counterfeit electronic parts and suspect 
counterfeit electronic parts; and
    (ix) The flow down of counterfeit avoidance and detection 
requirements to subcontractors.
    (d) Government review and evaluation of the Contractor's 
policies and procedures will be accomplished as part of the 
evaluation of the Contractor's purchasing system in accordance with 
252.244-7001, Contractor Purchasing System Administration.

(End of clause)
[FR Doc. 2013-11400 Filed 5-15-13; 8:45 am]
BILLING CODE 5001-06-P
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