DFARS Rule Clarifies Allowability of Costs Related to Counterfeit Electronic Parts

The Department of Defense has finalized its proposed rule addressing the allowability of costs of counterfeit electronic parts or suspect counterfeit electronic parts and the cost of rework or corrective action.

The final rule in DFARS Case 2016-D004 amends the Defense Federal Acquisition Regulation Supplement at DFARS 231.205-71 to provide that these costs may be allowable if the parts were obtained by the contractor/subcontractor in accordance with the clause at DFARS 252.246-7008, Sources of Electronic Parts.

More specifically, DFARS 231.205-71 now provides that the costs of counterfeit electronic parts and suspect parts, and the costs of rework or corrective action, are unallowable unless:

  • the contractor has a DoD-approved system (see DFARS 244.303(b)) to detect and avoid counterfeit electronic parts and suspect counterfeit electronic parts;
  • the parts are government-furnished property, as defined in FAR 45.101, or were obtained by the contractor in accordance with DFARS 252.246-7008;
  • the contractor becomes aware of the counterfeit parts through inspection, testing, and authentication efforts through a Government Industry Data Exchange Program alert, or by other means; and
  • the contractor provides timely notice to the cognizant contracting officer and GIDEP.

The proposed version of the rule did not include the notice requirement.

The effective date of the rule is August 30, 2016. For the text of the rule, see 81 FR 59510.

About William Van Huis

Bill Van Huis is a Senior Writer/Analyst for Wolters Kluwer Law & Business who tracks and analyzes new regulations impacting federal government contracting. He also follows court decisions involving bid protests and contract disputes. You can find his work in WK publications like Government Contract Reports and the FAR and DFARS Matrix Tools. Bill is a licensed attorney and a Certified Professional Contracts Manager. Prior to joining WK, Bill worked both inside and outside state and local government in the areas of procurement and municipal finance. Bill also worked as a staff attorney for the Illinois Supreme Court.
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