And the Government Strikes Again: New Proposed FAR Rule To Expand Reporting of Nonconforming Items

This post was written by Lorraine M. Campos & Leslie A. Monahan.

A month after the U.S. Department of Defense issued a final rule (“DoD rule”) that impacted the defense supply chain by requiring certain contractors to detect and report counterfeit electronic parts (discussed here), the Federal Acquisition Regulation (“FAR”) Council published a new proposed rule to greatly expand counterfeit reporting obligations.  The proposed rule sets forth sweeping requirements for contractors and subcontractors to report nonconforming items.

Unlike the DoD rule, which is specific to electronic parts and CAS-covered contractors, the proposed rule extends beyond electronic parts and specific contractors.  Because the problem of counterfeit and nonconforming parts is far-reaching and can impact the mission of all government agencies, the proposed rule is designed to effect all contracts for acquisition of supplies or services that include supplies. 
 
Under the proposed rule, contractors and subcontractors at all tiers must screen the Government-Industry Exchange Program (“GIDEP”) as part of their quality control processes.  Further, the proposed rule requires reporting in GIDEP of any items purchased that (1) are “counterfeit,” “suspect counterfeit,” or contain “major nonconformance” or “critical nonconformance”; (2) are “common items”; and (3) constitute a “quality escape” that has impacted more than one customer.  In addition, contractors must notify Contracting Officers, in writing, when they become aware that “any end item, component, subassembly, part or material contracted in supplies purchased by the government” is counterfeit or suspect counterfeit.

While it may be challenging for contractors to argue against the reason for the rule, they should request clarity on and some easement of the burden of this regulation. For example, while the proposed rule provides definitions, whether an item meets the criteria for reporting is in the eye of the beholder.  One contractor may view a nonconformance as “major” for its purposes, while another may view a nonconformance as not triggering reporting as it applies to the specific project at hand. 

Another example of how the proposed rule could become more manageable concerns reporting counterfeit or suspect counterfeit items.  Under the proposed rule, contractors with multiple contracts would need to report to every Contracting Officer.  Contractors who would find this exercise to be a large administrative burden may want to request that the government utilize a more centralized procedure to address this issue.

Written comments on the proposed rule are due by August 11, 2014.  We expect and encourage government contractors across industries to request a less broad and burdensome application of the proposed rule.

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