SMT007 Magazine

SMT-Sept2015

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100 SMT Magazine • September 2015 plication. The program manager responsible for generating a DMSMS plan in order to support the weapon systems is always looking for ways to increase readiness, assure reliability, and do it at lower cost. The grey market has been used as source for DMSMS issues in the past, and its use continues today. For many years, the grey market was sold by the actors in the market as a place where excess inventory could be had for pennies on the dollar. This is attractive to PEOs and PMs who were looking for solutions that allowed their project to be deliv- ered on-time and under budget. The grey market was, and still is today, and will be going for- ward, a market for which the government directly supplies product through DRMO sales by DLA depots. However, the grey market and those entities that supply product from this market are now looked at as the greatest threat to the sup- ply chain. This notion became fact when the NDAA 2012 mandated the implementa- tion of Section 818, based on the findings of the 2012 Sen- ate Armed Services Committee, which disclosed that there were over 1 million counterfeit Semiconductor devices are in DoD's supply chain. regulation The Senate Armed Services Committee in- quiry into "Counterfeit Electronic Parts in the DoD Supply Chain," and the development of Section 818 in NDAA FY 2012, spurred the de- velopment of DFARS Case 2012-D055, which became Fed. Reg. 26092 on May 6, 2014. This regulation gave credence that the grey market supply chain had grown into a global supply chain that was no longer to be considered an ally, but rather a threat. China was identified as a major contributor to the counterfeit elec- tronic components discovered in the DoD sup- ply chain. The release of the final DFARS are clear in the fact that the twelve system criteria of Sec- tion 818 is specifically limited to "covered con- tractors" and states that the initial implementa- tion of the rules "has limited application at the prime contract level to CAS-covered contrac- tors." The reality of the situation is that the flow down requirement causes the rule to affect all subs in the supply chain, which includes small business. Considering that CAS does not apply to small business, set-asides for small business are not held to the fiscal reliability and liability a CAS faces should an escape occur. 79 Fed. Reg. 26105 states, "This rule (Section 818) does not apply to small entities as prime contractors." So while this limits the application of the DFARS when DoD pur- chases from a small business, it does not affect the flow down of Section 818 criteria from covered contractors. Yet, at the end of the day, all levels of the supply chain have the potential to intro- duce a counterfeit or suspect- counterfeit electronic item used in the end items man- ufactured by CAS contrac- tors and then integrated into a weapon system. Therefore, small business entities that want to do work with CAS covered con- tracts must accept the flow downs, and have procedures in place to flow them down to their vendors. In addition, small business must have the means for which to detect counterfeit com- ponents in order to prevent their introduction into the supply chain, as it stands, this includes embedded software or firmware. DoD/DLA DFARS Case 2012-D055 Detection and Avoidance of Counterfeit Electronic Parts 79 Fed. Reg. 26092—Final Ruling released May 6, 2014: • Good intentions lead to more confusion and mixed results 1. The release of the DFARS confirms that the responsibility of the enforcement of the regulations called out in Section 818 DOD's FIrst pAss At Grey mArKet reGuLAtION continues 50 SHAdeS oF tHe grey mArKet the grey market was, and still is today, and will be going forward, a market for which the government directly supplies product through drmo sales by dlA depots. " "

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