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October 2014 • SMT Magazine 57 cOunterFeit eLectrOnic Parts aVOiDance: PrOFitabiLitY Or catastrOPhe continues krAMEr On COunTErFEiTS President Barack Obama and made its way into the 2012 NDAA (National Defense Authoriza- tion Act) under Section 818 entitled "Detection and Avoidance of Counterfeit Electronic Parts." The fact is, the components found in these investigations are also the components fre- quently used in the medical, automotive, air- line and other life critical applications. If this is an issue for the DoD, it can certainly impact a commercial operation. For obvious reasons, the U.S. military and the U.S. Congress are push- ing the issue to protect the defense sector. There should be no doubt that, eventually, other in- dustries will encounter circumstances that force a market change. It makes good business sense to proactively engage in the correct business practices that keep your company from being the fall guy in your industry. Additionally, the new Federal Acquisition Regulation (FAR) states that the rules expressed in Section 818 have a wider scope and are not to be limited by part type or contractor classifi- cation. Hence, prime contractors are no longer legally immune from prosecution. If a prime contractor sells a counterfeit-infested compo- nent, it is now held liable along with participat- ing contract manufacturers and suppliers. To minimize potential damage, prime con- tractors like Raytheon have recently cut their list of approved suppliers from, in some cases, hundreds to generally less than five. Companies that have been removed from a prime contrac- tor's approved vendor list are no longer permit- ted to do business and many have closed up shop overnight. Now, anyone who sells a com- promised component is liable—up and down the defense supply chain—for a faulty board, circuit or damaged equipment caused by a counterfeit part. In today's high-tech world of alternative media, where news can circle the globe in mere minutes, one's business reputation can be made or broken very quickly and must be diligently guarded from potentially damaging accusations of having sold counterfeits. new Flow-Down requirements: all aboard—the Future is now! Federal Acquisition Requirements are cur- rently being proposed that would expand re- porting requirements of non-conforming items for contractors and the federal government. This means that counterfeit parts may soon be considered non-conforming items, which would expand the need for quality assurance requirements and counterfeit avoidance mea- sures on all items sold to the government. The proposals cover anti-counterfeit measures for businesses of any size: small, medium or large. Initially, the rules will apply to government contractors, who will flow down the require- ments, while many others could be subject to mandatory Government-Industry Data Ex- change Program (GIDEP) regulations. Non-CAS covered and small businesses that participate in the defense supply chain are not excluded from the regulations. Commercial-off-the-shelf (COTS) products are also included because the definition of electronic parts now includes com- panies that sell products that contain electronic parts. Given the huge potential for product lia- bility settlements, due to injury or death caused by counterfeits, businesses within the massive commercial and consumer electronics markets will be the next ones pressured to adapt to the new legalities. Obviously, this portends a massive sea change in the global market for electronics, pos- sibly equal in size and scope to the recent green revolution. Soon, virtually any business may be asked for proof of its counterfeit detection strategy and avoidance policy, whether an au- tomaker, medical device manufacturer or even a software firm! In other words, a global trans- formation is taking place. You can be proactive and ahead of the new wave of convention and ride it to profitability, or you can be reactive and have it crash down on your head. Ignorance will have far-reaching consequences and will not be an acceptable excuse to save your business from potentially catastrophic consequences. ensuring survivability and Profitability: what You can Do today Below are some of the concepts that my company felt were important to address for our long-term success. These points were part of the rationale for pursuing and accomplish- ing our goal of becoming the first company to become certified to the Defense Department's