Risk-Based Analysis for Government Contractors

The final DOD rule also describes the risk-based analysis contractors will be expected to undertake when determining what tests and inspections they will perform on electronic parts. Contractors will be required to select tests and inspections "based on minimizing risk to the Government." DFARS 252.246-7007(c)(2). Factors to be considered in making that risk assessment include: "the assessed probability of receiving a counterfeit electronic part; the probability that the inspection or test selected will detect a counterfeit electronic part; and the potential negative consequences of a counterfeit electronic part being installed (e.g., human safety, mission success) where such consequences are made known to the Contractor."

The final rule's reference to "risk-based policies and procedures" and endorsement of risk-based testing and inspection determinations are beneficial to contractors, because they signal that a contractor system that allocates detection and avoidance resources based on risk will not be deemed inadequate. Indeed, the final rule eases the concern that contractors would be required to test and inspect all electronic parts. DOD's clarification that the rule "does not require all electronic parts to be treated equally" is significant and should permit contractors to allocate their limited testing and inspection resources in a manner that focuses on the parts most at risk of being counterfeit.

The benefits of this revision are mitigated somewhat, however, by DOD's continued imposition of what amounts to strict liability on contractors for the escape of any counterfeit or suspect counterfeit parts into the defense supply chain. That is, while DOD's final rule indicates that an effective counterfeit detection and avoidance system includes risk-based policies and procedures, adhering to those policies and procedures will not insulate a contractor from liability for a counterfeit or suspect counterfeit electronic part that escapes into the defense supply chain — even when DOD has reviewed and approved the contractor's system as effectively "minimizing risk to the Government."

As a supplier do you currently evaluate parts before utilizing them for DOD use? What’s your risk if you do not do your due diligence? Can GCI assist you and reduce your risk or evaluation costs? Reach out to ed.odette@gci-global.com for additional information on safe obsolescence solutions.

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