Industry 4.0 • February 7, 2018

Combating Counterfeits: DFARS and CAS Compliance Requirements in Defense Manufacturing

Devon Morris Devon Morris

The global consumer market is rife with counterfeit goods. Counterfeit consumer electronics has become a lucrative field featuring cheap computers, ink cartridge knockoffs, and pirated smartphones. The fraud doesn’t stop with electronics. Counterfeits are everywhere. In fact, just for one example, over 55% of the “Italian” Olive Oil in the U.S. is phony.

Alarmingly, the defense marketplace is another big target for fake components and systems. One report from the Department of Defense found more than one million counterfeit components existing in the military supply chain. In the defense industry, the consequences of counterfeit parts can be catastrophic. Dangers include compromise of national security, delays to project delivery of more than a year in some cases, and serious maintenance headaches due to thousands of potentially faulty parts being detected and replaced.

Defense Industry Safeguards Against Counterfeit Components

Because counterfeit parts can cause such catastrophic problems, the defense industry has implemented safeguards to ensure supply chain integrity. The Defense Federal Acquisition Regulation Supplement (DFARS) now includes added regulations to weed out fake components and parts. For example, government contractors subject to Cost Accounting Standards (CAS) are required to establish and maintain an acceptable counterfeit electronic part detection and avoidance system. Failure to do so can lead to disapproval of the purchasing system utilized by the contractor (and therefore loss of the bid or contract) as well as payments being withheld. In addition, the contractor can be required to replace any faulty components and conduct extensive rework without additional payment if they are found in violation of DFARS/CAS.

DFARS/CAS Regulations for the Defense Industry

The rules and clauses within DFARS and CAS are far from simple. They lay out in detail the minimum requirements for a counterfeit electronic part detection and avoidance system, how to include relevant language in contracts, how to recover costs if the supplier has an approved detection system and faulty parts are uncovered, as well as a hierarchy of sources to be used in purchasing.

For example, the first choice in any contract should always be to choose electronic parts made by the original manufacturer or an authorized aftermarket manufacturer. By reason of this stipulation alone, the risk of counterfeit components is greatly reduced. If parts are unavailable there, they can be sourced from approved suppliers that meet industry standards. If neither of those options are available, there are a variety of alternatives covered in the regulations to ensure the contractor takes adequate precautions to eliminate faulty parts and avoid bogus suppliers.

Does DFARS Favor Large Defense Manufacturers?

As these rules apply equally to large and midsized defense contractors, it may appear that they favor the largest operations. After all, the largest industry players have an abundance of resources to deal with compliance issues. However, midsized firms that adopt systems such as Solumina MES have an opportunity to compete on an equal footing with their larger industry rivals. Such systems have built-in features to streamline the process of compliance with the many facets of CAS and DFARS.

Pre-configured business integration services can greatly improve part and resource traceability, and labor tracking to provide more accurate cost accounting. Being able to track who supplied what components within finished goods has always been important in supply chain quality management. Now, it means the difference between contract or no contract, expensive remediation work or profitability, and the pride that accompanies the maintenance of national security versus severe repercussions for flagrant violations.

DFARS Manufacturer Casualties

There have already been DFARS casualties among the contractor ranks. The president of defense contracting firm Boggs & Associates was convicted on 25 counts of supplying substandard and non-conforming components to the US military, mail fraud and false claims. The court found that parts were made from unauthorized material, were defective, used inferior fittings, were not properly heat treated or plated, and failed to pass testing requirements.

How a Proper MES Can Facilitate DFARS Compliance

A proper Manufacturing Execution System can help defense manufacturers facilitate DFARS/CAS compliance by digitizing the entire process. Keeping immaculate digital records of components, quality and supply chain is key to maintaining regulatory compliance, and staying in the game for government contracts.

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