President Signs National Defense Authorization Act into Law

Federal Anti-Counterfeiting Amendment Act places liability for counterfeits on contractors

Washington, D.C.—Jan. 5, 2012—When President Obama signed the 2012 National Defense Authorization Act (NDAA) it included a very important amendment for the supply chain.

Sponsored by Sen. Carl Levin (D-Mich.) and Sen. John McCain (R-Ariz.), the bipartisan amendment came about as a result of a Senate Armed Services Committee (SASC) hearing on Nov. 8, 2011. International attention was raised in the Counterfeit Electronic Parts in the Defense Department Supply Chain hearing where 1,800 cases of suspected counterfeit parts covering a total of more than one million individual parts were reported. More than 70 percent of select incidents were traced back to China and that country’s role in the defense supply chain was called into question.

On Dec. 8, Supply & Demand Chain Executive and IHS hosted a webcast fearing a roundtable of experts who shared their insight and perspectives on global issues and implications of the U.S. legislation on counterfeit electronics. To listen to the webcast, please visit  

Counterfeit electronic products pose a significant risk of death. They can ground aircraft, cause failure of safety-related components in nuclear plants and harm patients in hospitals.

The bill establishes guidance for defining and dealing with fake electronic parts in the supply chains of weapons systems and related defense IT, and puts suppliers and contractors on the hook. According to the language, contractors are responsible for detecting and avoiding fake products, as well as for the cost of their replacement; it also calls for the use of “trusted suppliers” whenever possible.

It requires the Secretary of Homeland Security to establish a program of enhanced inspection of electronic parts imported from any country that is determined by the Secretary of Defense to be a significant source of counterfeit parts in the DOD supply chain. Authorize information sharing with original component manufacturers, to the extent needed to determine whether an item is counterfeit. (HR. 1540, SEC. 818)

Covered contractors that supply electronic parts or systems that contain electronic parts are required to establish policies and procedures to eliminate counterfeit electronic parts from the defense supply chain. (HR. 1540, SEC. 818)

The DOD must adopt policies and procedures for detecting and avoiding counterfeit parts in its own direct purchases, and for assessing and acting upon reports of counterfeit parts from DOD officials and DOD contractors. (HR. 1540, SEC. 818)

The new law authorizes the debarment of contractors who fail to detect and avoid counterfeit parts, or do not exercise adequate due diligence. Contractors are now prohibited from charging the DOD for the costs of rework or corrective work to remove and replace counterfeit parts. Moreover, defense contractors are now responsible for the remedies.