For Defense Contractors, Lobbyists, More Than Just Sequester

THE PENTAGON HAS been the source of much worry in Washington lately.  An impending sequester that would strip billions from its budget is fueling premonitions of a fiscal cliff from which the whole nation would plunge.  And while lobbyists from all corners are scrambling to prevent across-the-board cuts, it’s the folks in defense who are most active in the frenzy.

As if this weren’t enough, another alarm is being sounded.  Susan Warshaw Ebner of Asmar, Schor, and McKenna claims that the impact of an emerging issue, and pending regulations to address it, will rattle the entire defense industry.  The issue: counterfeit parts; the stakeholders: virtually everyone.

“Sequester or no sequester, this is going to be a huge issue with huge costs,” said Ebner.  “It’s a virtual certainty that lobbyists and trade associations will have a role to play.”

Essentially, the Pentagon is overdue to roll out regulations that aim to purge the threat of counterfeit electronic parts entering defense equipment (a threat which is elaborated in a Senate report released in May).  Compliance from the industry will implicate all sectors of the defense supply chain to “prevent, detect, remediate, and investigate counterfeiting….”  What this specifically entails hinges largely upon how “counterfeit electronic part” is defined – something DoD was supposed to make clear in its guidance and regulations.

The costs of assuring compliance and ferreting out suspect counterfeits could be crippling.  Ebner evokes a scenario in which a defense contractor learns that a certain make and model of electronic chip, already integrated in systems being shipped abroad, was counterfeited.

“You are likely to face significant costs to figure out if you or any of your lower tier subcontractors and suppliers bought the counterfeit, who from, and if they were used,” said Ebner.   “The question of how to best Online Pokies define and implement requirements is squarely before the DoD right now.”

But while attempting to influence the regulatory language will be an important task for lobbyists, “the first thing lobbyists and trade associations need to do is educate their companies about the problem, the statute, and the risks.  Nobody can afford to be ignorant of what’s at stake.”

This last point is bolstered by the title of an advisory Ebner and her firm released in August: “Counterfeit Parts – An Emerging Issue You Need To Know About!”  It’s also bolstered by facts.  An October white paper released by the American Bar Association’s Task Force on Counterfeit Parts (which Ebner chairs), states that “remedial action” by the Pentagon will include “but [is] not limited to suspension and debarment…in the case of a supplier that repeatedly fails to detect or avoid counterfeit parts or fairs to exercise due diligence.”

For lobbyists closing their eyes and ears to anything but sequestration, some of this may be hard to swallow.


12/31/11 – Congress passes Section 818, “Detection and Avoidance of Counterfeit Electronic Parts,” of the National Defense Authorization Act for Fiscal Year 2012.

3/16/12 – Deputy Assistant Secretary of Defense, Frank Kendall, issues a memo broadly defining “counterfeit material.”

3/26/12 – The Government Accountability Office releases a report detailing the availability of counterfeit military parts in China.  Sen. Kelly Ayotte (R-N.H.) says the report poses a “clear and present danger” and a “threat to our troops.”

5/21/12 – The Senate Armed Services Committee releases a report on its two-year study of counterfeit parts in the defense supply chain.

9/26/12 – Regulations outlined in 818 are due to be issued, but aren’t.

10/8/12 – House Intelligence Committee releases report on national security threats posed by Chinese telecommunications companies.

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