SD-2 Dod Acquisitions Buying Commercial Items And Nondevelopmental ItemsThis document offers guidance on acquisitions involving all types of commercial and nondevelopmental items: systems, subsystems, assemblies, parts, and items of supply. Commercial services are also addressed.This document does not present a “cookbook” approach to the acquisition of commercial and nondevelopmental items; such an approach could not accommodate the vast array of potential applications. It does offer lessons learned and things to consider when participating on an integrated product team.

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Counterfeit Parts and Components

The Problem

Counterfeiting of parts and components occurs in nearly every type of commodity, whether electronic or mechanical. A counterfeit part is a part that is a copy or substitute offered without legal right or authority to do so or a part whose material, performance, or characteristics are knowingly, or unknowingly, misrepresented by a supplier in the supply chain.Thus, a counter- feit part could be, for example, a used product sold as new, a commercial product sold as mili- tary grade, a product stolen from the manufacturer's production line, a product built without authorization from the intellectual property rights holder, or a product containing pure tin, but sold as containing lead.

The counterfeiting problem is huge. Research from Business Week indicates that counterfeit products probably make up at least 7 percent of world merchandise trade.The total for counter- feit merchandise may have been as much as $512 billion during 2004.

A 2009 Department of Commerce survey, focused on discrete electronic components, mi- crocircuits, and circuit board products, found that 45 percent of participating organizations had encountered counterfeit parts.The participating organizations represented the entire supply chain from manufacturer to end user.The high percentage of organizations with counterfeit in- cidents indicates the pervasiveness of the counterfeit threat, which is of particular concern to DoD and the aerospace industry because of the potential threat to safety and security.

That same survey also found that incidents of suspected or confirmed counterfeit parts rose by more than 240 percent from 2005 to 2008.The survey showed that item resale value is not a major factor in determining what products are counterfeited; of the reported counterfeit inci- dents, most parts had a selling price between $10 and $100. Parts need not be expensive to be lucrative in the counterfeit marketplace.The counterfeiters do not have the costly research, de- velopment costs, or marketing expenses. In addition, counterfeit goods are typically manufac- tured with deficient raw materials and substandard manufacturing processes.

Risk Factors

The risk of counterfeit parts and components entering the supply chain is due, in large part, to DMSMS and electronic waste (e-waste).The link between DMSMS and counterfeit parts is strong. Counterfeiters find markets with serious shortages and seize the opportunity to fill the shortages with counterfeit parts. At the same time, the counterfeit market is lucrative, because customers that need to fill a critical need will often buy from risky sources, either in spite of

the danger or because they are unaware of the danger.To put it another way, DMSMS creates a demand for hard-to-find components. In many instances, these components are essential to

keep older weapon systems or equipment operating. Parts obsolescence often forces buyers to seek out unfamiliar sources when known and trusted sources can no longer supply the needed