Congressional investigators said the Pentagon and defense industry are not doing enough to stop fake electronics parts they found on connected to weapon systems including the P-8A and C-27J aircraft, Stryker vehicle, and Terminal High Altitude Area Defense missile.
The Senate Armed Services Committee (SASC)–which launched an offensive against counterfeit parts in Pentagon equipment last year–released a new report yesterday detailing its discovery of more than 1 million bogus parts, mainly from China, in the defense supply chain.
“Our report outlines how this flood of counterfeit parts, overwhelmingly from China, threatens national security, the safety of our troops and American jobs,” SASC Chairman Carl Levin (D-Mich.) said in a statement.
The committee released the 72-page report just as it is preparing to craft its version of the fiscal year 2013 defense authorization bill this week. The SASC–armed with preliminary findings of the year-long counterfeits investigation last year–included language in the FY ’12 authorization act intended to spur the defense industry and Pentagon to be more aggressive in avoiding counterfeits and to counter weaknesses in the supply chain.
“As directed by last year’s defense authorization bill, the Department of Defense and its contractors must attack this problem more aggressively, particularly since counterfeiters are becoming better at shielding their dangerous fakes from detection,” SASC Ranking Member John McCain (R-Ariz.) said.
The SASC report yesterday reiterates earlier assertions that China is the main source of fake electronic parts and the Chinese government is turning a blind eye to counterfeiting operations there. The Chinese government refused to give SASC staff visas last year allowing them to investigate those operations in person, to the chagrin of Levin and McCain.
The SASC’s investigation found 1,800 cases of suspect counterfeit electronics, with the total number of the actual parts exceeding 1 million.
It says Chinese electronic parts supplier Hong Dark Electronic Trade supplied roughly 84,000 suspect counterfeit electronic parts in the Pentagon supply chain. Those parts reached assemblies intended for myriad equipment including the Army Stryker Mobile Gun, according to the SASC report.
The committee also found suspect parts on mission computers for the Missile Defense Agency’s THAAD missile, among other systems.
The SASC says the defense industry “routinely failed to report cases of suspect counterfeit parts, putting the integrity of the defense supply chain at risk.” The “vast majority” of the roughly 1,800 cases of suspect bogus parts identified “appear to have gone unreported” to the Pentagon or criminal authorities, it says.
“For example, in the case of the suspect counterfeit part contained in the Navy’s P-8A airplane, Boeing failed to notify the Navy of the problem until the committee began inquiring about the suspect counterfeits,” the SASC says. “Similarly, in the case of the suspect counterfeit memory chip contained in the C-27J, L-3 Communications did not notify the Air Force until the day before committee staff was scheduled to meet with the Air Force program office responsible for that aircraft.”
Levin grilled U.S. defense contractors during a SASC hearing last November on the speed at which they notified the military when they found counterfeit parts in their systems (Defense Daily, Nov. 9, 2011).
The Senate panel says many cases are not reported to the Pentagon’s Government-Industry Data Exchange Program (GIDEP), which collected reports about suspected counterfeits from government and business officials.
The SASC concludes that “permitting contractors to recover costs incurred as a result of their own failure to detect counterfeit electronic parts does not encourage the adoption of aggressive counterfeit avoidance and detection programs.”
“Taxpayers should not be burdened with covering the costs of a contractor’s failure to detect counterfeit electronic parts in their own supply chain,” it adds.
The SASC’s report includes a series of conclusions, including: “The defense industry’s reliance on unvetted independent distributors to supply electronic parts for critical military applications results in unacceptable risks to national security and the safety of U.S. military personnel.”
The panel says that weaknesses in companies’ testing regimes for electronic parts create “vulnerabilities that are exploited by counterfeiters.”
The defense industry had concerns about the counterfeit-parts provisions in the FY ’12 defense authorization measure after President Barack Obama signed it into law on Dec. 31, 2011. Cord Sterling, vice president for legislative affairs at the Aerospace Industries Association (AIA), said earlier this year the trade group was worried the law could unduly punish defense contractors that unwittingly use counterfeit parts in their systems (Defense Daily, Jan. 13).
That FY ’12 law clarifies acquisition rules to mandate that replacement and rework costs spurred by the use of counterfeit parts are paid by contractors and not the government. It also requires larger contractors and the Pentagon to create systems and procedures for detecting and avoiding such parts. It further sets parameters for which companies the Pentagon and its suppliers can buy electronic parts from and requires defense officials and contractors to notify the government in writing about the discovery of counterfeit parts.