The infiltration of counterfeit components is a serious and growing risk in the electronics industry. Long lifecycle, mission critical products, such as those found in military and aerospace applications, are particularly at risk because limited redesign options typically translate over time to an increased number of components at or near end-of-life. The costs of counterfeit components can be difficult to fully calculate because issues driven by counterfeiting can include production defects that lower yields increasing rework rates, infant mortality in the field and partial failures which can impact the unit’s functionality. In 2010, a study by the U.S. Department of Commerce Bureau of Industry and Security’s Office of Technology Evaluation (OTE) found that, “the procurement process has become a main entry point for counterfeits due to the use of unapproved suppliers, lack of part authentication procedures, lack of communication and cooperation between suppliers and customers, insufficient inventory control procedures, and limited counterfeit avoidance procurement practices.” How does this impact contract manufacturing relationships? Is simply flowing down requirements enough? The reality is that the regulations will likely remain in a state of fine-tuning for the next few years as unintended consequences arise and are corrected. This paper looks at some of the recommended best practices and potential issues associated with counterfeit components. For more whitepapers and articles on PCBA design and manufacturing, visit http://blog.optimumdesign.com

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Content
Executive Summary .................................................................1
Overview........................................................................................2
Impact on the Sourcing Process ..............................................5
What System Elements Are Listed in The Proposed Rule?......6
Risk Mitigation from A Contractor’s Perspective .....................8
Identifying Issues Early in the Product DevelopmentCycle…..8
Identifying Counterfeit Risk as Part of NPI...............................9
Working with Trusted Suppliers............................................. 10
Screening Counterfeit Components.......................................11
Reporting Counterfeit Parts .................................................. 13
Production Test and Inspection............................................. 13
Conclusion ............................................................................ 14

3. Executive Summary
The reality is that the regulations will likely remain in a state of fine-tuning
for the next few years as unintended consequences arise
The infiltration of counterfeit components is a serious
and growing risk in the electronics industry. Long
lifecycle, mission critical products, such as those found
in military and aerospace applications, are particularly at
risk because limited redesign options typically translate
over time to an increased number of components at or
near end-of-life. The costs of counterfeit components
can be difficult to fully calculate because issues driven by
counterfeiting can include production defects that lower
yields increasing rework rates, infant mortality in the field
and partial failures which can impact the unit’s functionality.
There is also a growing administrative cost associated with
identifying counterfeit components.
In 2010, a study by the U.S. Department of Commerce
Bureau of Industry and Security’s Office of Technology
Evaluation (OTE) found that, “the procurement process
has become a main entry point for counterfeits due to the
use of unapproved suppliers, lack of part authentication
procedures, lack of communication and cooperation
between suppliers and customers, insufficient inventory
control procedures, and limited counterfeit avoidance
procurement practices.”1
The OTE study led Senate hearings on the danger
counterfeit components pose to the military supply chain
and modifications in the Defense Federal Acquisition
Regulation System (DFARS) as a result of changes to
the National Defense Authorization Act (NDAA) in Fiscal
Year (FY) 2012 and 2013. The proposed modifications
to DFARS set to take effect in early 2014 are a response
to changes in the NDAA in 2012 which put the burden
for preventing counterfeit components from entering the
supply chain on military contractors. Under the proposed
revision, the burden for counterfeit prevention will now be
shared with the Department of Defense, provided the
defense contractor has internal safeguards in place and
procures parts from original component manufacturers or
authorized distributors.
How does this impact contract manufacturing
relationships? Is simply flowing down requirements
enough? The reality is that the regulations will likely
remain in a state of fine-tuning for the next few years
as unintended consequences arise and are corrected.
Industry groups have raised questions about requirements
which could raise internal costs for incoming inspection
and testing without allowing for added compensation.
There are also questions about whether or not long-lifecycle
products can be effectively supported via a
strategy that allows for procurement only from original
component manufacturers (OCMs) or franchised/
authorized distributors. From a sourcing standpoint, there is
one major question to consider: is your contractor
committed enough to the defense segment of its business
to make the investments in personnel and process
development to provide adequate screening and reporting
mechanisms under a changing set of regulations or will the
changing requirements and increased costs drive them out
of this segment of the business? This paper looks at some
of the recommended best practices and potential issues.
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and are corrected.

4. The January 2010 study by the U.S. Department of
Commerce Bureau of Industry and Security’s Office
of Technology Evaluation (OTE) did an excellent job of
identifying both trends in counterfeiting and the issues
contributing to proliferation of counterfeits in the supply
chain. The study looked at five supply chain segments:
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• Original componentmanufacturers (OCMs)
• Distributors and brokers
• Circuit board assemblers
• Prime contractors and subcontractors
• Department of Defense (DOD) agencies.
The survey’s objectives were to assess levels of
counterfeiting, what types of devices were being
counterfeited, what practices were used in procurement
and management of electronic parts, what types of
practices were in place for recordkeeping and recording
identified instances of counterfeiting, what techniques
were used to detect counterfeits and what best practices
were employed to control the infiltration of counterfeits.
The assessment encompassed 387 companies and
organizations who participated in the study during
the 2005 to 2008 reporting period. During the four
year reporting period, the OTE data indicated that 39
percent of those participating in the survey encountered
counterfeit components. The data further indicated a
trend of increasing incidents ranging from 3,868 in 2005
to 9,356 in 2008. 2
The OTE study listed the following findings:
• All elements of the supply chain have been directly
impacted by counterfeit electronics
• There is a lack of dialogue between all organizations in
the U.S. supply chain
• Companies and organizations assume that others in
the supply chain are testing parts
• Lack of traceability in the supply chain is
commonplace
• There is an insufficient chain of accountability
within organizations
• Recordkeeping on counterfeit incidents by
organizations is very limited
• Most organizations do not know who to contact in the
U.S. Government regarding counterfeit parts
• Stricter testing protocols and quality control
practices for inventories are required
• Most DOD organizations do not have policies in place
to prevent counterfeit parts from infiltrating their
supply chain3
During the four year
reporting period, the
OTE data indicated that
39 percent of those
participating in the survey
encountered counterfeit
components.
Overview

5. Overview
Following Senate hearings in November 2011, on the
dangers posed by counterfeit components within the
military supply chain, the National Defense Authorization
Act (NDAA) for Fiscal Year (FY) 2012 was passed and
signed by President Obama. For the first time, this
legislation included penalties related to counterfeit parts
and their suppliers. It also placed the burden for more
effectively preventing counterfeits on military contractors.
This was considered excessive, since government
agencies often dictated which components would be
used or extended the life of programs beyond the lifetime
of the product’s components. In January 2013, the
2013 NDAA was signed into law. The NDAA for FY 2013
partially remedies the issues of the prior year’s legislation
by providing mechanisms for allowing accountability to
be shared. In May 2013, the Defense Federal Acquisition
Regulation Supplement: Detection and Avoidance of
Counterfeit Electronic Parts (DFARS Case 2012-D055)
was introduced as a proposed rule. The comment period
ended in July 2013 and the final rule is scheduled to go
into effect in February 2014.
According to the documentation, “this revision to the
DFARS is intended to partially implement section 818
(paragraphs (c) and (f)) of the NDAA for FY 2012.
Paragraph (c) of section 818 requires the issuance of
DFARS regulations addressing contractor responsibilities
for detecting and avoiding the use or inclusion of
counterfeit electronic parts or suspect counterfeit
electronic parts, the use of trusted suppliers, and
requirements for contractors to report counterfeit
electronic parts and suspect counterfeit electronic parts.
Paragraph (f) defines “covered contractor” and “electronic
part.” In addition, this revision addresses the amendments
to section 818 that were made by section 833, entitled
“Contractor Responsibilities in Regulations Relating to
Detection and Avoidance of Counterfeit Electronic Parts,” of
the NDAA for FY 2013.”4
According to the proposed rule documentation, the
intent of section 818 is to hold contractors responsible
for detecting and avoiding the use or inclusion of
counterfeit or suspect counterfeit electronic parts. The
DFARS is being modified or enhanced in three specific
areas: definitions, contractor responsibilities and the
government’s role.
Under definitions, DOD is proposing to add a definition of
“legally authorized source” to the definition of “counterfeit
part.”
In the area of contractor responsibilities, a new policy
on counterfeit parts is proposed to be added DFARS
subpart 246.8, Contractor Liability for Loss of or Damage
to Property of the Government and will include a clause at
DFARS 252.246-7007, Contractor Counterfeit Electronic
Part Avoidance and Detection system. In addition,
this rule will modify the existing requirements for the
contractor’s purchasing system by adding compliance,
with requirements for identifying, avoiding and reporting
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6. counterfeit parts. The clause at DFARS 252.244-7001,
Contractor Purchasing System Administration, has
also been modified to add system criteria for a less
comprehensive review of the contractor’s purchasing
system that targets review of those elements relating to
the detection and avoidance of counterfeit electronic
parts and suspect counterfeit electronic parts, in some
solicitations and contracts depending on the clauses they
contain.
A new subsection, DFARS 231.205-71, prohibits
contractors from claiming the cost of counterfeit or
suspect counterfeit electronic parts or the cost of
associated rework or corrective action as a reimbursable
cost. However, section 833 of the NDAA for FY 2013
provides exceptions which enable cost reimbursement
if a contractor has a DOD-approved operational system to
detect and avoid counterfeit parts or the suspect
counterfeit parts were provided as Government-furnished
property, and the contractor provided timely notice to
the government.
The Government’s role in reviewing and monitoring the
contractor’s process and procedures for detecting and
avoiding counterfeit or suspect counter electronic parts
covered as part of the contractor’s purchasing system
review section in the proposed DFARS 244.303(b). 5
Overview
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7. Impact on the
Sourcing Process
The proposed rule links liability for the costs of counterfeits
and reimbursement for the cost of rework to very
specific actions on the part of the Defense contractor
related to procurement practices, implementation of a
DOD-approved operational system to detect and avoid
counterfeit parts and timely reporting.
Procuring through OCMs or franchised or authorized
distributors who either maintain a direct business
relationship with the OCM or can guarantee traceability
back to the OCM is the best way to avoid counterfeit parts.
The ability to provide transparency within the supply chain
has become a key point of value-add in most distributor
business models.
However, given that contract manufacturers typically
handle procurement, incoming parts inspection, assembly
and test, it is also important their systems should be
closely aligned with the contractor’s procedures to
ensure both a system of checks and balances, and timely
reporting. This can be particularly important in the event
that availability issues dictate that a part is only available
from a non-franchised source.
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8. What System Elements
Are Listed in The Proposed Rule?
Section 252.246-70XX Contractor Counterfeit Electronic Part
Avoidance and Detection System defines the system criteria
as policies and procedures that address:
• The training of personnel
• The inspection and testing of electronic parts,
including criteria for acceptance and rejection
• Processes to abolish counterfeit parts proliferation
• Mechanisms to enable traceability of parts to
suppliers
• Use and qualification of trusted suppliers
• The reporting and quarantining of counterfeit
electronic parts and suspect counterfeit electronic
parts
• Methodologies to identify suspect counterfeit parts
and to rapidly determine if a suspect counterfeit part
is, in fact, counterfeit
• The design, operation, and maintenance of systems
to detect and avoid counterfeit electronic parts and
suspect counterfeit electronic parts
• The flow down of counterfeit avoidance and detection
requirements to subcontractors6
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9. What System Elements
Are Listed in The Proposed Rule?
At the date this paper has been written, the DFARS proposed
rule has not beenmade final. As a result, there are no
examples of approved systems to highlight. That said,
SAE International has developed standards for counterfeit
electronics part risk mitigation which have been adopted
by NASA and DOD. These offer a benchmark in designing
compliant systems.
SAE AS5553 Counterfeit Electronic Parts; Avoidance,
Detection, Mitigation standardizes methods for electronic
counterfeit part mitigation and outlines processes for
electronic design/parts management, supplier management,
procurement, part verification, materials control and response
strategies when suspect parts are found.
SAE ARP6178 Counterfeit Electronic Parts; Tool for Risk
Assessment of Distributors provides a supplier evaluation
tool.
SAE AS6081 Counterfeit Electronic Parts; Avoidance
Protocol, Distributors describes a program which can be
used to certify distributors/suppliers to the requirements of
AS5553.
SAE AS6171 Test Methods Standard; Counterfeit Electronic
Parts defines test methods for counterfeit electronic part
detection. This can be used for accreditation of distributors
with in-house test capabilities or independent third-party test
facilities verifying parts in compliance to AS6081.
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10. Risk Mitigation from
A Contractor’s Perspective
While Optimum Design Associates will continue to modify its system to conform to industry best practices as this
proposed rule is finalized and the legislation continues to evolve, currently it focuses on six key steps in mitigating
obsolescence component risk:
• Identifying obsolescence issues as early in the product development cycle as possible
• Identifying known counterfeiting risk in each product as part of the new product introduction
(NPI)/project launch process
• Working primarily with franchised distributors and trusted suppliers
• Carefully screening parts which must be purchased from non-franchised distributors
• Immediately reporting suspected counterfeit parts
• Ensuring an adequate test and inspection methodology is present in production
Identifying Issues Early in the Product Development Cycle
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11. Identifying Counterfeit Risk
as Part of NPI
Unfortunately, even with thorough planning in the design
stage, obsolescence happens eventually in most long
lifecycle products. Silicon Expert does provide a history of
whether or not a component has a high incidence of being
counterfeited. This can help identify what types of
component modifications are most prevalent and support
development of an inspection strategy for parts which
must be procured from non-franchised sources. Other
tools for this risk identification include:
• TheGovernment Industry Data Exchange Program
(GIDEP)
• FAA’s Suspect Unapproved Parts Program
• ERAI and the Independent Distributors Electronics
• Association (IDEA)
A bill of materials (BOM) risk analysis that addresses both
obsolescence and incidence of counterfeiting risk, as well
as any availability issues, should be performed as part of
the NPI process.
Silicon Expert does
provide a history of
whether or not a
component has a high
incidence of being
counterfeited.
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12. Working with
Trusted Suppliers
As mentioned earlier, OCMs, franchised distributors
and trusted electronic parts suppliers represent the
best option for mitigating counterfeit component
risk. These companies’ reputations and business
relationships are based on their ability to supply
high quality parts. Comparatively, non-franchised
distributors and electronic component suppliers in
lower cost labor markets can vary widely in their
commitment to identifying and purging counterfeit
components from the supply chain.
Optimum Design Associates works with trusted
suppliers, when possible. As with most contract
manufacturers, customer approved vendor lists (AVLs)
dictate which electronic component suppliers are used.
When component availability issues dictate
the use of non-franchised sources, the customer is
advised. Any data Optimum Design Associates obtains
on counterfeit component risk related to the actual
component or proposed source is shared with the
customer. This partnering process provides customers
with the data they need to make informed decisions on
best options for mitigating obsolescence issues and
counterfeiting risk.
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13. Screening
Counterfeit Components
Component counterfeiting can take many forms. Date codes on parts nearing end of shelf life can be altered. Part
labeling on commodity parts can be changed to reflect a high performance part. Actual counterfeit parts with
substandard or non-working elements are manufactured in volume. In short, the job of detecting counterfeits has
become increasingly difficult, as shown in Figure 1 and 2 below.
Figure 1. Counterfeit Component Figure 2. Known good component
Compared side-to-side, the difference in the finish and dimensions of the leads are obvious, but without the comparison
to the known good part, the excess solder may not be noticed.
Fortunately, legitimate suppliers have created strong infrastructure to protect their brands. Most component
manufacturers have a counterfeit division. When suspect parts are received, component manufacturers are willing to
provide information and/or samples for a cross comparison of body styles, markings and logos. They will also review
photos for visual evidence of modifications, when provided by the company making the inquiry.
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14. Screening
Counterfeit Components
Receiving inspection departments should be trained to look for
potential issues asmaterial is received.
Key visual indicators include:
• Broken seals or damaged outer packaging
• Packaging inconsistent with or insufficient for that brand of
part
• Variance with part number, manufacturer or quantity listed in
documentation
• Variance in country of origin or date codes listed in
documentation
• One or more components reversed in tubes or trays
• Logos that vary from that typically used by the manufacturer
• Smudged markings or evidence of re-marking
• Damaged,malformed or bent leads
• Cracks or chips in body of component
• Inconsistencies in component body formation
• Evidence of burn, blister marks, flux or other chemical residue
• Oxidation, corrosion or solder on leads
• Smashed or discolored BGA balls
• Variance in package dimensions from known good parts
• If inconsistencies are found, destructive testing of samples
should be performed either at the componentmanufacturer or
via a third-party testing firm. These tests may include amineral
spirit and alcohol wipe for evidence of re-marking, acetone
wipe for evidence of blacktopping, scrape test, or de-capping
to view the die.
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15. Reporting
Counterfeit Parts
The reporting databases listed earlier such as GIDEP, FAA’s Suspect Unapproved Parts Program, ERAI and IDEAonly
remain strong if users report all counterfeiting incidents. One of the key findings of the OTE2010 study mentioned earlier
was that many companies either chose not to report counterfeits or were unaware of reporting databases.
The proposed DFARSmodifications will likely drive stronger flow down reporting requirements.
Production Test and Inspection
Production test and inspection represents the final level of due diligence in mitigating counterfeit risk. A robust test and
inspection methodology which includes automated optical inspection and/or x-ray, electrical and functional testing can
help identify components that vary from either dimensional or performance specifications. In truly mission critical
applications, environmental stress screeningmay also be necessary.
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Conclusion
The counterfeit component ‘industry’ will continue to grow and poses a grave risk to
national security. The U.S. Government has taken a regulatory approach to driving
greater supply chain accountability that is likely to continue to evolve as costs and
benefits are weighed. These requirements will flow down through the supply chain and
likely drive some companies to choose to focus business in less regulated industries.
Contract manufacturer selection should evaluate a contractor’s understanding of
regulatory trends and its management team’s willingness to invest in compliant
systems and processes.
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17. Citations
1. U.S. Department of Commerce, Bureau of Industry and Security, Office of Technology Evaluation,
DefenseIndustrialBaseAssessment:CounterfeitElectronics, January 2010, 207.
2. U.S. Department of Commerce, Bureau of Industry and Security, Office of Technology Evaluation,
DefenseIndustrialBaseAssessment:CounterfeitElectronics, January 2010, i-ii.
3. U.S. Department of Commerce, Bureau of Industry and Security, Office of Technology Evaluation,
DefenseIndustrialBaseAssessment:CounterfeitElectronics, January 2010, ii.
4. DefenseAcquisition Regulations System, “Defense Regulation Supplement: Detection and
Avoidance of Counterfeit Electronic Parts (DFARS Case 102-D055),” Federal Register, sec. II, 5 May
2013 [journal online], accessed 27 February 2014; available at https://www.federalregister.gov/
articles/2013/05/16/2013-11400/defense-federal-acquisition-regulation-supplement-detection-and-
avoidance-of-counterfeit-electronic.
5. DefenseAcquisition Regulations System, “Defense Regulation Supplement: Detection and
Avoidance of Counterfeit Electronic Parts (DFARS Case 102-D055),” Federal Register, sec. II, 5 May
2013 [journal online], accessed 27 February 2014; available at https://www.federalregister.gov/
articles/2013/05/16/2013-11400/defense-federal-acquisition-regulation-supplement-detection-and-
avoidance-of-counterfeit-electronic
6. DefenseAcquisition Regulations System, “Defense Regulation Supplement: Detection and
Avoidance of Counterfeit Electronic Parts (DFARS Case 102-D055),” Federal Register, sec.
252.246-70XX, 5 May 2013 [journal online], accessed 27 February 2014; available at https://www.
federalregister.gov/articles/2013/05/16/2013-11400/defense-federal-acquisition-regulation-supplement-
detection-and-avoidance-of-counterfeit-electronic.

18. Learn from the Industry’s
Top Experts
Check Out the Official
Optimum Design Associates Blog
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Manufacturing and Design Information

19. Raymond Falkenthal is Optimum Design Associate’s Quality Manager.
He can be reached at rfalkenthal@optimumdesign.com
About Optimum Design Associates
Optimum Design Associates (ODA) is a leading provider of award winning printed circuit board
(PCB) layout, engineering, and in-house turnkey electronics manufacturing services (EMS).
Established in 1991, ODA continues to meet the challenge of creating complex, high-density
printed PCB layouts for some of the world’s leading high-tech original equipment manufacturers
(OEMs). ODA has offices in California and Australia. Its California facility is ITAR-registered and
certified to ISO 9001:2008.