09/23/2014 03:05 pm ET Updated Nov 22, 2014

Mandatory Reporting Run Amok

If you make a product, or supply a product made by someone else, get ready. Soon you will have to post a notice of a possible "defect" in the product on a government-sponsored website for the world to see. Think lawyers will be monitoring that site for opportunities to file product liability lawsuits or fraud claims? You're right!

In classic government-speak, under the guise of simply "clarifying" existing rules to protect the Defense Department from unwittingly buying Chinese counterfeit IT products, in June the Federal Acquisition Regulatory (FAR) Council -- the body that creates regulations for all government purchases -- issued a proposed rule (FAR Case 2013-002) seeking to expand government and contractor requirements for reporting "nonconforming items." Thus, rather than focusing solely on counterfeit electronic parts, the proposed rule actually applies to all "nonconformance" issues concerning any type of item that the government may buy.

Maybe you think it doesn't apply because you're not a "government contractor." The problem is, most companies, large and small, probably are "government contractors," in some form or fashion. Even if the government is not your direct customer, if you sell to someone who in turn sells to the government, or you work on any government property or you're a service provider who installs someone else's product, you probably have to consider this rule.

The database that is being converted to serve as the notice clearinghouse is called the Government-Industry Data Exchange Program (GIDEP). There, everyone will be obligated to post a possible "counterfeit item," a "suspect counterfeit item," or an item that contains a "major nonconformance" or a "critical nonconformance." The word "suspect" is key: if there is "credible evidence" providing "reasonable doubt" that an item sold to the government is "authentic," the reporting requirements kick in. And companies will have to monitor GIDEP to avoid using any product that is listed.

Stay tuned, because the sausage-making process of our government is likely to surprise us with more twists and turns before this rule is final. Companies will likely soon be between the proverbial rock and a hard place: report the mere possibility of an issue with a product on a public website and risk parasitic lawsuits, or hold back on reporting until some clarity exists ... and risk parasitic lawsuits.