United States Nuclear Regulatory Commission - Protecting People and the Environment

Actions to Improve the Detection of Counterfeit and Fraudulently Marketed Products (Generic Letter 89-02)

 March 21, 1989


TO:       ALL HOLDERS OF OPERATING LICENSES AND CONSTRUCTION PERMITS FOR 
          NUCLEAR POWER REACTORS

SUBJECT:  ACTIONS TO IMPROVE THE DETECTION OF COUNTERFEIT AND FRAUDULENTLY 
          MARKETED PRODUCTS (GENERIC LETTER 89-02)


Recent instances of counterfeit and fraudulently marketed vendor products have
heightened the NRC's concerns for licensees' capability to assure the quality 
of procured products and to reduce the likelihood of the use of counterfeit or 
fraudulent products in nuclear power plants.  During recent NRC inspections of 
licensees and vendors, the NRC has observed a wide variety of practices and 
programs for procurement, receipt inspection, testing and dedication of equip-
ment and material for safety-related applications.  The purpose of this 
generic letter is to share with all licensees some of the elements of programs 
that appear to be effective in providing the capability to detect counterfeit 
or fraudulently marketed products and in assuring the quality of vendor 
products. The staff is aware of and encourages the industry working group 
efforts to develop guidance in these areas.

Three characteristics of effective procurement and dedication programs have 
been identified during these NRC inspections.  These characteristics are (1) 
the involvement of engineering staff in the procurement and product acceptance 
pro-cess (2) effective source inspection, receipt inspection, and testing 
programs, and (3) thorough, engineering based, programs for review, testing, 
and dedica-tion of commercial-grade products for suitability for use in 
safety-related applications.  NRC has found that programs that embodied the 
above three ele-ments were generally effective in providing enhanced capability 
to detect counterfeit or fraudulently marketed products and in assuring the 
quality of procured products, both in safety-related and other plant systems.

Licensees may want to consider the applicability of these characteristics to 
their programs to reduce the likelihood of the introduction of counterfeit or 
fraudulent products into their plants and to assure the quality of procured 
vendor products.

It should be noted that the NRC staff conditionally endorses the guidelines 
contained in EPRI NP-5652, "Guideline for the Utilization of Commercial-Grade 
Items in Nuclear Safety-Related Applications (NCIG-07)," that was issued by 
EPRI in June 1988 for evaluating commercial-grade products for suitability for 
use in safety-related applications.

Background:

Numerous instances have been identified by the NRC during the past 2 years in 
which the nuclear industry received, accepted, and installed items of hardware


8903160296
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that were not of the quality purported by the manufacturer or supplier due to 
apparent misrepresentation.  Significant deficiencies have also been 
identified in the programs for dedicating commercial-grade products for use in
safety-related applications.

The use in nuclear facilities of products which are counterfeit or 
fraudulently marketed increases the likelihood that some plant equipment may 
not perform as expected.  (See the enclosed list of NRC Information Notices 
and Bulletins regarding this matter.)

Discussion:

Procurement quality assurance (QA) controls for products to be used in safety-
related applications are established in Appendix B to 10 CFR Part 50, and in 
Regulatory Guides 1.28, 1.33, and 1.123.  It is recognized that Appendix B pro-
vides criteria for QA programs and does not specifically address fraudulent 
activities; however, an effectively implemented licensee QA program would 
increase the likelihood of detecting fraudulently marketed vendor products. 
Although a properly implemented QA program may more readily detect substandard 
products than will the commercial-grade component upgrade process, a 
licensee's commercial-grade dedication process, as described in paragraph C., 
will greatly enhance the effectiveness of current upgrade practices.  The 
actions described in paragraphs A. and B. have also proved useful in detecting 
substandard, counterfeit or fraudulently marketed products intended for use in
systems needed for the safe operation of the facility.

A.   Engineering Involvement in the Procurement Process

     Appropriate engineering involvement is warranted during the procurement 
     and product acceptance processes, including testing, for products used in 
     nuclear power plants.  Inadequate engineering involvement has been a 
     common weakness in licensees' procurement programs, particularly when com-
     mercial-grade procurements were involved.  Involvement of a licensee's 
     engineering staff in an effective procurement process would normally 
     include (1) development of specifications to be used for the procurement 
     of products to be used in the plant, (2) determination of the critical 
     characteristics of the selected products that are to be verified during 
     product acceptance, (3) determination of specific testing requirements 
     applicable to the selected products, and (4) evaluation of test results. 
     The extent of necessary engineering involvement is dependent on the 
     nature and use of the products involved.

B.   Product Acceptance Programs

     Experience indicates that reliance on part number verification and certi-
     fication documentation is insufficient to ensure the quality of procured 
     products.  Licensees with effective product acceptance programs have 
     included receipt/source inspection and appropriate testing criteria, 
     effective vendor audits, special tests and inspections and post-installa-
     tion tests in their programs.  These licensees have applied the 
     inspection

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     and testing criteria to products procured for use in safety-related 
     systems and for all commercial-grade products being evaluated for 
     suitability for use in safety-related systems.  The inspection and 
     testing criteria also have required identification and verification of 
     the products' critical characteristics.  In selecting the critical 
     characteristics to be verified, consideration may be given to the safety 
     significance, complexity, and application of the various products.  For 
     suppliers with acceptable QA pro-grams, as confirmed by licensee audits, 
     sampling plans are often utilized to perform the required inspections and
     tests.  In addition to these receipt/source inspections and tests, 
     effective licensee programs normally verify the traceability to the 
     original manufacturers of procured materials, equipment, and components 
     in those cases where original manufacturer's certifications are elements 
     of the safety-related pro-curement or commercial-grade dedication program.  
     Effective audits have included consideration of audit approach, depth of 
     audit, and audit team composition and have included appropriate 
     engineering/technical represen-tatives.  Comprehensive multi-licensee 
     audit teams have also been found to be effective.

C.   Dedication Programs

     It is each licensee's responsibility to provide reasonable assurance that 
     nonconforming products are not introduced into their plants.  Dedication 
     programs that ensure the adequacy of critical parameters of products used 
     in safety-related applications can also contribute to the identification 
     of counterfeit or fraudulently marketed vendor products.

     The NRC staff believes that licensees who use methods similar to those 
     described in EPRI NP-5652 "Guideline for the Utilization of Commercial-
     Grade Items in Nuclear Safety-Related Applications (NCIG-07)," to verify 
     the critical characteristics of commercial-grade items intended for 
     safety--related applications have the basis for effective dedication 
     programs.

     Properly implemented, the EPRI guidelines, as modified below, establish 
     methods which satisfy existing requirements of Appendix B to 10 CFR Part 
     50 as they apply to the dedication process of commercial-grade items.

     1.   Acceptance Method 2, "Commercial-Grade Survey of Supplier," 
          should not be employed as the basis for accepting items from 
          suppliers with undocumented commercial quality control pro-
          grams or with programs that do not effectively implement their 
          own necessary controls.  Likewise, Method 2 should not be 
          employed as the basis for accepting items from distributors 
          unless the survey includes the part manufacturer(s) and the 
          survey confirms adequate controls by both the distributor 
          a;'d the part manufacturer(s).

     2.   Acceptance Method 4, "Acceptable Supplier/Item Performance 
          Record," should not be employed alone unless:

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          a.   The established historical record is based on industry-
               wide performance data that is directly applicable to the item's
               critical characteristics and the intended safety-related 
               application; and

          b.   The manufacturer's measures for the control of design, process, 
               and !aaterial changes have been adequately imple-mented as 
               verified by audit (multi-licensee team audits are acceptable).

The NRC staff believes that if licensees' procurement programs effectively 
implement the elements discussed in paragraphs, A., B., and C., they will 
reduce the likelihood of the introduction of counterfeit or fraudulent pro-
ducts into their plants.

Although no response to this letter is required, if you have any questions 
regarding this matter, please contact the technical contact listed below.

                                   Sincerely,




                                   Steven A. Varga
                                   Acting Associate Director for Projects
                                   Office of Nuclear Reactor Regulation

Enclosures:
1. List of Bulletins and Information Notices
2. List of Recently Issued Generic Letters

CONTACT:
E. William Brach, NRR
(301) 492-0961

.                                                                 Enclosure 1

          BULLETINS AND INFORMATION NOTICES CONCERNING NONCONFORMING
               MATERIALS AND EQUIPMENT AND INSTANCES OF INADEQUATE
          DEDICATION OF EQUIPMENT FOR SAFETY-RELATED APPLICATIONS

Bulletin No.                  Title                              Date

87-02*         Fastener Testing to Determine Conformance         11/06/87
               with Applicable Material Specifications

87-02, Supplement 1*                                             04/22/88 
87-02, Supplement 2*                                             06/10/88

88-05*         Nonconforming Materials Supplied by Piping        05/06/88
               Supplies, Inc., at Folsum, New Jersey, and
               West Jersey Manufacturing Company at
               Williamstown, New Jersey

88-05, Supplement 1*                                             06/15/88 
88-05, Supplement 2*                                             08/03/88

88-10* Nonconforming Molded-Case Circuit Breakers 11/22/88 

Information Notice No.

87-66          Inappropriate Application of Commercial-Grade     12/31/87
               Components

88-19*         Questionable Certification of Class 1E            04/26/88
               Components

88-35          Inadequate Licensee Performed Vendor Audits       06/03/88

88-46*         Licensee Report of Defective Refurbished          07/08/88
               Circuit Breakers

88-46, Supplement 1*                                             07/21/88 
88-46, Supplement 2*                                             12/30/88

88-48*         Licensee Report of Defective Refurbished Valves   07/12/88

88-48, Supplement 1*                                             08/24/88

88-97          Potentially Substandard Valve Replacement Parts   12/16/88

            

*These items reflect instances in which suppliers and manufacturers of safety-
related material may have intentionally eluded QA requirements to misrepresent 
the quality of their products.  In the instances marked by an asterisk, the 
problem was brought to NRC's attention by either a licensee or a nuclear 
supplier.
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