U.S. Department of Defense suppliers should expect to see a new clause in their contracts soon that require the use of radio frequency identification technology.Making\u00a0RFID\u00a0tagging a contractual term is a key step in the Defense Department's RFID adoption schedule. However, there's a lot of work to be done to finalize the agency's RFID plans and iron out suppliers' implementation strategies.Last October\u00a0the Defense Department unveiled its RFID policy, which requires suppliers to put passive RFID tags (those without an integrated power supply) on individual parts, cases or pallets by January 2005. The agency expects that with RFID-tagged items and containers, logistics experts could more efficiently track the progress of military supplies en route to personnel."The way we fight wars is changing. We need to keep abreast of changes in the way that we do logistics in order to maintain the support that our forces deserve," says Alan Estevez, assistant deputy under secretary of defense for supply-chain integration. "We feel that the use of RFID technology is critical to doing that."Estevez took part in a Defense Department summit earlier this month in Washington, D.C. The summit's purpose was to update suppliers on the agency's RFID plans and get feedback on their implementation progress.At the summit, the biggest concern suppliers raised was compatibility between the Defense Department's existing unique identifier (UID) naming convention and new electronic product code (EPC) identifiers, Estevez says.The Defense Department uses UIDs to distinguish materials that require life cycle tracking - weapons, aircraft parts and big-ticket items that cost more than $5,000, for example. Global standards bodies manage the assigning of EPC numbers to be embedded in RFID tags to identify a specific item in the supply chain."Some of our larger UID constructs will not fit on the current tag capabilities," Estevez says. The Defense Department plans to work with suppliers individually to resolve incompatibilities, he says. Meanwhile, "the technology is evolving rapidly, and as the next generation of tags and readers becomes available, we believe that most of those issues will be resolved," Estevez says.Analysts are skeptical of manufacturers' ability to keep pace with RFID mandates from retailers such as Albertsons, the Defense Department, Target and Wal-Mart. Forrester Research predicts that only 25% of suppliers will meet Wal-Mart's January 2005 mandate, for example.Compliance costsSuppliers facing RFID mandates from the Defense Department, Wal-Mart, Target and others will be spending big. Forrester Research estimates it will cost a $12 billion supplier that ships 15.6 million cases to Wal-Mart more than $9 million to roll out RFID and fund one year of maintenance.ItemCostTags$7,594,971Hardware$328,668Software$183,000Consulting and integration services$127,500Internal RFID team$314,600Tag and reading testing$79,500Additional warehouse labor$469,238Training for warehouse labor$39,221Total$9,136,698"There is no business case for most suppliers in the short term," says Christine Spivey Overby, a senior analyst at Forrester. "The technology is not ready, and there is a lack of deep expertise in the industry to help suppliers implement RFID."Whether the Defense Department's mandate will launch on time remains to be seen. Estevez says the Defense Department is on track. "We're not looking at any slips in time frames," he says.This summer, the agency will release details about the forthcoming RFID contract clause for public comment. Provisions of the clause will be finalized in August and September, after which it will begin to appear in all supplier contracts, Estevez says.Suppliers are onboard, he insists. "They understand that this is going to be a difficult road. There are going to be some upfront costs, but if you do this properly, the upfront costs will come back in an ROI," Estevez says.Exemptions are not planned, but not impossible, Estevez says. "We're not looking at any measure of leniency. Depending on the contract terms and depending on the availability of the material, contracting officers do have the ability to waive certain contract clauses. But that is not our intent, and that will have to be done on case-by-case, completely unique basis," he says.Since launching its RFID initiative last July, the Defense Department has been in contact with other agencies including the General Services Administration, the Food and Drug Administration and the Department of Homeland Security to discuss RFID technologies and coordinate their programs, Estevez says.Looking ahead, the Defense Department plans to take part in a meeting in the next few months with fellow agencies to compare RFID notes and investigate ways to achieve a consistent RFID policy - particularly because many of the agencies buy from the same suppliers. "We believe the time is ripe to host an inter-government meeting to talk about what programs everyone is doing and try to get us all in sync," Estevez says.