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Executive Branch Invokes Defense Production Act in Response to COVID-19 Executive Branch Invokes Defense Production Act in Response to COVID-19

Executive Branch Invokes Defense Production Act in Response to COVID-19

Last week, the President invoked his authority to use the Defense Production Act of 1950 (DPA), one of the main, and indeed most far reaching, tools the U.S. government has to influence the supply of certain goods and the production in certain sectors of the economy. Today, March 24, Federal Emergency Management Agency (FEMA) Administrator Peter Gaynor indicated FEMA will use the (DPA) authority authorized by the President to allocate over 60,000 COVID-19 test kits. We expect that as the COVID-19 crisis strains the U.S. supply chain further, more extensive use of DPA authorities will be key tools for securing the nation’s medical supplies and personal protective equipment supply chains.

Looking further down the road, should the President use his authorities under the DPA, we can also expect that these may be employed to require government contractors to continue production or to prioritize contracts with the federal government, for example, to supply materials essential to the campaign against COVID-19. In this brief summary, we cover some key aspects of the DPA, which may become relevant to many companies with government contracts and their supply chains, as the current crisis unfolds.

DPA has three active titles, which include the following:
 
  • Title I: Priorities and Allocations, which allows the President to require persons (including businesses and corporations) to prioritize and accept contracts for materials and services as necessary to promote the national defense.
  • Title III: Expansion of Productive Capacity and Supply, which allows the President to incentivize the domestic industrial base to expand the production and supply of critical materials and goods. Authorized incentives include loans, loan guarantees, and direct purchases and purchase commitments and the authority to procure and install equipment in private industrial facilities.
  • Title VII: General Provisions, which includes key definitions for the DPA and several distinct authorities, including the authority to establish voluntary agreements with private industry; the authority to block proposed or pending foreign corporate mergers, acquisitions, or takeovers that threaten national security; and the authority to employ persons of outstanding experience and ability and to establish a volunteer pool of industry executives who could be called to government service in the interest of the national defense. 
On March 18, the federal government indicated that DPA authorities could be exercised in response to COVID-19 related supply shortages in the following manner:
 
  • the President could prioritize domestic production of critical medical supplies and personal protective equipment (PPE) to ensure sufficient national stockpiles and allocate them according to needs of the emergency;
  • the federal government could use incentives to expand domestic capacity for PPE manufacturing to meet the needs of the emergency; and
  • the President could establish voluntary agreements with private industry (normally subject to anti-trust statutes) to coordinate industry PPE production.[1]
For the Department of Defense (DoD), DPA Title III provides the President broad authority to ensure the timely availability of essential domestic industrial resources to support national defense and homeland security requirements through the use of tailored economic incentives. Specifically, the program is designed to create, maintain, or expand necessary domestic industrial base capabilities. Within the DoD, the DPA Title III Office will be the clearinghouse for DPA actions taken by the DoD in response to COVID-19 and reports to the Deputy Assistant Secretary of Defense for Industrial Policy, Ms. Jennifer Santos, within the Office of the Under Secretary of Defense for Acquisition and Sustainment. The program is executed through the selection and implementation of projects designed to mitigate critical shortfalls in domestic defense industries.
 
How the DoD and other agencies will be tasked via DPA is currently fluid and unclear. The DoD is presently moving critical funds and medical devices to make them available for civilian emergency response. It has also delayed the issuance of some research and development RFPs in order to focus funding on emergent medical technologies. The Office of Secretary of Defense (Comptroller) has indicated it does not intend to reprogram or otherwise permanently move these funds and has requested broad transfer authority as part of the DoD’s $8.3B supplemental request to backfill actions already taken. HR 748, the legislative vehicle for COVID-19 Phase III, under which this draft authority resides, is currently being debated.
 
Ice Miller LLP and Ice Miller Strategies LLC regularly work with the DoD and companies in the defense sector, dealing with both the executive and legislative branches. Additionally, our team has specific and current work with the DPA office where it supports client initiatives. If you have any questions concerning DPA and its authorities, please contact Guillermo Christensen, Graham Hill, Clay Heil, or Christian Robertson.

If your business may be called on to produce a new product as a result of this action, see Ice Miller’s guidance on manufacturing new products during the spread of COVID-19 and contact Meghann Supino or Kim Metzger with any questions.

This publication is intended for general information purposes only and does not and is not intended to constitute legal advice. The reader should consult with legal counsel to determine how laws or decisions discussed herein apply to the reader’s specific circumstances.
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