MA

The Defense Production Act and COVID-19: Clarifying the Government’s Procurement Authority

Published: March 19, 2020

Federal Market AnalysisCoronavirus (COVID-19) PandemicPolicy and Legislation

More details on the potential use of Defense Production Act authority during a national emergency.

Key Takeaways

  • The President may mandate that work on contracts providing critical goods or services may take precedence over other work being performed.
  • Agency heads have the authority to offer loans to contractors if the funding is required to ramp up production.
  • Small businesses are preferred partners if a special or emergency need is identified.
  • Industry executives could be called on to participate in a pool of experts.

First passed by Congress and signed into law in 1950, the Defense Production Act of 1950 (DPA) has been reauthorized multiple times since being enacted. Most recently, Congress reauthorized the DPA in Section 1791 of the National Defense Authorization Act for Fiscal Year 2019. This reauthorization extended the DPA to September 30, 2025, giving the White House broad powers to marshal critical products and services in the event of a national disaster. Executive Order 13603, discussed in an earlier post, extended the scope of the DPA beyond military preparedness, allowing executive authority to be used in response to any form of declared national emergency, including the outbreak of pandemics like COVID-19.

Major DPA Provisions

Today’s post looks at certain powers granted in the DPA not covered in my previous post and the potential impact on federal government acquisitions. Because the legislation is long and has been amended many times, I’ll concentrate on three categories of relevant provisions only.

Title I: Priorities and Allocations – Under title I the President may require that corporations accept prioritized contracts for goods and services critical to national security.

Title III: Expansion of Productive Capacity and Supply – Title III authorizes the President to incentivize companies to expand the production of critical goods, or the provision of services, through the use of loans, loan guarantees, direct purchases, commitments to buy and “the authority to procure and install equipment in private industrial facilities.”

Title VII: General Provisions – These authorize the White House to make production agreements with contractors, to block corporate mergers that threaten national security, to employ experienced professionals as needed and to create a pool of volunteer “industry executives who could be called to government service in the interest of the national defense.”

Contractor Implications

Priority Performance: According to the Congressional Research Service, Title I authorizes the President to mandate that work on contracts providing critical goods or services may take precedence over other work being performed. In other words, contractors could encounter potential changes of focus in the support they are providing if agency authorities request it. Agencies like Commerce, Defense, Homeland Security, Agriculture, Energy, Health and Human Services, and Transportation all have delegated authority to mandate performance on priority requirements.

Flexible Funding: The authority under Title III allows executive branch agencies to act as fiscal agents through the offer of loans for contracted businesses to ramp up production for critical goods and/or services. The availability of financial incentives allows designated agency heads, as the authorizing officials, to rapidly fund contractor efforts deemed critical for national security if a shortfall in production is identified. Agencies may tap a special DPA Fund established by the Treasury for these loans. The DPA fund in FY 2020 totals $64.4M in appropriations authorized by Congress. Any loan over $50M in value must be approved by Congress.

Small Business Preference: The DPA directs the President to “strongly” prioritize awards to small businesses in the event of a national emergency, and to the extent that those businesses can provide the good or service required. Agency heads are likely, should emergency production be required, to consider small businesses with which they already have a working relationship and which have a satisfactory performance record.

Final Thought

Facing an extraordinary circumstances, the DPA, as amended by E.O. 13603, offers designated cabinet agencies new ways to quickly fund and procure requirements. Agencies are not accustomed to acting under DPA authority so if it is invoked contractors might be able to expect some disorganization surrounding the process of meeting identified needs. Working as smoothly as possible with agency officials under these circumstances is an optimal business strategy.