Priority Contracting Processes Under the Defense Production Act
Published: March 24, 2020
How agencies prioritize contracts and orders critical to national defense.
- Agencies use the Federal Priorities and Allocations System (FPAS) to identify contracts and orders rated as highest priority.
- Priority rated contracts and orders must be fulfilled before unrated orders.
- Contractors have some flexibility in how they respond to receiving rated orders.
Now that the President has invoked the powers granted under the Defense Production Act of 1950 (and Executive Order 13603), what does it mean for contractors? The DPA provides the President and executive agencies with the authority to use emergency acquisition powers for the procurement of goods and services necessary to meet the national security challenges presented by the COVID-19 crisis. The DPA, however, does not outline how contracted goods and services are prioritized. For an understanding of that process, we need to delve further into how the system works.
Title 1 of the DPA authorizes the President to require that contractors accept contracts for priority materials and services deemed necessary to promote national security. These priority materials/services are identified by selected agencies in what is called the Federal Priorities and Allocations System (FPAS). Originally, the Department of Commerce selected priority ratings for contracts in the FPAS under Regulation 15 CFR 700, but when the White House announced Executive Order 13603 in 2012, it delegated that authority to the Department of Defense, Department of Homeland Security, the Department of Energy, and the General Services Administration. Commerce may also authorize other government agencies to place priority ratings on contracts or orders on a case-by-case basis, but those requests must be certified as necessary by the departments listed above.
The agencies identified above prioritize national defense-related contracts and orders in the Federal Priorities and Allocations System (FPAS) by assigning efforts with a priority rating. These ratings are identified by the symbols “DO” and ”DX”. Orders rated “DO” have preference over unrated orders, but have equal priority status with each other. Orders rated “DX” take preference over all other types of orders, making them the highest priority, so if your company receives a DX rated order, it must be fulfilled before other lesser rated orders.
The rating of orders comes with several compliance requirements contractors should know:
- Contactors must accept DO and DX rated orders for items that the company normally supplies.
- DX rated orders must be fulfilled first, before DO or unrated orders.
- Normal terms of sale apply, meaning contractors may not charge higher prices for the required goods and/or services or impose different terms and conditions for rated orders.
- Rated orders cannot be rejected, even if an unrated or lower rated order was previously received.
According to the Defense Acquisition University, there are some circumstances under which a contractor can reject a rated order, including:
- If the customer placing the order is unwilling or unable to meet the regularly established terms of sale or payment.
- If the order is for an item not normally supplied or for a service not typically performed.
- If the order is for an item produced, acquired, or provided only for the supplier’s own use for which no orders have been filled for two years prior to the date of receipt of the rated order. If, however, a supplier has sold some of these items, the supplier must accept rated orders up to the quantity or portion of production, whichever is greater, sold within the past two years.
Contractors can reject rated orders if they acknowledge the decision in writing (via hard copy letter or email) to the customer placing the order within 15 working days after receipt of a DO rated order and 10 working days after receipt of a DX rated order. Reasons for the rejection of a rated order, such as being unable to fulfill the requirement, must be provided.
Public access to the FPAS is not available, making it impossible for us to provide data about the contracts/efforts being rated. This brief primer hopefully alerts contractors to how the process works. Deltek will also be providing additional insight into the DX/DO rating process itself.
Informational materials are available at the sites listed below: